Slowly a quantum leap in the crisis is building up – loss of credibility for governments
After Japan now UK’s AAA rating is at stake and eventually America will lose it as well just a matter of time and honesty. Rating agencies will hesitate to lower the rating of America since that is the mother of all bond markets and you do not want to screw with them. As a matter of fact the 9 tril of FED interventions plus the huge deficit America has now and will gain momentum going forward do not qualify for an AAA anyway. To drop a notch from AAA is not a big deal but what I mean is rather having this countries actually dropping on junk bond status which will happen inevitably as the financial world does only still exist due to generous lending and taxpayer money being thrown at them in unbelievable amounts and it keeps coming. Once unemployment rises above 10%b in USA things will look very ugly again since we have a hidden unemployment looming in millions of short term workers who help to keep statistics low. Japan has tried the same stuff 20 years ago all governments doing now only that they had a strong outside resource to help them out now its a bit different as there is no last resort beyond heaven which could help out. The stockmarket rally which will last overall til August is driven by irrational sources of greed and manipulation and a very regular thing we saw the same kind of rallies in Japan and after the big depression but until they do not reach a level of cheapness they implosion will keep going in waves. The next big shoe to drop is the lose of credibility for the governments bailing out the institutions right now. Too many professionals want to believe but have no good reason to do so – that the government will hold the tide. Although everybody needs to know that in a cycle of 70-80 years always a big wave down is inevitable especially after all the bogus and manipulation of statistics and cooked profits a severe contraction is due they tend to ignore it. Like a rookie trader who does not want to except what he sees but on the other hand we are also in the situation that many banks are beyond the point of no return. Only roughly 14% of all derivatives have been unwound in the last 2 years leaving us with still over 500 tril. – that remain one of the crucial structural problems the so called deleveraging has not happened yet in a degree necessary.The moment investors start to loose their faith that USA deteriorating credibility that will trigger a crash in bonds and that will trigger crashes in stocks as well. I do not think that the Obama administration can keep up the credibility actually rather the opposite most of his most powerful people are working for the shadow government of the Bilderger’s with a different agenda to rather create a depression.
U.K. May Lose AAA Rating at S&P as Finances Weaken
May 21 (Bloomberg) — Britain may lose its top-level credit rating at Standard & Poor’s for the first time as the government’s finances deteriorate amid the worst recession since World War II.
The outlook was lowered to “negative” from “stable” because of the nation’s increasing “debt burden,” S&P said in a statement today. The pound fell the most in almost a month against the dollar. Stocks and bonds slid, and the cost of insuring debt against default rose.
Britain would become the fifth western European Union nation to lose its rating because of the economic slump, following Ireland, Greece, Portugal and Spain. The U.K. plans to sell a record 220 billion pounds ($343 billion) of bonds in the fiscal year through March 2010 as the recession cuts revenue and forces the government to raise spending.
“We have revised the outlook on the U.K. to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100 percent of gross domestic product and remain near that level in the medium term,” S&P analysts led by David Beers in London, said in a report today.
The deficit this year will reach 175 billion pounds, or 12.4 percent of gross domestic product, Chancellor of the Exchequer Alistair Darling said on April 22. The government’s budget deficit increased to 8.5 billion pounds last month, the most for April since records began in 1993, the Office for National Statistics said in London today.
Gilt Spread Widens
The difference in yield, or spread, between U.K. 10-year bonds and equivalent German securities widened nine basis points to 24 basis points following the statement.
The FTSE 100 Index of stocks tumbled 2.52 percent, the most since March 30. The pound dropped 1.4 percent to $1.5535 and weakened 1.3 percent against the euro to 88.57 pence. Credit- default swaps on U.K. debt rose six basis points to 79.5, according to Deutsche Bank AG.
The British economy, the second largest in Europe, shrank 1.9 percent in the first quarter, the biggest contraction since 1979, when Margaret Thatcher became Prime Minister, the Office for National Statistics said on April 24. Darling said in his budget the economy will slump about 3.5 percent this year, before expanding in 2010.