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My Best Child S&P –
If some one has done mistake in early then it does not make sense that every time it will repeat the mistake. S&P has done the perfect thing that this time it has went ahead and declared the most vulnerable danger awaiting for the world market. In other words what the 12000 Dow Jones and Mr.Obama administration was trying to hide was reveled by S&P.
This time the rating agency deserves an honor that it did not get influenced by any powerful authority on the earth. I will not make my easy to be prolonged to boar my readers but I will rather cut short and request my readers across the world ACCEPT THE BRUTAL FACTS. Easy days for the world market and US is over. It time for some hard work and cut short your appetite and focus on basic growth strategy rather than focusing deeply on how fast we beat each other in economic growth competition. Can any one explain how the Dow Jones climbed the ladder of 12000 when real growth was not happening in US economy. And if growth was their then a meager of 1% in GDP drags Dowjones to 12000 mark then 3% GDP growth will make Dowjones climb 20000.Sounds funny, extremely funny.
No clothes for my Emperor.
This time we have something more to dig out. Europe is not the volcano of financial collapse. Greece after that its was Spain and now Italy has come out with its naked body. It reveals that the Emperor has no clothes to wear and not even in the wardrobe.
Rating agencies in the last couple of weeks have been battered like anything for declaring the original crisis figures and situations to the world economy. Thanks to the world leaders in hiding their fragmented economic situation. If we make quick look towards the Italian economy we find it is standing one the verge of collapse. Italy’s average quarterly growth rate since 2000 has been just 1%,meanwhile, its debt-to-GDP ratio is 120%.What an economic performance maintained by one of the largest economy of Euro zone. You will surprise to know that is Italy is the third-largest economy in the euro zone. It’s also the third-largest bond market in the world, behind the US and Japan.
So when a call will raise over its economic payment structures the world will go for hip hop dance. Spain’s 10-year borrowing costs rose above 6% yesterday, while Italy’s hit 5.7% and are still rising. If there is panic in the market that European economies are all plummeting then borrowing cost will increase and bonds will bear the heat. Already the gap between the yield on Italian government bonds and German government bonds is at a euro-era record. (In other words, investors are lending to Italy at much higher rates than to Germany. Banks of Italy are under the biggest threat since Italian banks hold so much Italian government debt that any Panic bell will make the life difficult for Italian Banks.
Money Makers
Among these entire debacles the biggest Money Makers of these situations is those who are lending easy money at high cost to these fragile fragmented economies.The biggest problem apart from providing easy money and Austery measures is the political condition prevailing over these fragile US and European economies. The biggest hard work is that to bring growth in these economies which were ailing for decade under low economic growth. In act these economies were dead a long ago, Euro might have kept them alive. It very astonishing to find that US and Europe lived and ruled the world economy on ‘Borrowed Capital’ without thinking when they have to be returned. Cutting down expenditures will only result less jobs and no consumption and Zero economic growth. I find next year also many economies of Europe will use the German Credit card and Austerity cards for mounting debts.
Another Feather: France
France has already proved the theory that cutting down expenses internally leads to Zero economic growth. Despite of delivery a Zero GDP growth France government insisted that French economic fundamentals remained “solid” and that the country was still on course to reach its official target of 2.0 percent growth for the year. Now tell me whom you will believe and where you will plan your safe investments. Now if S&P grades France economy to a negative marking will it is Big Crime or is not the word expected from rating agency as loyal voices raised their voice when S&P downgraded US treasuries. Some economic data of the Eurozone economies will really make one to think where the world is heading for:
• Production in the 17-nation euro area slipped 0.7 percent from May, when it rose 0.2 percent.
• Output of capital goods slumped 1.5 percent in June from the previous month, when it rose 1.1 percent.
• Energy production slipped 0.4 percent and output of intermediate goods decreased 0.6 percent.
• Production of durable consumer goods declined 2.5 percent from May.
What might happen if France is downgraded?
If France, the euro zone’s second-largest economy, lost its AAA rating the effect would stretch far beyond its borders.
France provides the second-largest contribution, after Germany, to the euro zone’s temporary rescue fund, the European Financial Stability Facility, which enjoys an AAA rating to borrow at low rates and lend to states under bailout programmes.
By this time France, Belgium, Spain and Italy, are all under intense pressure from the financial markets, hence from Friday onwards a ban on the speculative practice of short-selling bank stocks to combat “false rumors” that destabilized them have been imposed.
Hence I rating agencies have done their ratings correct this time its their Duty to inform and cautious the global citizens about the hidden deeds of the greatest world Leaders and Financial Heads.
Who is Next?
In fact this is one of the hardest questions but still it needs its reply. Turkey is the next economic going to face slow down in growth as it is already over heated and Belgium might be the next tag line of every economic news paper.
Indraneel Sen Gupta (neel19414@gmail.com )
Global Macro Economic Researcher and Business Strategist
Master of Economics, MBA in International Business Management, ICWAI (Final)/CWM Final/Journalist
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i personally feel the impact will be huge & as said by great indian thinkers & bureaucrats & poticians as no impact on indian economy this is false .
if growth in world economy has its impact then worse should also have its impact. how much it is the time to answer but it is for us to be prepared & cautions to be taken.