Tuesday, August 09, 2011

AAA to AA

The main US share index, the Dow Jones, has closed down 5.6%, despite President Obama moving to try to reassure investors. In his first public reaction to Standard & Poor's downgrading the US, President Obama said markets continued to regard US government debt as being the highest possible grade. Yet despite his comments, the Nasdaq index fell even further, losing 6.9%.

The S&P's 500 share index also fell on Wall Street, losing 6.7%..... Prior to President Obama's speech, the Dow had only been 2.5% lower. Analysts suggest that further austerity measures, which will be needed to tackle high levels of debt in the US and some eurozone countries, could stifle their already weak economic recovery.

"The sell-off is mainly due to the fear that we [the US] will relapse into recession," said Klaus Wiener, chief economist at Generali Investments. These fears were were also reflected in the price of gold and oil.Gold, which is seen as a safe investment in times of economic uncertainty, jumped to a new record high of $1,697 an ounce.

 Meanwhile, the price of oil slipped further, reflecting concerns that weak global growth could lead to a fall in demand. US light crude ended down $5.57 to $81.31 a barrel, its lowest closing position since November of last year. Brent crude fell $5.63 to $103.74 a barrel.

Standard & Poor's downgraded US government debt from AAA to AA+ on Friday. President Obama said: "Markets will rise and fall. But this is the United States of America. "No matter what some agency may say, we've always been and always will be a triple-A country."

Mr Obama said he hoped the downgrade would give US politicians "a renewed sense of urgency" in the need to tackle the US deficit and debt. He called on both Republicans and Democrats on Capital Hill to avoid party-political positioning over the issue."It is not a lack of plans or policies that is the problem," he said. "It is a lack of political will in Washington, an insistence on drawing lines in the sand. That is what we need to change."

Mr Obama said he would now be putting forward a new plan, including higher taxes for the biggest earners, and reduced spending on Medicare.( Oh, not Medicare Mr Obama. You can find  something else, surely.)

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