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	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 25-Mar-2010
25-Mar-10 News - Portugal's debt rating is downgraded

Web Log - March, 2010

25-Mar-10 News - Portugal's debt rating is downgraded

The Euro zone continues to unravel.

Euro and other currencies fall as Portugal's debt is downgraded

The euro currency plummeted sharply against the dollar on Wednesday, as Portugal's credit rating was lowered by several levels. Lowering a country's credit rating indicates a lack of faith that the country will be able to continue to make payments on its bonds and other debt. The downgrading is based on assessment that politic pressures will prevent the government reforming pension payments or cutting public spending. These are exactly the same concerns that have often expressed about Greece in recent weeks.

Greece's problems are much more immediate than Portugal's, but Portugal's downgrade has added to concern that the EU will fail to support Greece through its current crisis, according to Forex News. According to the article, the downgrade caused investor risk-aversion that benefited the dollar at the expense of other currencies.

Thus, for example, Mexico's peso weakened on Wednesday after the downgrade of Portugal's debt, according to Reuters. The article describes economists' concerns about a default by Greece, and quotes Gabriel Casillas, chief economist at JPMorgan in Mexico City as saying, "The European Union has been slow to act with Greece, which is a small country. Now that things are getting more difficult with bigger countries like Portugal, what can you expect from them?"

Colombia's currency also fell as a result of Portugal's downgrade, according to Bloomberg. Fears about a GDP report, scheduled for release on Thursday, also contributed to fears in Colombia. The article quotes a Bogota-based analyst as saying, "Not only do we have external noise, but before an important economic release such as the GDP report, investors prefer to seek refuge in less risky assets such as the dollar."

Russia's ruble also weakened on Wednesday, according to Bloomberg, also for reasons related to the Portugal downgrade.

Those who are expecting a weakening of the dollar, or some kind of hyperinflation, should pay attention to these results. The dollar is not hyperinflating; it's in a deflationary spiral, which means that the dollar currency becomes stronger and more valuable, not weaker.

Interestingly enough, US Treasury bonds did poorly on Wednesday, according to AP, because of concerns about US government debt. As the world's reserve currency, the US dollar has a life of its own apart from the United States, and so the deflationary spiral will continue even if the US Government defaults on its debt.

The continuing chaos in Europe

The crisis over the question of a bailout of Greece is exposing serious underlying rifts between France and Germany, according to BBC. The underlying basics causing the rifts are that Germans are more savers than consumers, while the opposite is true of France.

Thus, the stage is set for a very contentious EU financial summit in Brussels on Thursday and Friday. The Germans are advocating a Greek bailout by the Washington-based International Monetary Fund (IMF). The French say that an IMF bailout of Greece would signal investors that Europe is weak; they would like Europeans, especially the Germans, to give Greece whatever emergency help is required. There's been a great deal of arguing and debating in advance of Thursday's summit, though it's now claimed that the French are softening their anti-IMF position.

The most dramatic statement on Wednesday came from Paul Donovan, deputy head of global economics at UBS Investment Bank. He said that Greece will default "at some point," because the Europeans are unable to deal with the crisis.

"I think it’s in an impossible situation,” said Donovan, according to Bloomberg. "Europe has failed to clear its first serious hurdle. If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work. It’s a bad idea."

From the point of view of Generational Dynamics, these kinds of events will lead sooner or later to a panic. In one day, Wednesday, we've had negative comments about Greece, a downgrade of Portugal's debt, and a chain reaction affecting other currencies, including the euro, the peso and the ruble. This chain reaction will probably end tomorrow, but at some point, such a chain reaction will lead to a full scale panic.

Additional Links

More than 100 militants linked to al-Qaeda in Yemen have been arrested in Saudi Arabia, when an investigation found that they were planning to target oil facilities and security forces. BBC

Google's action to end censoring search engine results has angered China, which is now threatening other American business interests. Mercury News

On the American side, GoDaddy.com will stop registering domain names in China, citing privacy concerns. Reuters. lawmakers in Congress sharply criticized Beijing for its record on internet censorship and human rights. CNN. The war of words is heating up on both sides of the Pacific, as always happens during a generational Crisis era.

If you have an ordinary laptop computer, you can join the Quake-Catcher Network. You download free software, and then when any earth tremors occur, your laptop records them using sensors built into current hard disks. Live Science

A poll finds that 79% of voters think it's possible the economy could collapse. The figures are 72% for Democrats, 84% for Republicans, and 80% for independent. Fox News

(Comments: For reader comments, questions and discussion, see the 25-Mar-10 News - Portugal's debt rating is downgraded thread of the Generational Dynamics forum. Comments may be posted anonymously.) (25-Mar-2010) Permanent Link
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Generational Dynamics Web Log for 25-Mar-2010 25-Mar-10 News - Portugal's debt rating is downgraded

Euro and other currencies fall as Portugal's debt is downgraded

The continuing chaos in Europe

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Generational Dynamics Web Log for 25-Mar-2010
25-Mar-10 News - Portugal's debt rating is downgraded