Financial Markets on CNBC Look Like Storm Stories

French banks are feeling the pain today. Some CNBC commentators say that France should have been downgraded before the USA. Marketwatch says that France might be the next downgrade.

Another commentator noted that France is a lynchpin of Euro rescue efforts. If France were downgraded, it might not be able to contribute to the European Financial Stability Fund, or EFSF. That might explain why S&P does not want to downgrade France: doing so might break the Euro. For the English commentator, the current markets are reminiscent of the breaking of the pound out of the European Exchange Rate Mechanism in 1992.

The treaty of Maastricht, signed in 1992 called for governments to maintain an annual deficit of 3 percent or less and to have debt no higher than 60 percent. Although Japan leads the league in government debt as a percentage of GDP at 225 percent, EU members Italy and Belgium are at close to 100 percent. France is at 83 percent. These countries have violated the rules of the treaty for years, and as a a result, they cannot call on today’s problem nations to be forced to adhere to the terms of the treaty.

The problem countries spend a lot and also fail to collect taxes, such as Greece and Italy (whose prime minister is dangerous) and Spain (where unemployment is over 20 percent). Right wing commentators like to call attention to half the problem — that of spending — while failing to point out how a failure to collect taxes is as important as spending problems.

Jobs

As rioters burn the poor parts of London, every nation in Europe (and Israel too) is grappling with the problem that there are no jobs for young people. Just heard from Nadia El-Imam and Alberto Cottica, who believe that members of disenfranchised groups who have been successful need to have their stories recorded and forwarded to those who fight an uphill battle in the job market. They are designing an open and collaborative system that would encourage the sharing of success stories. It is an excellent initiative aimed at the disempowered.

I think that those in power need to do more. In this internet age, those in power need to understand that they have an ongoing responsibility to explain their actions to the people who elect them. It’s not just once every four years or so. To that end, politics needs to be open, televised, and recorded.

Investment

Right now, says one CNBC commentator, investors are panicking. To them, “safety is more important than yield and liquidity is more important than safety.” Investors are trying to avoid losing money. They are avoiding stocks because companies might fail.

Many no longer dare to invest in the future. The pessimists are buying gold and government debt.

Policy and anger

As banks lose value, those who blame criminal activity such as that reported recently on 60 minutes, where banks forged documents in order to complete forclosures, may feel that justice is being done. The town of Ithaca, NY has just decided to never borrow money from JP Morgan Chase because of Chase’s foreclosure policies and procedures.

Stanford Economics professor Nicholas Bloom says that the U.S. is due for a short but significant recession. The Economist magazine says there’s higher odds of a second recession, known as the double dip, as noted on its cover. In its cover article, the magazine writes, “Barack Obama or one of his Republican challengers may yet discover the courage to tell the truth about the American economy in next year’s presidential election. But given the politicians’ current uselessness, the only institution with the power to avert danger is the Federal Reserve. With interest rates so low, that means more quantitative easing. Printing more money is justifiable in the circumstances, but still a tool offering diminishing returns. Fiscal help would have been much better.”‘

Many feel that the rich are benefiting as the rest pay for the problem. The latest New Yorker cover, S.O.S. by Christoph Nieman, neatly captures this. It depicts Monopoly-game tycoons drinking champagne as the Titanic sinks in the background, with the Titanic sunk by a falling stock market.

The Republican Party has already ruled out tax increases to solve the national debt, opting instead for cuts to medicaire, medicaid, and social security. In promoting the cuts (but not the tax breaks) GOP leader Boehner said, “I think it’s incumbent on us, if we are serious about dealing with the big challenges, that we go out and help Americans understand how big the problem is that faces us.” But the GOP won’t be taking the problem seriously until it admits that tax increases are needed. The majority of Americans want tax increases, but the Tea Party does not.

The rich must pay more than the poor. Failure to act will mean more riots like in England. Some will blame their lack of opportunities on the openness, freedom, and diversity of our nation and will commit violence like Oslo.

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