Market Mayhem

While the world markets were just getting used to the on-going European Union crisis they now have to face a new battle. The recent historic downgrade of the US credit rating from AAA to AA+ by S&P has left the markets in doldrums. For some this comes as a surprise while for others this was pretty much expected. Take a load of this: the US gross debt has increased from 42% in 1980 to about 100% of GDP today; the fiscal deficit has increased from 3% in 1980 to about 11% today; the trade deficit has increased from about 1% in 1980 to about 4% today. For me, the downgrade is not a surprise. This was long overdue and was just being stalled for reasons that are more political than anything else.

The result of this downgrade has so far been catastrophic. The Economist reports that Asian markets dropped just over 2%. Markets in Spain and Italy fell over 2%, as well, while Britain's FTSE was off 3.4%, and Germany's DAX dropped 5%. In America, the Dow dropped 5.55%, and the S&P tumbled a stunning 6.66%. Brazil's exchange was down just over 8%.

A renewed credit crunch could be on our hands. A run on money market funds could begin. Investors who had put money after the 2008 collapse thinking that their money was now safe are being punished. If Fitch & Moody’s go ahead & downgrade US, the carnage would only grow. God bless America!