Sunday, August 7, 2011

Global Leaders Add to the Uncertainty

This week, as the U.S. Congress passed its “less than half baked” debt ceiling solution:

  • a CNN poll found that 77% of American respondents thought that members of Congress "acted like spoiled children." 
  • On Friday, the S&P rating agency downgraded the U.S. debt and China’s news agency said “To cure its addiction to debts, the United States has to reestablish the common sense principle that one should live within its means”. (Note: China it is the largest foreign holder of U.S. debt). 
  • At the same time, as the Eurozone’s financial problems increase, there is no clear leadership. When European Commission President Jose Barroso requested a review of Europe’s financial rescue fund, Rainer Bruederle, a former German Finance minister said the suggestion was “frantic ranting”. In Italy, in perhaps an act of “let’s shoot the messenger”, the government raided two rating agencies that were critical of the Italian government’s bonds.
MY TAKE
The notion that the global economy is weak and fragile is not new news. Unfortunately, it is becoming evident that leadership and solutions are in short supply. In this environment, changes can be quick, unexpected and negative. Markets and investor Hate uncertainty. Proceed with caution.

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