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Monday, 18 July 2011

Renewed financial crisis

A report from leading economists warns Britain is at a ‘‘critical juncture’’ because of the threat of contagion from the Eurozone debt crisis and a deteriorating international economic outlook.

The economic forecasting group Ernst & Young Item Club warns the British economy will grow by 1.4 per cent rather than the 1.8 per cent predicted in April, and that consumer spending will fall by 0.4 per cent this year as well as saving falling as the result of intense pressure on family budgets because due to inflation.

President Barack Obama spent the weekend locked in crisis talks with congressional leaders in a bid to avoid defaulting on the country’s debts. The USA needs to raise the government £8.9billion borrowing £8.9billion limit, but right-wing Republicans are blocking the President’s plans to raise taxes on the rich as part of a package to deal with the problem.

There are growing fears that Italy could follow other Eurozone countries such as Ireland, Greece and Portugal and need a financial bailout.

Deputy Prime Minister Nick Clegg has said that a combination of political deadlock in the USA and mounting fears that more European countries face bankruptcy could plunge the global economy back into meltdown.

13 comments:

  1. USA nears the brink exposing the neo-liberal/neo-conservative ideological greed of the right-wing Republican Party. Unless the Democrat government can raise the debt ceiling by the 2nd August, extending its credit limit the USA’s government will effectively run out of money and would go into default not because it can't pay like Greece but because it won't. The Democrats want to reduce the budget deficit by cutting spending and raising taxes, whereas the Republicans say no to raising taxes and want deeper cuts. If the Republicans refuse to agree to raising taxes Barack Obama has said ‘‘There are about 70 million cheques that go out each month…I cannot guarantee that those cheques will go out on 3 August, because there simply may not be the money in the coffers to do it’’, which includes cheques for social security, veterans and people with disabilities.

    The deficit would force interest rate to go up, and a collapse in the dollar could trigger a global slump. Democrats have criticised the Republicans saying they are irresponsible. In 2000 the Republicans inherited a budget surplus, only to implement massive tax cuts for the wealthy, launch two wars and oversaw a recession that turned into a slump and huge banking crisis. What the Republicans want is put the cost for their economic mismanagement on to the poor rather than the wealthy. Between 2008 and 2011 the number of people in the USA living on food stamps increased by almost 50%, putting one in seven American citizens on this welfare programme. Republicans want to cut the food stamps budget by about 20%. They also want to cut the health and nutrition scheme for poor pregnant women, infants and children by 11% and to cut healthcare benefits for the elderly, rather than raise taxes on hedge funds, private equity investors, oil and gas companies and the wealthy.

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  2. European Central Bank president Jean-Claude Trichet says ‘‘If a country defaults, we can no longer accept as normal eligible collateral defaulted bonds issued by the government of that country …Because … this would impair our ability to be an anchor of confidence and stability’’. Irish Deputy Prime Minister Eamon Gilmore has said he would like to see the Eurozone issue common bonds to soak up the bloc's debt ‘‘It is an option I favour’’.

    Eurozone leaders will meet in Brussels on the 21st July 2011 to discuss how to halt the threat of financial debt crisis spreading from Greece to Italy and Spain. Eurozone finance ministers agreed last week to make the European Financial Stability Facility, the Eurozone’s multibillion-euro rescue fund, more flexible in order to buy up debt, but governments, the European Central Bank and European Union commission are at loggerheads how to resolve the problem.

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  3. Stock markets fall on fears over debt crisis 19/07/2011

    Financial shares fell sharply, with Barclays down 7%, Societe Generale down 5.5% and Commerzbank 4% lower.

    The FTSE 100 and Germany's Dax were down 1.5%, while France's Cac 40 shed 2%.

    Wall Street's indexes were also lower, with the Dow Jones, S&P 500 and Nasdaq more than 1% down.

    Scepticism in the financial markets that governments will be able to bring an end to the debt crisis, yields on Italian bonds exceeded 6% and Spanish bonds rose to 6.37%. Concerns among investors have also been fuelled by the Obama administration's failure to agree a debt-ceiling deal with the USA risking defaulting on its debts unless Congress can agree new rules that allow the government to borrow more money.

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  4. FTSE 100 Index down 90.85 points

    Dax Index down 112.20 points

    Cac Index down 40 75.88 points

    Dow Jones industrial average was down 172.03 points

    Standard & Poor's 500 Index lost 18.47 points

    Nasdaq Composite Index down 41.80 points

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  5. European political leaders have demonstrated that when the people and the markets demand an alternative then an alternative can be found.

    ‘‘We have decided to lengthen the maturity of future EFSF loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years and up to 30 years with a grace period of 10 years … We also decided to extend substantially the maturities of the existing Greek facility … The EFSF lending rates and maturities we agreed upon for Greece will be applied also for Portugal and Ireland’’

    http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/123978.pdf

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  6. Barack Obama and Republicans are locked in talks over a deal to raise the USA’s debt ceiling with the conservatives calling for ‘‘cut, cap and balance’’ budget legislation, which Democratic House of Representatives leader Nancy Pelosi called ‘‘Cut and paste, or whatever you call it’’.

    So we wait and see if the Republican right-wing will win the day or the centre-right/centre-left Democrats can prevail and follow the European response to the crisis of global finance capital to prevent the economic crisis turning into an economic depression.

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  7. Markets around the world rallied on Friday after European leaders announced a face-saving deal to deliver a second bailout to Greece and shore up the eurozone against future financial crises.

    But analysts are warning this weekend that Thursday's Brussels summit may have bought a few weeks of respite before the chronic crisis creates another wave of fear.

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  8. If Thursday’s bailout for Greece fails, European banks could still collapse and the world economy could face even greater danger than in 2007/8. Experts say Portugal, Spain and Italy remain may also require massive bailouts.

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  9. Washington uncertainty over the USA’s debt crisis

    The Democratics and Republicans are so far unable to reach any agreement over federal government spending. The failure of the USA to tackle its debt problem could lose the USA its triple-A credit rating. Republican House of Representatives leader John Boehner needs to secure 217 votes to get his bill through aimed at reducing the deficit by $1.2tn. Hard-line conservatives are demanding even deeper cuts. If the bill is passed Democratic Senate leader Harry Reid, has promised the upper house would kill it and Barack Obama has said he will veto it. Harry Reid is proposing raising the debt ceiling above $14.3tn until after 2012.

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  10. World stock markets watch as the Republican Party control of the House of Representatives threatens to push the USA’s economy back into recession and possibly another global financial meltdown. President Barack Obama and the Democratic Party which controls the Senate have failed so far to broker a compromise with right-wing Republicans demanding deeper cuts.

    Republican House Speaker John Boehner is struggling unsuccessfully to get the far-right ‘‘tea party’’ group to accept a $1 trillion (£612 billion) increase in the government's borrowing limit. Without a deal over borrowing the American government faces a default on the USA’s loans and $23 billion worth of social security and pension payments.

    A downgrade on the United States of American AAA rating would add $100 billion in interest payments to the USA’s debt, raising interest rates for mortgages and car loans and force up the cost of credit card debt. California is planning to borrow about $5 billion from private investors as a hedge against a possible federal government default. President Barack Obama has said he can't guarantee social security checks and payments would go out on schedule.

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  11. Thursday 28th July 2011

    Fear over the global economy and that the USA’s debt situation

    In Europe the FTSE 100 index of leading British shares was down 0.5% at 5,827 while Germany's DAX fell 1.6% to 7,136. The CAC-40 in France was down 1.2% at 3,690.

    In the USA the Dow Jones industrial average was up 0.1% at 12,321 while the broader Standard & Poor's 500 index rose a similar rate to 1,306.

    In Japan the Nikkei 225 stock average sank 1.5%to close at 9,901.35 and South Korea's Kospi fell 0.8% to end at 2,155.85. Hong Kong's Hang Seng Index edged up 0.1% to close at 22,570.74.

    In China the Shanghai Composite Index declined 0.5% to 2,708.78 while the smaller Shenzhen Composite Index lost 0.1% to 1,189.13.

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  12. to raise the USA's $14.3 trillion borrowing limit will not be resolved by Tuesday 2nd of August.

    Cameron Peacock Markets Analyst at IG Markets has said ‘‘the rout in global equity markets continues as concern builds over the failure of U.S. lawmakers to serve up any meaningful progress regarding the debt ceiling’’.

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  13. Congress and the White House are close to a deal to head off huge market falls and the prospect of America defaulting on Tuesday for the first time in its history. President Barack Obama is seeking legislation to raise the government's $14.3 trillion (£8.7 trillion) debt limit by enough to tide the US treasury over until after the 2012 elections.

    The two sides must agree on ways to raise the $14.3 trillion (£8.7trn) debt ceiling and enact deep spending cuts, but the ‘‘hobbits’’ (right-wing conservatives of the Republican Party may choose to hold the USA and the whole global economic to ransom prefer to see default over compromise.

    Democrat President Barack Obama and Democrat Senate leader Harry Reid along with the Republican-controlled House of Representatives leader Mitch McConnell, Senator Reid will probably accept a two stage plan as a compromise according to officials.

    A plan negotiated late on Saturday 30 July 2011would see the ceiling would be raised in two steps by about $2.4tn (£1.5tn) and spending would be cut by a slightly larger amount. The first stage to raise the ceiling by about $1tn would take place immediately and the second later in the year.

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