Tag Archives: Economic Decline

MSN Money: US default seen as disaster dwarfing Lehman’s fall

Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. A U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen.

Failure by the world’s largest borrower to pay its debt — unprecedented in modern history — will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression. Among the dozens of money managers, economists, bankers, traders and former government officials interviewed for this story, few view a U.S. default as anything but a financial apocalypse.

The $12 trillion of outstanding government debt is 23 times the $517 billion Lehman owed when it filed for bankruptcy on Sept. 15, 2008. As politicians butt heads over raising the debt ceiling, executives from Berkshire Hathaway Inc.’s Warren Buffett to Goldman Sachs Group Inc.’s Lloyd C. Blankfein have warned that going over the edge would be catastrophic.

Source: MSN Money – MSN Money: US default seen as disaster dwarfing Lehman’s fall

US/EU Free Trade Talks Halted By Shutdown

Negotiations for a landmark free trade agreement between the United States and the European Union have been terminated because of the current U.S. government shutdown.

U.S. officials had been scheduled to meet in Brussels with EU negotiators but their travel schedules were cancelled and the negotiations deemed “non-essential” by White House staff.

U.S. trade representative Michael Froman told the EU team that Washington wants to continue working on a deal with the EU but that everything would have to wait until the shutdown was over because he would not be able to send a full team to Brussels.

European Trade Commissioner Karel De Gucht called the delay “unfortunate” and said that the delay would not “distract us from our overall aim of achieving an ambitious trade and investment deal.”

The cancellation comes after President Obama announced he would be canceling a trip to Asia because of the government shutdown and restrictions on travel.

IMF Director Says U.S. Debt Ceiling More Concerning Than Shutdown

Christine Lagarde, managing director of the International Monetary Fund, said that a failure to raise the United States’ debt ceiling could have much more significant worldwide impact than the current government shutdown.

Legarde said it was “mission critical” for the U.S. to raise the debt ceiling.

Legarde said that she predicted growth in the U.S. economy and that it was “picking up steam” before the shutdown and the potential debt ceiling problems. She said that worldwide the economy is starting to pick up and that even the Eurozone could see 1% growth in 2014.

The U.S. Treasury has also been warning about the country hitting the debt ceiling and being unable to pay bills.

“A default would be unprecedented and has the potential to be catastrophic,” the Treasury stated in a report. “Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”

CBS News: Why is it so difficult to end the government shutdown?

The last time there was a partial shutdown of the federal government, there was a Democrat in the White House and Republicans controlled the House of Representatives. That’s where the similarities end.

As the government shutdown enters its third day, Democrats and Republicans seem no closer to bridging their differences than they were when the shutdown began early Tuesday morning. It’s difficult to say when the standoff will end. The two shutdowns that occurred in 1995 and 1996 lasted a total of 27 days. And back then, the conditions for getting to a deal were much better.

Republicans won the House and Senate in the 1994 midterm elections – the first time the party had a House majority in 40 years. That set up a showdown between House Speaker Newt Gingrich, who had run on a conservative platform, and then-President Bill Clinton. That dispute came in 1995, when Gingrich wanted to balance the budget in a short time frame and Clinton wanted money spent on Democratic priorities. After two separate shutdowns and several weeks, the pressure was too high on Republicans and they cut a deal with Clinton: he would get his priorities, but would have to balance the budget for 10 years.

Source: CBS News – CBS News: Why is it so difficult to end the government shutdown?

ABC News: No Shutdown Deal in Sight After White House Meeting

President Obama and leaders of both houses of Congress left a 90-minute meeting at the White House this evening no more closer to ending a government shutdown.

Neither side gave any indication that the talks, however cordial, moved them toward a compromise.

“They will not negotiate,” House Speaker John Boehner told reporters after leaving the West Wing. “We had a nice conversation, a light conversation, but at some point we’ve got to allow the process the Congress gave us to work out.”

Boehner insists that Democrats in the Senate send negotiators to a conference with House Republicans to work out the differences between the two sides on the budget.

Source: ABC News – ABC News: No Shutdown Deal in Sight After White House Meeting

World Markets React Wednesday To Shutdown

The U.S. government shutdown had an impact on world markets causing concerns the country’s fragile economic condition could be severely impacted by a prolonged closure.

Stock markets in Britain, Germany and France all fell in Wednesday’s trading. U.S. markets fell as well with the Dow Jones Industrial Average falling 0.6% and the S&P 500 falling 0.8%.

Investors are paying lip service to the U.S. shutdown but have expressed more serious concerns the shutdown will result in a delay of raising the U.S. debt ceiling that would have impact on the world markets.

The dollar also continued to fall across the world. The dollar took a hit from 98.62 yen to the dollar before the shutdown to a current level of 97.74. The dollar also fell further against all other Asian currencies.

Germany Sees Surprising Rise In Unemployment

Germany saw a surprise rise in unemployment as the total out of work went up over 25,000. Analysts had been expecting a drop of about 5,000 after August’s rise of over 9,000.

The Federal Labor Office attributed the increase to a drop in the number of government job schemes. The total unemployment rate climbed to 6.9%.

Henrich Alt of the Labor Office said they were changing to longer-term policies designed to train the unemployed for new jobs.

The overall unemployment rate for the Eurozone dropped slightly to 12%. Total unemployment was 19.2 million in August and analysts say there is signs of the total of unemployed stabilizing.

Austria has the lowest unemployment rate at 4.9% while Greece is still highest at 27.9%.

Eurostat reported that compared to a year ago 16 members had climbing unemployment, 11 fell and only Poland stayed stable.

House of Representatives Rejects Emergency Funding Bills

The House of Representatives rejected three emergency funding bills Tuesday that would have re-opened several federal agencies closed because of the budget impasse.

The bills would have opened national parks and monuments, funded veteran’s benefits and allowed D.C.’s municipal government to continue operating.

Senate Democrats and President Obama both said they would not support the bills had the House passed them.

“The president and the Senate have been clear that they won’t accept this kind of game-playing, and if these bills were to come to the president’s desk he would veto them,” said White House spokeswoman Amy Brundage. “These piecemeal efforts are not serious and they are no way to run a government.”

The House appointed conferees that would participate in a conference committee to craft a bill that would pass both the House and Senate. However, no Democrats have been willing to meet with the Republicans in a conference.