Global leaders race to stem panic over US credit rating downgrade

[Turborama]

Source: The Guardian

Finance ministers from G7 countries hold urgent talks to try to prevent loss of confidence in world's biggest economy

Toby Helm, Nils Pratley and Tania Branigan | Saturday 6 August 2011 19.12 BST

World leaders are battling to prevent panic from spreading across financial markets as the sudden downgrading of the US credit rating triggered fears of global turmoil when stock exchanges open.

Finance ministers from the G7 leading industrial countries – many of them away on summer holiday – agreed to a series of urgent weekend telephone talks to try to prevent a loss of confidence in the world's biggest economy. But the uncertainty grew when the Saudi market dropped by a massive 5.5%.

French finance minister François Baroin, whose country holds the G7 presidency, said he been in contact with colleagues for 24 hours. "We'll be carefully watching the evolution of what might happen on Monday," he said.

Chancellor George Osborne, holidaying in California, held talks with his G7 counterparts and David Cameron, who is in Tuscany. Officials said Osborne would be ready to interrupt his holiday if a full G7 meeting was called. Treasury sources said the chancellor had been using the discussions to address the interconnected problems of the debt crisis in the eurozone as events unfolded in Washington. Osborne was reported to be urging richer eurozone states such as Germany and France to back the radical step of issuing so-called "eurobonds", meaning they would underwrite the debt of poorer eurozone nations in return for gaining a formal say in the future running of their economies.

Read more: http://www.guardian.co.uk/business/2011/aug/06/europe-g7-us-credit-rating-debt

---

Here's the Gordon Brown article that's mentioned later in the article...

Gordon Brown: Europe is still burying its head in the sand

Source: The Independent On Sunday

This latest market crisis was predictable. Deeper economic, social and political agonies will follow as long as the eurozone avoids the big issues

Sunday, August 7 2011

It was said of one 19th-century British politician that he never missed a chance to let slip an opportunity.

Although European leaders were quick to define last month's euro summit of 2011 as the day European leaders faced the crisis down, they know better now.

Last month's summit was yet another European chance of recovery thrown away, a turning point at which history failed to turn.

And now no number of weekend phone calls can solve what is a financial, macroeconomic and fiscal crisis rolled into one, which needs a radical restructuring of both Europe's banks and the euro, and will almost certainly require intervention by the G2O and the International Monetary Fund.

Full article: http://www.independent.co.uk/opinion/commentators/gordon-brown-europe-is-still-burying-its-head-in-the-sand-2333170.html

[xchrom]

1. What the wealthy investors need - en masse - is a serious hair cut.

That won't happen.

Markets will probably go up Monday or tuesday or something - quite like a miracle.

Propping up the charade.

[femrap]

2. May the wealthy

learn the true meaning of hunger.

If the charade is propped up, it will not last long.

[tama]

9. Yeah,

wealthy like pension funds etc. Or any investor in the financial empire, on global terms...

This is not about "them rich" agains "poor" middleclass (what about the 90% of global population who are not "middle class"?), or about some tweak here and there. This is about the whole financial system and all banking based on interest and hence exponential growth, about capitalism as we know it coming to its end.

[No Elephants]

10. Are you sure they won't kill most of us first? Either with the military or with

austerity measures?

[tama]

23. Money

in itself is "austerity measure" and "military". It's killing us, our spirit and the humane hospitability of Gaia's ecosystem.

What do you wish for our children? More fear or freedom from fear?

[JJW]

3. Time for these leaders to take a pay cut

and reduced perks and pensions!

[wordpix]

17. +1 how about NO pensions, like most of the rest of us

[roxiejules]

4. End of the illusion

James Galbraith on Fraud and How Bad Economic Thinking Got Us in This Mess

The failure of the world economy and particularly of the financialized economies of Europe and North America, to recover from this debacle is a product of the character of the debacle itself. Absolute distrust, leading to absolute liquidity preference is the incurable consequence, it seems to me, of financial fraud.

I say incurable. This is the diagnosis of an irreversible disease. The corruption and collapse of the rule of law, in the financial sphere, is basically irreparable. It’s not just that restoring trust takes a long time. It’s that under the new technological order in this field, it can not be done. The technologies are designed to sow and foster distrust and that is the consequence of using them. The recent experience proves this, it seems to me. And therefore there can be no return to the way things were before. In other words, we are at the end of the illusion of a market place in the financial sphere.

[Ghost Dog]

5. (Reuters) - Global policymakers discuss debt crisis, market turmoil

After a week that saw $2.5 trillion wiped off global stock markets, political leaders are under mounting pressure to reassure investors that Western governments have both the will and ability to reduce their huge and growing public debt loads.

South Korea said finance deputies from the Group of 20 major economies discussed the European debt crisis and U.S. sovereign rating downgrade on Sunday morning in Asian time zones.

A Japanese government source said finance leaders from the Group of Seven big developed economies would also discuss the crisis and may issue a statement afterwards, although the timing of such a call was unclear.

The European Central Bank was scheduled to hold a rare Sunday afternoon conference call. Investors are anxiously looking for the central bank to start buying Italian and Spanish debt on Monday to stabilize prices, a move that has split the ECB governing council...

/... http://www.reuters.com/article/2011/08/07/us-eurozone-idUSTRE7712HB20110807


So, what bets on concerted central bank operations on Monday, including ECB Italian &/or Spanish bond support, strong indications of forthcoming QE3, & even further Yuan revaluation?

[wordpix]

19. the Euro central bank may start "buying Italian and Spanish debt"???

Just what Europeans want to buy---someone else's massive debts. These financial "geniuses" are nuts.

[florida08]

6. sounds like a QE 3 will be next

We are being so played. The clandestine operation of the CDS didn't warrant a downgrade but raising the debt ceiling does?

http://www.politico.com/news/stories/0811/60803.html">S&P warns of a second downgrade

[fasttense]

7. They are so worried, they have to make phone calls from their mansions on the lake.

They interrupted their month long summer holidays to make phone calls. Poor little rich guys. Then there are the ones who are carefully watching the evolution of what might happen. Gee, I'm so glad they are watching it from their summer homes.

We should be giving them something to watch like huge protests in the street.

http://october2011.org/welcome

[wordpix]

20. not only that, they're making calls on SUNDAY---what a terrible inconvenience

They make these crises and then have to interrupt their tennis games and beach time. :nopity:

[Turbineguy]

8. Guardian stokes fear.

Panic?

[elleng]

11. As Market Tension Builds, World Leaders Ponder Response.

Source: nyt

FRANKFURT — Policy makers around the world were searching on Sunday for a way to respond to market tensions that seemed to be growing too powerful for any one economic superpower to cope with alone.

In Europe, there was speculation that the European Central Bank, whose governing council was expected to hold an emergency conference call late Sunday, would buy Spanish and Italian bonds to prevent borrowing costs for those countries from becoming unsustainable.

But as the shock of the Friday’s downgrade of United States debt reverberated dangerously with anxiety about European debt, some analysts said that the European Central Bank would itself need help because of its limited charter and its internal divisions.



Read more: http://www.nytimes.com/2011/08/08/business/global/as-market-tension-builds-world-leaders-ponder-response.html

[TwilightGardener]

12. Well, the rest of the world isn't looking to us anymore, because we've

been hijacked by vicious clowns at the height of our economic vulnerability.

[Demeter]

13. Easy and Effective Fix: Shut Down or Nationalize the Big Banks

They are the source of the pressure. They are pirates.

[plumbob]

14. Yes, and I prefer a shutdown. There really is no systemic need for

any banks as large as the ones we have. In fact, the only reason they are this large is for market concentration, which means unearned profits due to lack of choices.

[DallasNE]

15. Calls For Austerity Measures

When demand is already this weak may calm the big boys but it is a job killer and the best way to reduce the deficits are JOBS programs so people are again paying taxes rather than drawing unemployment benefits. Besides, anything that kills jobs will actually drive up the deficit in spite of austerity measures. We need the win-win of JOBS rather than the lose-lose of austerity.

[elleng]

16. Right.

And the smart 'big boys' surely understand this.

[wordpix]

18. ponder your millions in salaries, bonuses & stock options while you cut thousands of workers

and proclaim your corporations are doing well. :grr:

Pondering, indeed, geesh, they are so out of touch they can't think straight.

[Ghost Dog]

21. Here's Goldman's advice to Europe:

...In the short term: As Dirk Schumacher and others have commented this past week, the ECB should act as a circuit-breaker at this juncture, interrupting the unfolding speculative dynamic in order to safeguard the transmission of monetary policy. The central bank is the only institution that can act quickly, and without a budget constraint. As in the case of FX interventions, in order to be fully effective, ECB purchases in the secondary bond market should be coordinated, i.e., involve all Euro-zone central banks, or at a minimum receive the endorsement (even tacit) of all countries. Ideally, greater coordination with the fiscal authorities could be sought, whereby the EFSF makes use of its newly extended powers and pledges to swap back part of the bonds that the ECB has bought. If the Euro-zone governments want to credibly convince private lenders that Italian bond yields have overshot their fundamentals, they should be prepared to take that risk themselves.

Over the medium term, Italy’s credit fundamentals need to be further reinforced. As our empirical analysis implies, fitted bond spreads have moved up lately and, based on IMF forecasts for GDP growth, the deficit and debt, they are forecast to move broadly sideways at around 150-200bp. On Friday, the Italian government made a commitment to bring the non-interest balance to a surplus of 5% already by 2013, from 1% now, and to ‘tie its hands’ through a German-style ‘balanced budget rule’ requiring a modification of Art.81 of the Italian Constitution. The government also promised more on the liberalization front (starting with changing Art.41 of the Constitution to say that all economic activities that are not explicitly prohibited are allowed), and on labour market reforms. More information on both fronts should transpire this coming week.

And, in the medium to long term, a deeper discussion should take place on Euro-zone trend growth dynamics and policy management. The Pact for the Euro—underwritten last March—envisages that all countries should reach a balanced budget over the next couple of years, and should continue to reduce public debt as a percentage to GDP under a formulaic rule. Structural reforms should help raise the growth potential, but are unlikely to boost economic activity while they are carried out (Germany’s adjustments over the past year weighed on domestic demand). Against this backdrop, running countercyclical policy at this juncture will fall more heavily on the ECB, as our new forecasts indicate. going ahead, a gradual pooling of at least some Euro area wide fiscal policies (and funding) may be required...

/more... http://www.zerohedge.com/news/goldman-scrambles-tell-ecb-what-say-later-today

[0rganism]

22. "the Saudi market dropped by a massive 5.5%"

Gee, I wonder if any of the S&P bigwigs did a bit of short-selling on the Saudi exchange last week...