We're getting another lesson that the markets aren't separate from our "everyday lives" but reflect the details of our thoughts, plans, and actions. The wing movements of the butterfly in central Mexico do indeed become the monsoon in east Asia. A less than reputable credit-rating agency in lower Manhattan throws the whole world into turmoil... again!
An extraordinarily tumultuous trading day in Asia extended into Europe on Tuesday and gold prices hit new highs, dashing hopes that the global stock market sell-off that has flattened investors over the last two weeks would lose steam. ...NYT
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[S&P's] sole job as a credit-rating agency is to gauge the creditworthiness of bonds, yet like its competitors, Moody’s and Fitch, it has consistently fallen short. It downgraded Enron days before the company went bankrupt. Its willingness to slap a AAA rating on securitized subprime junk was the foundation upon which the entire financial crisis was built. And now, to show that it’s got some spine, S.& P. decided to downgrade the United States? From a purely economic standpoint, the likelihood of a U.S. default is nil. As my friend Daniel Alpert, a founding managing partner of Westwood Capital, put it: “The size of the U.S. economy, the wealth of its inhabitants and the assets of the sovereign entity itself are unquestionably more than adequate to repay, with interest, all of the $14 trillion or so of the nation’s debt.” He added, “Anyone with a rudimentary understanding of finance and economics can figure that out.” On Monday, with the market collapsing, where did investors rush to put their money? In the one security they still considered safe: U.S. Treasuries. ...Nocera, NYT
So what are the odds that the crash can be stopped in its tracks? What are the possibilities that we are wishing this on ourselves?
What will stop this?
Let’s look at some of the things that have not worked.
The Group of 7 finance ministers promised to act together in a cooperative way.
President Obama assured us that he wanted to cooperate with Republicans.
It would be wonderful — and most likely would lead to a rebound — if there were evidence that genuine cooperation was going to arrive, and that governments would act together to try to both fix the financial systems and avoid new downturns. But so far there is no indication that any such thing will happen.If that cannot be, some bold leadership from someone — preferably someone with the ability to borrow lots of money — would be welcome. But the president seems unwilling to do anything but issue pleas that fall on deaf ears. ...Floyd Norris, NYT
Fat lot of good it will do if the president continues to cooperate when the other side has made it clear that cooperation isn't in their playbook. That's in spite of the fact that Standard & Poor's have made it clear that non-cooperation on the part of the Republicans is at the bottom of this whole damn thing, not our actual ability to pay our debts. It's the not wanting to pay our debts that makes us look bad, not any absence of real assets. Assets we have, "unquestionably more than adequate to repay, with interest, all of the $14 trillion or so of the nation’s debt," as Daniel Alpert put it (above). As The Economist puts it:
In the end, not a lot has changed with the downgrade. It is just an opinion, based on the same information that is available to all other investors. Given that US politicians flirted with the idea of default, it is not unreasonable to argue that the country's rating has slipped; the issue is more the willingness to pay than the ability to do so.
I think one element of our population is just asking for punishment... of the rest of us. C'mon, beat them! Send demons to pursue them! Take their houses away! Kill their jobs! More! More!
I think this is one small, sociopathic group is delighted. Is this their version of what happens during the "rapture"? Whatever. Meanwhile, the rest of us are "left behind" to clean up the mess they created.
One man's crash is another man's rapture.
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There are some reasons for hope. We're getting something very much like tax cut, according to The Economist.
...Equity markets may be suffering again as investors worry about sovereign debts and a slowing global economy. But the sell-off has also extended into the commodity market, particularly in oil: West Texas intermediate is trading at around $84 a barrel. This is a bearish story that is good news for western consumers. High raw-materials prices acted as a tax rise in the first half of the year; now they are falling the effect will be akin to a tax cut.
But even this good news has its downside.
There is just one caveat. The working assumption is that the recent sharp fall in the oil prices is caused by concerns about a slowing US economy; if it is really due to a sharp slowdown in emerging markets as well, equity markets will really have cause to worry.
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Dana Milbank seems to include the president in the growing "I give up" group.
“No matter what some agency may say, we’ve always been and always will be a AAA country,” Obama said, as if comforting a child who had been teased by the class bully.
When he began his speech (and as cable news channels displayed for viewers), the Dow Jones industrials stood at 11,035. As he talked, the average fell below 11,000 for the first time in nine months, en route to a 635-point drop for the day, the worst since the 2008 crash.
It’s not exactly fair to blame Obama for the rout: Almost certainly, the markets ignored him. And that’s the problem: The most powerful man in the world seems strangely powerless, and irresolute, as larger forces bring down the country and his presidency.
