EXTRACT: Therefore, as the deadline approaches like the grim
reaper, the very financial credibility - and credit-worthiness - of the
US government is at stake. Incredibly, this conjures up the possibility
that the US itself might be downgraded by the credit agencies, wielding
their apparently god-like powers. Not that that long ago, this would
have seemed like economic science fiction. But Priya Misra of Bank of
America Merrill Lynch has warned that the market reaction to
any
sort of default - even if it was only a temporary one - would be
“drastic”; indeed, that the US “may also lose one of its most valuable
assets, the safe haven nature of US treasuries, which could structurally
pressure bond rates higher”. The risk, however small, of a default
pushed Moody’s on July 13 to downgrade the
outlook on its
triple-A rating of US sovereign debt to “negative”. Standard & Poor
followed the next day, declaring that it was so “unimpressed” by the
longer-term budget negotiations that there was a “50-50 chance” of the
US losing its triple-A status over the next three months.
The downward spiral of the dual debt crisis in both the euro zone and
the US has the potential to reproduce the 2007-08 crisis, but at an even
higher level: ruination stares us in the face. Some imagine, or dream,
that China - with its 9.5% annual growth for the second quarter - will
come to the rescue of capitalism like Superman - or at least act as a
“circuit breaker”. More like a pipe-dream.
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