Skip to content


Sovereign Debt Fears Signal New Stage of Global Crisis

Barry Grey
Global Research
February 6, 2010

Stock markets in Europe and Asia fell sharply Friday in the second day of a near-panic selloff fueled by fears that the debt crisis facing weaker European economies will throw the world economy into a “double-dip” recession.

Commodity prices—oil and gold, in particular—also fell sharply.

In the US, triple-digit losses on the Dow Jones Industrial Average were recouped in the final hour, resulting in small gains for the Dow and the other major indexes in volatile trading, following a sharp selloff on Thursday.

The Dow ended the day with a 10-point gain, following a 268-point plunge on Thursday. The index, which was below the 10,000 mark for most of the day, has lost 6.5 percent over the past two weeks.

All of the major European indexes closed down, with France’s CAC-40 falling the most—3.4 percent, its biggest one-day drop since November 26. The Pan-European Dow Jones Stoxx 600 Index was off 2.2 percent, its lowest close since November 3.

Japan’s Nikkei fell 2.89 percent and the Shanghai Composite was off by 1.87 percent.

Stocks were down for the second day in Greece, Portugal and Spain, three heavily indebted eurozone countries whose ability to redeem bondholders—including major European and US banks—is increasingly in doubt. Prices of government bonds of all three countries continued to fall and interest rates rose further, as global investors increased pressure on the three governments to impose draconian austerity measures on their respective populations.

The cost of credit default swap (CDS) contracts on the debt of the three countries rose even more dramatically. Credit default swaps—now a multi-trillion-dollar market—are a form of unregulated derivatives in which CDS sellers guarantee the value of bonds held by CDS buyers. Rising CDS prices reflect eroding confidence in corporate or government bonds insured by the sellers of the CDS contracts.

The CDS market is a hotbed of speculation, since investors, including banks and hedge funds, can bet on the price of CDS contracts without holding the underlying bonds. The threat of sovereign default, most immediately by Greece, but also by Portugal and Spain, has provided an opportunity for speculators to drive up the price of insuring the countries’ bonds by speculating on the likelihood of a default, thereby further undermining confidence in the countries’ debt and increasing the prospects of such an outcome.

All three countries have pledged to impose sweeping cuts in public-sector jobs and wages and in social benefits, along with new consumption taxes, in line with demands from the European Union that they sharply reduce their budget deficits, currently 10 percent or more of their respective gross domestic products.

Greek President George Papandreou of the social-democratic PASOK party, who was elected last year on the basis of promises to reverse the right-wing policies of the preceding conservative government, this week announced plans for an across-the-board freeze on public sector wages along with a cut in allowances, which amounts to a wage cut of 4 percent. He also called for a pension “reform,” which entails raising the retirement age, as well as higher fuel taxes.

The social-democratic Portuguese and Spanish governments have pledged to impose similar austerity measures.

Signs of mounting resistance by the working class in these countries are playing an enormous role in the tremors rippling through the global financial markets. There is a growing sense in governments and board rooms around the world that a major confrontation with the working class is coming, with potentially revolutionary implications.

The banks and the media are demanding that heads of state and parliaments demonstrate the “political will” and “political consensus” necessary to impose historic attacks on the working class. These phrases are euphemisms for a degree of ruthlessness that implies a readiness to employ state repression. However, the financial markets are at once skeptical over the willingness of political leaders to employ the required measures and anxious over the outcome of such a confrontation.

On Thursday, Greek workers launched the first in a series of strikes to protest the government’s austerity package. Customs and tax officials began a 48-hour strike that shut ports and border crossings throughout the country. Strikes by other public and private-sector workers have been called for next week.

Greek farmers have been blockading highways in protest against government austerity proposals.

A major cause of the global stock selloff that began Thursday was the announcement by the Greek unions of a one-day general strike set for February 24. The unions had initially indicated their willingness to assist the PASOK government in carrying out its austerity plans, but have been forced by pressure from the working class to call the strike actions.

Union leaders hope to use the partial labor mobilizations to defuse popular anger and channel it behind nationalist slogans, while they maneuver to work out a deal with the government acceptable to the banks and the European Union. However, there are fears within ruling circles that the unions may not be able to contain the anger of workers and young people, who are already facing mass unemployment and declining living standards.

Portuguese and Spanish unions are also threatening to call strikes and protests.

Among other factors that precipitated the stock selloff was the failure of the Portuguese government to find buyers for the full amount of a government bond offering on Wednesday, and the defeat of its austerity package at the hands of opposition parties in parliament.

The debt crisis of the weaker countries in the 16-nation eurozone, including Ireland and Italy in addition to Greece, Portugal and Spain, is raising questions about the viability of the euro itself. There is increasing public speculation that the 11-year-old currency could collapse under the pressure of the economic and financial crisis.

In recent weeks, the euro has fallen precipitously against the US dollar and the yen. On Friday, it fell to $1.3620. It has declined 9 percent against the dollar since December.

This does not reflect any inherent strength of the US currency. On the contrary, looming above the debt crisis in Europe is the far greater crisis of the world’s biggest debtor—the United States. It is no accident that the European crisis has erupted in the aftermath of last week’s budget announcement by President Obama. The US budget plan revealed that the current deficit is $1.6 trillion, equivalent to 10.6 percent of the country’s’ gross domestic product, a record high since the end of World War II.

This approaches Greece’s deficit ratio of 12.7 percent of GDP, is higher than that of Spain and twice the eurozone average. The US budget, moreover, projects trillion-dollar deficits for years to come.

As in every other industrialized country, the American state responded to the financial crash of 2008 by taking on the debts of its banks and essentially bankrupting its treasury in order to preserve the wealth of its financial elite. The Obama administration, no less than the governments of Europe, is demanding that the cost be borne by the general population in the form of sweeping cuts in basic social programs and a reduction in consumption—i.e., a permanent and dramatic decline in working class living standards.

Unlike in previous international financial crises, such as the Asian debt crisis of the 1990s, the United States cannot play the role of lender of last resort. The United States has irretrievably lost its previous position as the dominant world economic power, and its decline is reflected in growing challenges to the role of the dollar as the world reserve and trading currency.

At last month’s World Economic Forum in Davos, French President Nicolas Sarkozy in his keynote speech said he would use his upcoming presidency of the Group of 20 nations to push for a new international monetary system in which the dollar would no longer be the primary reserve currency. And on Wednesday, Moody’s Investors Service warned that the United States faces the loss of its triple-A sovereign credit rating unless Obama moves to slash the federal deficit by carrying out more draconian spending cuts than he has thus far announced.

It is the erosion of US economic power and solvency that lends to the sovereign debt crises in Greece, Portugal and other European countries such an explosive and universal character.

The recent rise in the dollar is the result of a “flight to safety” by investors who fear a collapse in world asset bubbles and consider US Treasury bonds, along with German government debt, to be a temporary haven. In important respects, the short-term reversal in the dollar’s decline is an expression of a deepening of the crisis on world financial markets.

As a number of economists warned last year, the US policy of flooding financial markets with cheap credit on the basis of near-zero interest rates and the electronic equivalent of printing a trillion dollars—designed to prop up the major US banks and enable them to record bumper profits despite double-digit unemployment—fueled a huge wave of speculation on risky assets such as stocks, bonds, commodities and currencies. These economists predicted that a major rise in the value of the dollar would pull the rug out from under this speculation, which was based on the assumption of a continued decline in the dollar, and force a rapid and destabilizing selloff of inflated assets.

It now appears that this collapse in asset bubbles has begun.

View the original article at Global Research

Related Posts with Thumbnails

Posted in European Union, Finance & Economics.

Tagged with , , , .


0 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.



Some HTML is OK

or, reply to this post via trackback.

Support #altnews & keep Dark Politricks alive

Remember I told you over 5 years ago that they would be trying to shut down sites and YouTube channels that are not promoting the "Official" view. Well it's all happening now big time. Peoples Channels get no money from YouTube any more and Google is being fishy with their AdSense giving money for some clicks but not others. The time is here, it's not "Obama's Internet Cut Off Switch" it's "Trumps Sell Everyones Internet Dirty Laundry Garage Sale". This site must be on some list at GCHQ/NSA as my AdSense revenue which I rely on has gone down by a third. Either people are not helping out by visiting sponsors sanymore or I am being blackballed like many YouTube sites.

It's not just Google/YouTube defunding altenative chanels (mine was shut), but Facebook is also removing content, shutting pages, profiles and groups and removing funds from #altnews that way as well. I was recently kicked off FB and had a page "unpublished" with no reason given. If you don't know already all Facebooks Private Messages and Secret Groups are still analysed and checked for words related to drugs, sex, war etc against their own TOS. Personally I know there are undercover Irish police moving from group to group cloning peoples accounts and getting people booted. Worse than that I know some people in prison now for the content they had on their "secret private group". Use Telegrams secret chat mode to chat on, or if you prefer Wickr. If you really need to, buy a dumb phone with nothing for the NSA/GCHQ to hack into. Ensure it has no GPS tracking on it and that the battery can be removed. These are usually built for old people to get used to technology storing only a set of numbers to call. However they have no games, applications to install or other ways people can exploit the computer tracking device you carry round with you most of the day - your smart phone. If you are paranoid ensure that you can remove the battery when travelling around and do so to prevent GPS tracking or phone mast triangulation. Even with your phone in Flight mode or turned off, it can be turned on remotely and any features like front or back cameras, microphones and keylogging software can be installed to trace you.

So if your not supporting this site already which brings you news from the Left to the Right (really the same war mongering rubbish) then I could REALLY do with some..

Even if it's just £5 or tick the monthly subscription box and throw a few pound my way each month, it will be much appreciated. Read on to find out why.

Why?

Any support to keep this site would be appreciated. You could set up a monthly subscription for £2 like some people do or you could pay a one off donation as a gift.
I am not asking you to pay me for other people's articles, this is a clearing house as well as place to put my own views out into the world. I am asking for help to write more articles like my recent false flag gas attack to get WWIII started in Syria, and Trump away from Putin. Hopefully a few missiles won't mean a WikiLeaks release of that infamous video Trump apparently made in a Russian bedroom with Prostitutes. Also please note that this article was written just an hour after the papers came out, and I always come back and update them.

If you want to read JUST my own articles then use the top menu I have written hundreds of articles for this site and I host numerous amounts of material that has seen me the victim of hacks, DOS plus I have been kicked off multiple hosting companies, free blogging sites, and I have even had threats to cease and desist from the US armed forces. Therefore I have to pay for my own server which is NOT cheap. The more people who read these article on this site the more it costs me so some support would be much appreciated.

I have backups of removed reports shown, then taken down after pressure, that show collusion between nations and the media. I have the full redacted 28/29 pages from the 9.11 commission on the site which seems to have been forgotten about as we help Saudi Arabia bomb Yemeni kids hiding in the rubble with white phosphorus, an illegal weaapon. One that the Israeli's even used when they bombed the UN compound in Gaza during Operation Cast Lead. We complain about Syrian troops (US Controlled ISIS) using chemical weapons to kill "beautiful babies". I suppose all those babies we kill in Iraq, Yemen, Somalia and Syria are just not beautiful enough for Trumps beautiful baby ratio. Plus we kill about 100 times as many as ISIS or the Syrian army have managed by a factor of about 1000 to 1.

I also have a backup of the FOX News series that looked into Israeli connections to 9.11. Obviously FOX removed that as soon as AIPAC, ADL and the rest of the Hasbra brigade protested.

I also have a copy of the the original Liberal Democrats Freedom Bill which was quickly and quietly removed from their site once they enacted and replaced with some watered down rubbish instead once they got into power. No change to police tactics, protesting or our unfair extradition treaty with the USA but we did get a stop to being clamped on private land instead of the mny great ideas in the original.

So ANY support to keep this site running would be much appreciated! I don't have much money after leaving my job and it is a choice between shutting the server or selling the domain or paying a lot of money just so I can show this material.

Material like the FSB Bombings that put Putin in power or the Google no 1 spot when you search for protecting yourself from UK Police with "how to give a no comment interview". If you see any adverts that interest you then please visit them as it helps me without you even needing to give me any money. A few clicks per visit is all it takes to help keep the servers running and tag any tweets with alternative news from the mainstream with the #altnews hashtag I created to keep it alive!

However if you don't want to use the very obvious and cost free ways (to you) to help the site and keep me writing for it then please consider making a small donation. Especially if you have a few quid sitting in your PayPal account doing nothing useful. Why not do a monthly subscription for less money instead. Will you really notice £5 a month?



css.php