On Friday, S & P cut credit ratings for nine EU countries,
including France, Italy, Spain, Austria, Portugal, Malta, Slovenia,
Slovakia and Cyprus. It was old news but not good.
France was downgraded from AAA to AA+.
So was Austria.
Italy fell two levels from A to BBB+.
Spain was lowered two levels from AA- to A.
Portugal fell two levels to BB.
Cyprus was lowered two levels.
Malta, Slovakia and Slovenia were downgraded one level.
On January 16, S&P also cut the European Financial Stability
Facility's (EFSF) credit rating given added pressure on nations to
fund it, saying:
"We consider that credit enhancements that would offset what we view
as the now-reduced creditworthiness of the EFSF's guarantors and
securities backing the EFSF's issues are currently not in place."
"We have therefore lowered to AA+ the issuer credit of the EFSF, as
well as the issue ratings on its long-term debt securities."
In early December, S & P put 15 EU countries on credit watch.
Fourteen remain there suggesting more cuts coming. Especially
troubled nations include Portugal, Italy, Ireland, Greece, and
Spain. As they go, so go others, including economic powerhouse
Germany. Increasingly it looks weak. So does Britain.
The same day, talks between Greece and major creditors collapsed.
They want higher returns in return for taking a 50% haircut on
worthless junk. It's reflected in one-year Greek bonds. They yield
396% annually if they're around that long.
Hungary's also troubled. Its bonds are rated junk. Western European
lenders control 80% of Hungarian banking. They caused the nation's
troubles. Prime Minister Viktor Orban wants more financial control,
and why not. Western exploitation wrecked the economy.
Nonetheless, Brussels wants him to implement greater austerity and
threatened legal actions for failure to do so. Earlier, bailout
negotiations broke down after Budapest refused to cut public
spending and implemented new constitutional provisions asserting
greater central bank control.
Perhaps other troubled Eastern European countries will follow
Hungary's lead if it doesn't cave under pressure.
Everything tried to resolve Europe's debt crisis failed. Friday's
downgrades suggest more to come. They, in turn, indicate higher
borrowing costs and less confidence in troubled countries' solvency.
As France's creditworthiness declines, so does euro value. S & P
warned about escalating crisis conditions, citing:
tightening credit conditions;
increased risk premiums for growing numbers of Eurozone countries;
"a simultaneous attempt to deliver by governments and households;"
weakening growth prospects; and
indecision about how to resolve a deepening crisis.
It also said reform based on fiscal austerity "risks becoming
self-defeating" because of less disposable income, tax revenues, and
fewer jobs. Of course, S & P and other financial interests want
continued structural adjustment harshness, including layoffs, deeper
wage and benefit cuts, sweeping privatizations, and deregulation.
On January 15, Financial Times writer Edward Luce headlined, "We're
back to the phantom future," saying:
"We may be entering that economic twilight zone again." Days
earlier, pundits were celebrating America's recovery. Their relief's
now suspended. Visible weakness suggests "the horses may not be
racing out of the gates in 2012 as some anticipated."
Perhaps forecasters see "low visibility" for America's economy. It
might become "an epitaph for our times. It may also help to remind
ourselves just how bad the forecasters have been."
A Berkeley study years back found that monkeys aiming at a dartboard
outguessed them. Just released 2006 Fed transcripts showed policy
makers oblivious to the impending storm. Bernanke said at the time:
"I think we are unlikely to see growth being derailed by the housing
market. But I do want us to be prepared for some quarter-to-quarter
In fact, he spoke near the peak of America's greatest ever housing
bubble still imploding with no end in sight. The entire economy's
affected with it. Talk of turning the corner obscures weakening, not
improving, economic prospects.
In fact, safe havens are fast disappearing. When it comes to
sovereign credit, only a handful retain triple-A ratings, and those
with them show weakness.
It's spreading, not easing. Eurozone countries are sick. Economist
David Rosenberg called downgrading France "a pretty big deal. (S
& P) laid down the gauntlet that kicking the fiscal dan down the
road is no longer a strategy undeserving of a response."
Moreover, 14 countries remain on credit watch. Expect further
downgrades ahead. Greece is bankrupt. Spain, Portugal and Italy are
basket cases. So is Eastern Europe. Germany's now contracting. So is
Britain. Banking and finance are sinking. US retail sales and
exports are slumping.
China risks landing hard. America's record low 10-year Treasury
yield shows weak macro conditions. Initial jobless claims are
rising. In the past 30 months, the labor force contracted by nearly
one million. In the last two months alone, it dropped by 170,000.
This reflects people wanting jobs who can't find them.
Challenger data suggest less hiring. JOLTS data show more firings,
and the National Federation of Independent Business (NFIB) indicates
fewer job openings.
According to Barron's Rountable analyst Felix Zulauf in response to
the question, "What happens at the next level of turmoil?":
"The banking system goes broke. Assume Greece won't repay anything,
or at most 10% of its total debt. It is not just the government but
the private sector that is bust. That means banks in other countries
will be in trouble, which means they will be nationalized."
"Governments won't have the money to pay for this, so they will
assume more debt. That is the chain of events I expect in 2012, and
if you believe it won't affect the US you are dreaming."
In 1979, Europe's Exchange Rate Mechanism (ERM) was introduced as
part of the European Monetary System (EMS). It aimed to propel the
continent to one European currency unit (ECU). It never worked.
In his 1995 book titled, "The Rotten Heart of Europe," euro expert
Bernard Connolly said:
"the true story of the ERM has been one of duplicity, skullduggery,
conflict; of economic harm done to every country and in the caste
interests of the elite; of the distortions of economic logic and the
dilution of political accountability."
"The implication is that increasing globalization of economic
activity and mobility of production, has been purposely implemented
in such a way as to render an already destroyed 'nation-state' a
meaningless entity in economic terms."</blockquote>
Provisions of the 1992 Maastricht Treaty established the euro. In
1995, the name was officially adopted. Its use began in December
1998. Seventeen dissimilar countries adopted it as their sole
currency. They're trapped disastrously in its straightjacket.
In the mid-1990s, Connolly called establishing it a hairbrained idea
doomed to fail. Saying it cost him his job as EU monetary affairs
department head. He saw disaster coming before the train left the
station. The moment of truth draws closer.
Progressive Radio News Hour regular Bob Chapman said Germany and
France want "new rules for budgetary discipline." Their new plan's
the same as the old one. They feature austerity and ECB mega-loans
for countries and banks.
"There will be no real changes, just more debt. This is more
obfuscation because nothing is being done" to resolve debt problems
and jump-start economic growth. Banks and sovereigns keep borrowing
more money. The ECB provides it. The Fed supplies it. It's creating
trillions out of thin air. The entire system can't function without
periodic money injections.
"The bottom line is there was no control before and there will not
be any in the future. These incompetents stagger from one problem to
another in their futile endless search for world government."
As a result, Europe sinks deeper in trouble. This year will be tough
and 2013 tougher.
GEAB's Latest Economic Assessment
On January 16, the Global Europe Anticipation Bulletin (GEAB) issued
its latest economic assessment titled, "Global Systemic Crisis -
2012: The year of the world's great geopolitical swing," saying:
The year 2012 will reflect "great geopolitical swing: a phenomenon
which will without any doubt be the bearer of serious difficulties
for most of the planet but which will also allow the emergence of
geopolitical conditions favorable to an improvement of the situation
in the years to come."
Crisis will touch the last "untouchables," including America,
Britain, the dollar, Treasuries, and "Russian and Chinese leaders."
In 2012, popular anger will "massively" increase. People will assert
themselves enough perhaps to mark a "turning point" for eventual
"The great swing of 2012 is also the accelerated by collapse of the
Western banks and financial institutions' power....And the great
swing is finally the arrival at maturity of the BRICS (Brazil,
Russia, India, China, South Africa)."
They'll start asserting a more pro-active influence on international
decisions. They better given the mess Western nations made of
Stephen Lendman lives in Chicago and can be reached at
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