GENEVA, SWITZERLAND – Credit ratings agency Moody’s announced 13 July that it will review the US debt rating, since the country is not yet making significant progress on resolving the budget and debt ceiling crisis that could lead to a US default 2 August if not resolved soon. The announcement was followed a few hours later by President Barack Obama walking out of heated talks between Republicans and Democrats. It also prompted the head of the US Federal Reserve, Ben Bernanke, to say that a default would constitute a major crisis that would send ripples through the financial world.
“The review of the US government’s bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such, there is a small but rising risk of a short-lived default.
“Moody’s considers the probability of a default on interest payments to be low but no longer to be de minimis. An actual default, regardless of duration, would fundamentally alter Moody’s assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate. However, because this type of default is expected to be short-lived, and the expected loss to holders of Treasury bonds would be minimal or non-existent, the rating would most likely be downgraded to somewhere in the Aa range.”
Links to other sites: BBC, Financial Times, Moody‘s, Washington Post
©2010 Chappatte, distributed by Globe Cartoon. More cartoons on Chappatte’s web site. Geneva-based Patrick Chappatte works for the International Herald Tribune, for Geneva newspaper Le Temps, and for NZZ am Sonntag. All cartoons reproduced with permission.
The US currency has fallen to its lowest level against major currencies, and gold hit a new record amid worries that the US Federal Reserve may intervene again to avoid a recession. The dollar touched 1.30 per Euro, and parity against the Swiss franc in late trading 14 September.
The dollar rose against the Japanese Yen as the Bank of Japan intervened in currency markets to stem its rise. It has risen 14 percent this year against the dollar. The dollar initially fell against the Japanese Yen, as traders felt that the Japanese government would do little to stem the Yen’s rise. It was trading at 82.95 per dollar, its highest since 1995, after Naoto Kan was elected leader of the ruling Democratic Party of Japan.
Gold traded at $1,269 per troy ounce late Tuesday, 14 September.
Links to other sites: AFP, Bloomberg, Romandie News,
The US Federal Reserve said Wednesday 16 December that the US economy is improving, and in the hours that followed the US dollar gained against most other major currencies. It was up 0.9 percent against the euro, a three-month high. The Fed said it wants to keep interest rates “extremely low” but that figures on jobs and consumer spending are showing positive signs.
Links to other sites: Bloomberg, Financial Times, Time Magazine
The US Senate banking committee has proposed a significant change to the US bank regulatory system, calling for a single body to regulate banks. The move would diminish the powerful role of the Federal Reserve in this area and would replace overlapping regulation by several groups, including the Federal Deposit Insurance Corporation and smaller regulators, with one new agency. The proposed legislation would also create a consumer financial protection agency. The powerful banking committee, under the direction of Senator Chris Dodd of Connecticut, has pushed into the open a struggle that has been going on behind the scenes to reform the US banking system: Dodd Tuesday 10 November presented the committee’s reform proposal, which goes substantially further than President Barack Obama’s suggested reforms. Initial reactions indicate that opposition from several corners, but especially from the Federal Reserve, will make it a tough fight.
Links to other sites: Financial Times, New York Times, NPR, US Senate banking committee site
Ben Bernanke, chairman of the US central bank the Federal Reserve, said 15 September that the recession in the US was probably technically over, but that unemployment would continue to undermine any recovery. A recession is officially no or negative economic growth for two consecutive quarters. Latest data about US employment indicates that the unemployment rate is at its highest since 1983, at 9.7 percent. US consumer confidence was up significantly, according to a survey published 15 September by Investor’s Business Daily/Technometrica market Intelligence. BBC, Reuters
Shares in Asia fell dramatically Tuesday after Wall Street’s worst day on Monday since the aftermath of 11 September 2001: in Hong Kong and Tokyo shares opened 5-7% down. Financial Times and Reuters More bad financial news: AIG, an insurer at the heart of the financial system, was given a $20 billion “lifeline” by the US government after its credit rating slipped, and the Federal Reserve is holding emergency meetings. FT
