China weighs in.

[per]

China tells U.S. "good old days" of borrowing are over
By Walter Brandimarte and Melanie Lee, Reuters August 6, 2011 •Story•Photos ( 1 )•Video ( 1 )
Chinese and U.S. flags are arranged during the third annual U.S.-China Strategic and Economic Dialogue (S&ED) at the State Department in Washington in this May 9, 2011 file photo. On Saturday, China roundly condemned the United States for its "debt addiction" and "short sighted" political wrangling and said the world needed a new stable global reserve currency.Photograph by: Kevin Lamarque, REUTERSNEW YORK/SHANGHAI, Aug 6 (Reuters) - China bluntly criticized the United States on Saturday one day after the superpower's credit rating was downgraded, saying the "good old days" of borrowing were over.


Standard & Poor's cut the U.S. long-term credit rating from top-tier AAA by a notch to AA-plus on Friday over concerns about the nation's budget deficits and climbing debt burden.


China — the United States' biggest creditor — said Washington only had itself to blame for its plight and called for a new stable global reserve currency.


"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China's official Xinhua news agency said in a commentary.


After a week which saw $2.5 trillion wiped off global markets, the move deepened investors' concerns of an impending recession in the United States and over the euro zone crisis.


Finance ministers and central bankers of the Group of Seven major industrialized nations will confer by telephone later on Saturday or on Sunday, a senior European diplomatic source said.


The source said the credit rating downgrade had added a global dimension on top of the euro zone debt issue, raising the need for international co-ordination.


"The G7 will confer by telephone. It's not yet confirmed whether it will be in one stage or in two stages, tonight and tomorrow," the source said.


French Finance Minister Francois Baroin, who would chair such a meeting under France's G7 and G20 presidency, said it was too early to say whether there would be an early G7 gathering.


In the Xinhua commentary, China scorned the United States for its "debt addiction" and "short sighted" political wrangling.


"China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets," it said.


It urged the United States to cut military and social welfare expenditure. Further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil, it said.


"International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country," Xinhua said.


In Washington, U.S. President Barack Obama urged lawmakers on Saturday to set aside partisan politics after the debt battle, saying they must work to put the United States' fiscal house in order and refocus on stimulating its stagnant economy.


S&P blamed the downgrade in part on the political gridlock in Washington, saying politics was preventing the United States from addressing its deficit and debt problems.


Obama called on Congress to back measures to give tax relief to the middle class, extend jobless benefits and pass long-delayed international trade pacts.


"Both parties are going to have to work together on a larger plan to get our nation's finances in order," he said.


"In the long term, the health of our economy depends on it . . . in the short term, our urgent mission has to be getting this economy growing faster and creating jobs."


STAY COOL


In contrast to the Chinese criticism, France's Baroin said France had faith in the United States' ability to get out of this "difficult period".


Friday's U.S. unemployment numbers were better than expected and so things were heading in the right direction, he said.


"Therefore, one should not dramatise, one needs to remain cool-headed, one should look at the fundamentals," he told France's iTele.


While the impact of the rating cut on financial markets when they reopen on Monday may be modest because the decision was expected, the shift may have a long-term impact for U.S. standing in the world, the dollar's status, and the global financial system.


"I think even if it was half-expected, the consequence will be far reaching," said Ciaran O'Hagan, fixed income strategist at Societe Generale in Paris. "It will weigh on secure assets. The bigger reaction will be on risky assets, including equities and on agencies (Freddie Mac, Fannie Mae) and states backed directly by the federal government." But he added: "U.S. Treasuries will remain a benchmark. This is a ship which takes a long time to turn around." Norbert Barthle, a budget expert for German Chancellor Angela Merkel's conservatives said the downgrade would certainly provoke further turbulence in markets. "I'm not surprised about the U.S. rating downgrade, rather I am astonished that for weeks, international rating agencies have focussed their attention on the European debt situation but not the American one. For a while, there have been clear worries about America's economic woes but also the fact the U.S. is heavily indebted." NO EARLY ITALIAN ELECTION


In Europe, Italian Prime Minister Silvio Berlusconi on Saturday ruled out calling early elections to stem market panic that has pounded Italian assets and forced his government to bring forward austerity measures.


Italy buckled on Friday to world pressure by pledging to bring forward cuts to balance the budget in 2013 in return for European Central Bank help with funding.


European policy makers are concerned that a debt emergency in the euro zone's third largest economy could completely overwhelm bailout mechanisms set up to help smaller troubled countries like Greece or Ireland.


Italy is due to go to the polls in 2013 but Berlusconi dismissed any suggestion of emulating Spain, where Prime Minister Jose Luis Rodriguez Zapatero has called an early election to tackle the crisis.


"This has absolutely not been talked about," Berlusconi told reporters. "This has never been an option."


The European Union's top economic official praised Italy's decision to accelerate budget-balancing measures and structural economic reforms and said swift implementation was now crucial.


"I strongly support this announcement and call on the authorities to quickly translate it into concrete measures," European Economic and Monetary Affairs Commissioner Olli Rehn told Reuters in a telephone interview.


"This will help to boost potential growth, secure budgetary retrenchment and bolster market confidence," Rehn said.


The European Central Bank sources said the bank remains divided over whether to buy Italian government bonds but even some of those who favour the move say Italy should do more to front-load austerity measures.


Two sources said they expected ECB President Jean-Claude Trichet to hold a teleconference of the bank's policy-setting Governing Council over the weekend to discuss how to respond to turmoil in financial markets and Italy's latest measures.


China and Japan have called for co-ordinated action to avert a new worldwide financial crisis. India's finance minister Pranab Mukherjee told reporters: "There is no need to unnecessarily press the panic button."

© Copyright (c) Reuters

Read more: http://www.calgaryherald.com/business/China%20Good%20days%20over/5215085/story.html#ixzz1ULojsFJf

 

[Kato]

The news this morning had a comment that one of the main reasons for the U.S. credit downgrade was the fact that there was so much political mayhem, and dysfunction in Washington. The lack of confidence over Washington's ability to get it's act together was as much to blame as any level of debt.

And the Washington response to this observation was MORE BICKERING! What's it going to take to make a light come on guys??? It's time for the U.S. to wake up to the fact that this big pi&^%ng contest is affecting the whole world, not just the citizens of the U.S.

http://money.ca.msn.com/investing/deirdre-mcmurdy/fallout-from-the-us-debt-drama

Fallout from the U.S. debt drama

It's the small stuff that's scariest for both the U.S. and Canadian economies.

It has been said that nothing focuses the mind quite like a hanging.

If that's really true, no one has told U.S. politicians. They may have averted immediate fiscal catastrophe with their eleventh hour deal to prevent their government from sliding into default. But despite the agreement to raise the government's $14.3 trillion spending limit, they remain fragmented and unresolved about how to proceed from here.

There's no shortage of political and economic analysis about what it all means. But the high drama of this disarray isn't the only story: much of the real impact of this crisis is more about collateral damage rather than direct hits.

Certainly the long-term damage caused by a now-fundamental lack of confidence and certainty on the part of businesses and investors is hugely problematic.

Global markets are now so entwined — and the U.S. and Canada have such exceptional economic symbiosis — that the U.S. has knackered everyone. And given the threshold for market risk that's been built up over the past decade, that's really saying something.

Lack of clarity on such basic elements as tax structure is a perfect example of this: American companies are reluctant to spend money or to hire new employees because they aren't sure what sort of tax liabilities they face going forward.

President Barack Obama says that tax increases will have to be on the table as a long-term deficit reduction plan is forged. The Republicans are saying that's not going to happen — and it's a pretty core tenet of their right-of-centre stance.

That means that business leaders are sitting on their cash rather than investing it in ways that could be unprofitable if the tax regime changes, but would also generate badly needed economic growth and job creation.

The proof? Last year, non-financial companies based in the U.S. held $1.24 trillion in cash, an 11 per cent increase from 2009. Moody's Investors Service says, furthermore, that companies' debt-to-cash ratio was the lowest in five years.

A related — and even more insidious problem — is that jumpy equity markets are making it extremely difficult for companies to raise the capital that could also be directed to generating growth and jobs. Given the permeability of capital across the Canada/U.S. border, that has a direct bearing on Canadian companies as well.

In 2010, for example, the Canadian market for initial public offerings of shares (IPOs) clocked in at around $5.5 billion. That was up from less than $2 billion a year earlier and just $682 million in 2008. It was the highest level since 2006.

That lead to considerable optimism early in this year that the momentum would be sustained in 2011. But that optimism was short-lived.

In the first half of 2011, IPOs generated $1.4 billion, compared with $2.9 billion for the first half a year earlier. The reasons for that fizzle are all related to uncertainty and fear.

It's difficult to value assets with any confidence when interest rates, currency and global markets are in constant and dramatic flux. That leaves companies that want to raise money — either through an IPO or an offering of additional equity — trying to crowd through the occasional windows of stability.

The turmoil in the U.S. made the Canadian dollar relatively strong which makes domestic companies less competitive.

And then there's the reality that big energy and mining issues (plus the one-off return of General Motors) dominated the equity offering scene in 2010 and there are only so many of those deals to be done. Not only that, a certain confusion about things like pending environmental regulation added an incremental layer of risk in already volatile commodity-based sectors.

There's also the fact that our enduring reliance on U.S. export markets will slow Canadian growth — or at least create the perception with foreign investors that our prospects are as weak as those of our neighbour.

For Canada, the options are relatively limited. Pretty much all we can do is what we are doing: put our shoulders to the wheel to reduce our own debt and cultivate relations with new friends like China.

And as for the hanging that's supposed to focus the mind, we can only hope the U.S. still has some rope left.

 

[Steve]

After a week which saw $2.5 trillion wiped off global markets, the move deepened investors' concerns of an impending recession in the United States and over the euro zone crisis.

the money doesn't vanish.. in every market there are winners and losers..

the winners drive the price up, and pull out early.. (profit taking)

and the losers put money in a managed fund,watch it build and then see the earnings lost in a few days..

then there are those who manage their own money,.. often they weather the ups and downs and overall do ok.. they seldom get rich, and sometimes the market is cruel to them.. but they get by..