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Saturday, January 14, 2012

Euro Zone Downgrade of Debt: The Road to Financial Perdition

The precipitous decline of the Euro has a concomitant effect on the credit rating of various Euro members. Standard and Poors has performed its analysis as shared in the NY times article, "Downgrade of Debt Ratings Underscores Europe's Woes". These findings by Standard and Poors does not improve the outlook for the Euro and some of its members. Questions: How will the Euro members address Greece's issues?  Which country is next to slide onto the road to financial perdition? Is it Italy?

Speaking of Italy, it was downgraded to a "BBB+" rating by Standard and Poors. Italy and Spain are both heavily exposed to the debt crisis related to the Euro.  If there are credit derivative swaps connected to these countries' credit ratings, can the people underwriting the CDS pay the claims on these contracts if many of these nations continue their downward trend for their credit ratings? If not, will there be a repeat of the debacle that took place in 2008 with AIG et al?

Good news: Finland, The Netherlands, Germany, and Luxembourg all maintained their AAA rankings.  Also, investors seeking a safe haven, turned to US treasuries. In this article, it shows how the US Treasuries were pushed to the lowest yields this year.  This still proves that even with a declining US economy, we are still a safer bet relative to other international markets.


Back to the bad news: What will happen with Greece? How will they handle their debt situation?  Here is an interesting take on the next move for Greece:

This exercise in economic futility by the Europeans proves once again that wealth is only accumulated through production.

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