The US faces the prospect of a "catastrophe" as President Barack Obama stands firm against Republican demands for deep spending cuts without any tax increases as the condition for raising the country's borrowing limit and avoiding a debt default. With Washington gripped by a growing sense that it may be too late to avert a crisis, the president has said he will give the increasingly rancorous negotiations until the end of next week to reach agreement on the terms for raising the US's $14.3 trillion (£8.9tn) debt ceiling. The White House has said that if there is no agreement by 22 July, then discussion about budget cuts and taxes should be abandoned in favour of legislation dealing solely with raising the debt ceiling before the borrowing limit is reached on 2 August. But the Republicans have rejected legislation without agreement on budget cuts. With European leaders also facing a potentially ruinous debt crisis, a leading Wall Street figure described the prospect of a US default as catastrophic. Jamie Dimon, chief executive of JP Morgan, one of Wall Street's biggest banks, said: "No one can tell me with certainty that a US default wouldn't cause catastrophe and wouldn't severely damage the US or global economy. And it would be irresponsible to take that chance." On Wednesday, Ben Bernanke, the chairman of the Federal Reserve, warned of a "huge financial calamity" if a political agreement is not reached. He told Congress a default would "send shockwaves through the entire financial system". Hours later, the credit ratings agency Moody's warned that it may downgrade the US's AAA credit rating, saying there is a "rising possibility" that no deal will be reached by next month's deadline. (source the guardian.uk)
Access Investments-Building Awareness - European Union-ROMANIA
Friday, July 15, 2011
The US faces the prospect of a "catastrophe" as President Barack Obama stands firm against Republican demands for deep spending cuts without any tax increases as the condition for raising the country's borrowing limit and avoiding a debt default. With Washington gripped by a growing sense that it may be too late to avert a crisis, the president has said he will give the increasingly rancorous negotiations until the end of next week to reach agreement on the terms for raising the US's $14.3 trillion (£8.9tn) debt ceiling. The White House has said that if there is no agreement by 22 July, then discussion about budget cuts and taxes should be abandoned in favour of legislation dealing solely with raising the debt ceiling before the borrowing limit is reached on 2 August. But the Republicans have rejected legislation without agreement on budget cuts. With European leaders also facing a potentially ruinous debt crisis, a leading Wall Street figure described the prospect of a US default as catastrophic. Jamie Dimon, chief executive of JP Morgan, one of Wall Street's biggest banks, said: "No one can tell me with certainty that a US default wouldn't cause catastrophe and wouldn't severely damage the US or global economy. And it would be irresponsible to take that chance." On Wednesday, Ben Bernanke, the chairman of the Federal Reserve, warned of a "huge financial calamity" if a political agreement is not reached. He told Congress a default would "send shockwaves through the entire financial system". Hours later, the credit ratings agency Moody's warned that it may downgrade the US's AAA credit rating, saying there is a "rising possibility" that no deal will be reached by next month's deadline. (source the guardian.uk)
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Eurozone leaders are braced for another battering from financial markets this week, amid growing fears that the spiralling sovereign debt crisis is threatening the future of the single currency.
"It's likely to be a very confused and volatile week, with mixed messages from markets and policymakers," said Sony Kapoor, director of the Brussels-based thinktank Re-Define.
After Italy was forced to bring forward austerity plans last week to placate anxious bond investors, European council president Herman Van Rompuy called leaders to an emergency summit this Thursday.
The results of "stress tests" by the new European Banking Authority revealed on Friday that eight banks were vulnerable, and must raise €2.5bn (£2.2bn) to cushion themselves against potential losses.
The EBA did not calculate the impact of a default by Greece or other vulnerable eurozone countries, but it released detailed data about banks' holdings that will allow analysts to make their own assessment. "Everybody's sitting up crunching numbers," said one market insider.
Matt Spick, banking analyst at Deutsche Bank, said: "We expect the sector to still be at the mercy of macro issues."
Unless Thursday's summit results in concrete announcements about how to contain the crisis, analysts are warning that anxious investors will continue to target Italy and Spain.
Neil Mellor, of BNY Mellon, said: "Everyone expects some sort of default to come about but in the meantime contagion is rife."
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