As the ink was drying on the agreement between the Democrats and Republicans on the US debt ceiling and the world allowed itself to draw a nervous breath, along came Standard and Poor’s with its AA+ hand grenade late last Friday.
Although S&P is the only rating agency (so far) to downgrade US debt it is still arguably the most influential (despite its $2trillion arithmetical error that it based its downgrade on). But other players have now weighed in as well. Both China and India have publicly criticised the US over its handling of its debt crisis, an indication of the West to East power shift taking place.
Both gold and silver rose on the news and the fears are that the flight to safety will continue into this week. Gold went through another record as it broke the $1,700 an ounce barrier and silver futures rose by up to 5.7%.
With the BoE expected to cut UK growth forecasts again, the ECB pledging to buy Italian and Spanish bonds to prop up the Eurozone as well as Chinese growth not looking to be all that was promised, the flight to safety is understandable.
As it opened Monday the FTSE fell another 1.2% following on from heavy falls in Asia overnight, although it has recovered and gained over the first half hour or so. But let’s see where we are by the end of the day.
The bankers and governments across the world have managed to keep the ship afloat thus far. But the cracks are now showing and are widening. The truth is that the huge recession of a few years ago is still in full swing, it never went away it was just papered over.
These ‘experts’ believed they could fool us into thinking it was all over to get us spending again. But they forgot that they had already taxed and spent our money for us. The ordinary person on the street has nothing left to spend and their confidence in the powers that be to mend the economy is being whittled away by the day. Especially as the ones who say they are in charge are on their summer hols, unlike many ordinary taxpayers who cannot afford it this year.
The politicians and financial experts thought that clever manipulation of finance and figures would get us out of this mess. But that is what got us here in the first place.
And the US as the biggest economy and the holder of the world’s reserve currency has come up wanting. The US economy may well have already ‘debtonated’ in our faces.
One wonders how long it will be before the phrase ‘War on Debt’ is trotted out with the call for everyone to work harder for longer to pay it off. Or has it already quietly started?