09 August 2011

Financial Gyrations

Dean Baker, a progressive economist, referred to S&P, saying "Everybody knows they're a clown outfit," and pointed out that the downgrading of US debt has not been a significant factor in the sell-off prior to today's partial rebound. He noted that most of the money taken out of the stock market went straight into US Treasury bonds, so the downgrade was obviously not having much of an effect.

So what was?

The run on sovereign bonds of Italy and Spain, Europe's fourth and fifth largest economies, that's what. And if the ECB doesn't pour a tonne of money into the Euro system, it could collapse. Then we'd see a financial crisis at least equal to 2008-2009.

The good news is that the ECB probably has no choice but to do just that.

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