No U.S. debt deal or at least not yet!

Amplify’d from www.marketwatch.com

No U.S. debt deal as Republicans, Democrats clash

Chance of technical default 20%, investor says

WASHINGTON (MarketWatch) — Efforts to conclude a plan to increase the debt ceiling showed little progress Sunday night as lawmakers still haven’t agreed a path forward to avoiding a potential default despite a weekend of talks.

Sunday night President Barack Obama met two lawmakers from his own party, House Democratic Leader Nancy Pelosi and Senate Majority Leader Harry Reid.

“In the meeting the president received an update on the state of negotiations on the Hill from Leader Pelosi and Leader Reid, and the Leaders and the President reiterated our opposition to a short-term debt limit increase,” the White House said in a statement.

Republican Sen. Tom Coburn, one on the Gang of Six who outlined their own deficit-cutting plan, told NBC on Sunday that opposition to a short-term deal was a “ridiculous” position “because that’s what he’s going to get presented with.”

Boehner and Obama talked over the phone twice, the Associated Press reported citing a Congressional source.

Face the Nation” that the lack of an agreement could be “stressful” for global investors.

“We may have a few stressful days coming up, and stressful for the markets of the world and the American people,” he said.

The market reaction was negative. S&P 500 futures /quotes/zigman/1277190 SP1U -0.84%  fell by 0.8%. Benchmark gold futures /quotes/zigman/700181 GC1Q +0.59%   climbed into record territory. The contract was recently up $16.30, or 1.0%, to $1,617.70 an ounce.

Michael Turner, a Sydney-based strategist for RBC Capital Markets, said the Boehner plan may not be good for saving the AAA debt rating of the U.S.

“This is unlikely to please ratings agencies, particularly S&P who have been the most vocal in expressing a need to see a longer term deficit reduction plan sooner rather than later,” Turner said in a note to clients. Read more at www.marketwatch.com

 

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Another Stressful week expected in Global Markets

Amplify’d from professional.wsj.com

White House Warns of Stress in Global Markets

White House chief of staff Bill Daley said the U.S. government's creditworthiness has already been damaged by the prolonged debate over how to raise the debt ceiling, with the Obama administration girding for volatility in global financial markets as soon as Sunday evening.

Treasury Department officials have said the U.S. must have a deal in place by Aug. 2 to raise the debt ceiling or the country could begin defaulting on its obligations. Numerous proposals to raise the debt ceiling in the past few months have fallen apart or been blocked.

Administration officials would like to make significant progress toward a deal by Sunday evening to ensure that Asian markets open calmly.

Treasury Secretary Timothy Geithner said on "Fox News Sunday" it was difficult to predict how markets would react on Monday but that "the longer the politicians take," the more investors will "wonder whether this place can work again."

Speaker of the House John Boehner (R., Ohio) said on Fox News Sunday, when asked about trying to get a deal by the open of Asian markets Sunday, that "while Asia may be important, this is about American jobs and the American economy."

Another rising risk is that the U.S.'s credit rating could be lowered soon by Standard & Poor's. S&P has said there was a 50% chance it could reduce its AAA rating on U.S. debt to AA+ within 90 days, putting in jeopardy the top-notch rating the U.S. government has had for 70 years. A downgrade could have a variety of consequences, such as making it more expensive for the U.S. to borrow money and creating turmoil in the banking system. Read more at professional.wsj.com

 

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July 24, 2011

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Slim Fallout Seen for Europe Banks

LONDON—Top European banks will face relatively modest losses under the new Greek bailout plan agreed to Thursday, according to a Wall Street Journal analysis of bank stress-test disclosures.

The 90 large European banks that were subjected to European Union stress tests could face total losses ranging from €7 billion to €14 billion ($10 billion to $20 billion), the analysis found. Those losses stem from a provision of the €109 billion bailout that would swap Greek government bonds that come due between now and 2020 in exchange for new securities that don't mature for decades.

The expected losses, nearly two-thirds of which are concentrated among Greek banks, are far smaller than many analysts and investors had feared. Concerns about banks suffering severe losses if Greek defaulted on its debt have been ricocheting around the Continent for more than a year. But the losses likely to be realized under Thursday's bailout will hardly dent most banks' capital buffers.

The smaller scale of losses is partly because the expected hits to the bonds' face values—ranging from losses of 10% to 21%, depending on how they are calculated—are mild compared with the so-called haircuts of 50% or more reflected in trading prices of Greek bonds that analysts had built into their projections.

They warned that Thursday's bailout deal might simply be the first in a string of sovereign restructurings that could saddle holders of European government debt with increasingly hefty losses.

The surprisingly modest bank losses in Thursday's Greek bailout also are because of the way the deal was structured.

Bonds that mature after 2020 won't be exchanged. That allowed a handful of giant banks, which are holding billions of euros of Greek bonds that mature in more than 10 years, to dodge a potentially costly bullet, according to the Journal analysis. Banks, including Germany's Commerzbank AG, Belgium's Dexia SA and France's BNP Paribas SA, could have seen their likely losses swell by hundreds of millions of euros apiece if later-maturing bonds were included.

The losses on bonds that will be exchanged under the bailout are likely to start showing up when banks report their midyear financial results in coming weeks, analysts say.

In Greece, the six banks subjected to the EU's recent stress tests are collectively holding a total of about €43 billion of Greek government debt that matures in the next 10 years, according to the Journal's analysis. That could translate into losses of more than €9 billion.

Outside Greece, French and German banks are among the biggest holders of Greek sovereign debt and therefore appear likely to absorb the greatest losses under Thursday's bailout agreement, according to the Journal's analysis and independent analysts. French banks could face a total of up to €1.4 billion in losses, while German lenders could see €843 million. Read more at professional.wsj.com

 

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Amplify’d from www.guardian.co.uk

Debt crisis

Only a new Marshall Plan can do it

To emerge from the enduring debt crisis, Europe needs a programme as ambitious as the post-war US sponsored plan. But this time, it has to find the resources internally and foster a continent-wide redistribution.

In 1947 the Americans kick-started economic recovery in Europe through the Marshall plan. Today, there are calls for Europeans to draw up a Marshall plan of their own. The European commission president, José Manuel Barroso, and the Polish prime minister, Donald Tusk – the incoming president of the European council of ministers – warn that governments in Athens and elsewhere will be unable to sell further austerity measures to voters without some prospect of growth and renewal. Last week's vote bought everyone time, but little more. Is a new Marshall plan feasible? Or just wishful thinking? Casting our eyes back briefly to Europe's plight in the 1940s helps put the issue in proportion and reveals the real obstacles ahead.

Against Europe's problems then ours pale into insignificance. In occupied Germany, the continent's economic dynamo, food intake hovered above starvation levels, and national income and industrial output were barely a third of what they had been a decade earlier. Roughly $13bn was paid out in the European Recovery Program (the Marshall plan's official name) and this proved indispensable in laying the foundations for the "miracle" of sustained economic growth in the decade that followed. This $13bn amounted to some 5% of America's national income in 1948. (The equivalent sum for the EU today would be in excess of $800bn.) The US wrote off prewar French debts; everyone wrote down Berlin's a few years later, even though they had just struggled through a war started by the Germans.

Now compare the challenge Europe's leaders face today. GDP has barely dropped in the EU since 2008. The fundamental debt problem emanates from three small countries – Greece, Portugal and Ireland – whose total contribution to European Union GDP is less than 5%. The German economy is booming. If the stakes – the very future of the EU – are high, the sums required are not. Read full article in the Guardian... Read more at www.guardian.co.uk

 

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