March 23rd, 2010
05:19 PM GMT
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Ever get the feeling that something is about to happen, but you just don’t know what, or when, or how serious it will be? The last week has given me that feeling of unease in the financial world but I am not entirely sure why.

There were lots of little things that we could get excited about. For instance, the Obama health care package getting closer to a vote in the US congress; the Greek Government flirting with going to the IMF; the UK Treasury borrowing less than it forecast… But there was actually very little to get your teeth into and say “now we have direction”.

So, it is not surprising that the markets on both sides of the Atlantic didn’t do much at all. A look at the daily movements tells the tale. The Eurostoxx 50 closed the week just 0.01% lower. While the Dow Jones in New York gained on four of the five days last week, but barely budged more than 1% over the total week.

This was hardly exciting stuff.

However, if you looked beneath the surface there were indeed matters worthy of note. For instance, the warning by the rating agencies, including Moody’s that the AAA rating on US government debt was at risk because of the high government deficit.

At first blush this is huge. Absolutely monumental. The very thought that the US could lose its gold-plated top notch rating is just about unthinkable.

US treasury bonds are the backbone of the financial system. Any change in the debt rating would not only push up the cost of servicing the debt to the federal government, it would hit the dollar, and of course the value of those investments.

According to the US Treasury, China alone, holds $890 billion dollars worth of bonds. No wonder Beijing has been getting antsy about its investments.

Initially there was a lot of scepticism about these warnings. The US dollar is still the world’s principle reserve currency, with more than 62% of all reserves held in dollars, so there will always be buyers for US debt.

Then there are the agencies themselves. These are the very groups who continued to award investment grade ratings to the sub prime and collateralised debt that exploded during the crises. The agencies’ failure to issue warnings of dangers ahead, means their reputation has been sullied to say the very least.

With those caveats in mind, however, we shouldn’t allow our distaste of the messenger to destroy the message.

At 10%, the US is running a deficit which is unsustainable in the long term. Even though the President has forecast that the deficit will be reduced to 4% by 2013, there are so many optimistic assumptions, forecasts and simple unknowns that it is easy to obfuscate the true picture, and therefore the balance is probably on the downside.

This is really what the warnings from the agencies were about: a call that they should not temporize on cutting the deficit. . Begin now before it is too late and avoid trouble later. Alas, the warnings have been lost – the popular belief that the rating would ever be cut. And so the good ship ‘Borrowing’ sails majestically forward.

A boring week ? Not a bit of it. We may look back on last week as the start of something big.



soundoff (7 Responses)
  1. Prof. Dave W. Dawson

    Staying at least one step AHEAD of the Rat Race is surprisingly IMPORTANT & LEGAL.
    Putting your earnings through the investment hurdles depends on what opportunities you pick up on.
    Needing to invest is part of what we are.
    Business Accumen is a GIFT/TALENT.
    When Opportunity knocks, money is ALWAYS INCLUDED.
    Be guided by DON'T BE GREEDY.
    Then be guided by DON'T BE GREEDY AMERICA.

    March 23, 2010 at 7:01 pm |
  2. fc

    Puting it all in a few words , you come to the core : it is about societies and the way they think themselves . As the strategies are shaped by the resources , human capital is the realistic approach when you need to reform a system. Where people are at ease with strictly individual solutions and only recognize their strenght , you have a rather slow recovery. A way out is not an escape and so is never the addition , but the interacting of skills : the question is , can people understand that is no weakness , instead it is the best possible strenght. BUT THAT IS ABOUT PERCEPTIONS .
    Things always get through anyway , but there is a striking difference in what is achieved by mastering the weak points, AND not insisting on them is the key. Yes it feels uneasy , sure it is the start of something really big , will it be profitable ?
    You broke it in a true and intelligent way and that is so helpful.

    March 24, 2010 at 8:26 am |
  3. ana petrov

    Sometimes,it is a good to follow the own´s intuition. Maybe it´s the best guide which somebody make to wish. In some cases, when you follow the your´s intuition you have only a feeling without an any connection with circumstances, real situation....but, after some time, you see all of that a much more clearly and then you know what your´s intuition meant.

    March 25, 2010 at 1:26 pm |
  4. THERESA

    Its so 'big' I'm beginning to feel afraid.

    March 25, 2010 at 2:54 pm |
  5. A. Smith, Oregon

    What the Vatican does not want you to know:

    I find it entirely ironic that it appears that the hands of God are revealing the depth, horrific corruption and criminal cover-up's by the Pope and the Vatican for many decades in regards to sex abuse of children by the clergy. And the Vatican exorcists are blaming this wave of exposure on the 'devil'.

    What the Vatican does not want you to know is that to the layperson learning these long lasting sexual abuse horrors, is that Pope Ratz is the least qualified person to ever be placed into a position as a religious figurehead.

    HOWEVER, to numerous dark and nefarious branches within the Vatican and outside of the Vatican, Cardinal Ratz's improper actions and corruption were well known. They pressured his fellow Cardinals to vote for Cardinal Ratz to be the next Pope. WHY? Because those dark and nefarious branches in the Vatican and outside of the Vatican could easily coerce and extort Pope Ratz to not block nor disrupt their dark and nefarious activity's. Pope Ratz's prior corruption and improper actions when he repeatedly blocked judicial actions on multiple clergy who were found to be serial pedophiles made him their ideal choice.

    Any Papal disclosure of Vatican agency's involvement with Money Laundering, Drug Smuggling or Child Slavery would immediately be met with the disclosure of all of Cardinal Ratz's past misdeeds.

    Now that Pope Ratz has been outed, will he publicly reveal the nefarious dark agency's activity's in the Vatican and work to permanently remove them, or is he too filled with further corruption to do what a Pope should have done within the Vatican for decades?

    March 28, 2010 at 9:07 pm |
  6. Jessie from Auckland, NZ

    @A. Smith, Oregon March 28th, 2010 9:07 pm ET

    Taking a quote from the Bible........."by their works they are known".

    I don't understand all the financial jargon as it is anyway. Well just hope it is not doomsday time. We have had enough of them already.

    April 2, 2010 at 10:32 am |
  7. icon pack

    Many thanks for the information. Now I will knbow it.

    hpixel

    September 23, 2012 at 9:22 pm |

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