{"id":15904,"date":"2011-08-06T00:32:54","date_gmt":"2011-08-06T04:32:54","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=15904"},"modified":"2011-08-06T00:32:54","modified_gmt":"2011-08-06T04:32:54","slug":"august-5-2011","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=15904","title":{"rendered":"August 5, 2011"},"content":{"rendered":"

Since the politicians won’t bail out Ireland and Portugal, the central bank is doing it<\/a>:<\/p>\n

European Central Bank President Jean- Claude Trichet said the ECB has resumed bond purchases and will offer banks more cash to stop the region\u2019s debt crisis from engulfing Italy and Spain and hurting the economy.
…<\/b>
ECB purchases of Irish and Portuguese bonds during the press briefing haven\u2019t stamped out investor concern on the 21- month crisis spreading to Italy and Spain, whose yields soared to euro-era highs this week. European officials are trying to put a firewall around Europe\u2019s third and fourth-largest economies to avoid them being forced into seeking external aid.
…<\/b>
Italian and Spanish 10-year bonds declined, pushing the yields as high as 6.23 percent and 6.33 percent respectively. Irish and Portuguese bonds rose as people with knowledge of today\u2019s transactions said the ECB bought those securities after being absent from the market for 18 weeks. That debt was at 10.4 percent and 11.3 percent as of 5 p.m. in London. <\/p><\/blockquote>\n

Gee, isn’t it great when a central bank takes on credit risk?<\/p>\n

But don’t lose faith in Europe! It’s all America’s fault<\/a>:<\/p>\n

And Mr. Trichet pointed the finger at the U.S. debt ceiling showdown for stoking market tensions in Europe.<\/p>\n

\u201cIt\u2019s clear the world is intertwined,\u201d he told reporters after the bank opted to leave its key interest unchanged at 1.5 per cent. \u201cWhat happens in the U.S. influences the rest of the world.\u201d<\/p><\/blockquote>\n

There are indications Italy is serious about austerity<\/a>:<\/p>\n

The Italian government, seeking to earn the confidence of investors who have driven its bond yields to euro-era highs, will speed up austerity measures and will target a balanced budget a year earlier than planned.<\/p>\n

The country will adopt a balanced-budget amendment, liberalize its labor market, and speed asset sales, Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti said in a joint Rome press conference today.<\/p>\n

While yields on Italian and Spanish debt fell today, borrowing costs have surged since a July 21 European Union summit aimed at heading off contagion from Europe\u2019s debt crisis to the euro zone\u2019s third- and fourth-largest economies. Italian 10-year bond yields are up 76 basis points since the summit, while Spanish yields are up 33 basis points.
…<\/b>
Berlusconi said the government now won\u2019t wait until 2013-2014 to eliminate tax loopholes and deductions worth 25 billion euros ($36 billion), though he didn\u2019t say when they would be enacted. He also said he agreed with French President Nicolas Sarkozy to hold a meeting of Group of Seven finance ministers within days.<\/p>\n

Spanish borrowing costs are below those of Italy for the first time since May 2010 on speculation Italy\u2019s higher debt load makes it less able to withstand contagion from the region\u2019s fiscal crisis. The nation\u2019s debt is set to reach 120 percent of gross domestic product this year, second highest in the euro region after Greece.<\/p><\/blockquote>\n

S&P downgraded USA<\/a>:<\/p>\n

The U.S. had its AAA credit rating downgraded for the first time by Standard & Poor\u2019s, which slammed the nation\u2019s political process and said lawmakers failed to cut spending enough to reduce record deficits.<\/p>\n

S&P dropped the ranking one level to AA+, after warning on July 14 that it would reduce the rating in the absence of a \u201ccredible\u201d plan to lower deficits even if the nation\u2019s $14.3 trillion debt limit was lifted. The U.S. was awarded the top credit ranking by New York-based S&P in 1941. It kept the outlook at \u201cnegative.\u201d
…<\/b>
S&P said it may lower the long-term rating to AA within the next two years if spending reductions are lower than agreed to, interest rates rise or \u201cnew fiscal pressures\u201d during the period result in higher general government debt.
…<\/b>
S&P also changed its assumption that the 2001 and 2003 tax cuts would expire by the end of 2012 \u201cbecause the majority of Republicans in Congress continue to resist any measure that would raise revenues.\u201d<\/p>\n

\u201cMore broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating,\u201d S&P said.<\/p><\/blockquote>\n

The downgrade process was, apparently, enlivened by a $2-trillion arithmetical error<\/a> that you can be sure the politicians will harp on (Treasury’s started already<\/a>). The S&P release<\/a> highlights:<\/p>\n

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