The US Dollar and a Paradigm Shift in the Markets

From Warren Pollock:

A simple grid shows how the USD and the Stock Market have moved together in different ways during different economic times. Today we saw the USD down in a huge way with the Stock Market Weak.. Are we seeing the pendulum shift once again as the stress of derivatives and Insolvent municipalities hatch out. Are we a bailout nation? And Will the world bail us out?

British Economy Founders, Standard and Poor's Dictates Terms

This is certainly the big news for the day, although the markets are trying to slough it off, and spin the bright side of nearly anything.

What particularly strikes one is the almost ominous warning from US-based Standard and Poor's that the downgrade may be contingent on the outcome of the next British elections.

"Give me control over a nation's currency, and I care not who makes its laws"

And these days a credit rating for a debtor is as good as currency.

While we are working the math, it should be apparent to even an economist that the debt side of the American consumer balance sheet is not sustainable, and that future income will be used to pay down that debt to manageable levels.

The implications for this are enormous. But its good to have the world's sovereign currency, to be the king of finance.

AFP
S&P issues warning on UK economy credit rating

LONDON (AFP) — Standard and Poor's warned Thursday that the British economy's top-level 'AAA' credit rating was under threat and revised down its outlook due to soaring public debt, sending financial markets reeling.

The international ratings agency said it downgraded the outlook to "negative" from "stable" because of the country's "deteriorating public finances" amid a deep recession in Britain and elsewhere.

S&P also warned in a statement that the change may lead to a downgrade of Britain's cherished 'AAA' sovereign credit rating -- a mark of its financial standing in the world and a major concern in any move to raise funds.

"This is the first major country to get a negative outlook, and that's significant," said Bilal Hafeez, global head of currencies research at Deutsche Bank in London.

In reaction to the news, London's FTSE 100 index of leading shares dived by more than 3.0 percent in late afternoon trade.

And on the foreign exchange market, the British pound fell back sharply to 1.55 to the dollar, as traders hedged themselves against the chance of a damaging ratings downgrade....

However, the agency also forecast that the government debt burden could reach nearly 100 percent of Gross Domestic Product (GDP) by 2013.

"A government debt burden of that level, if sustained, would in Standard & Poor's view be incompatible with an 'AAA' rating," warned the agency.

Official data released Thursday showed Britain's public deficit ballooned to a record 8.5 billion pounds (9.6 billion euros, 13.22 billion dollars) in April as the government bailed out banks and the recession slashed tax revenues.

At the same time, public debt as a proportion of GDP surged to 53.2 percent in April, compared with 42.9 percent at the end of the same month last year.

S&P warned that the ratings could be downgraded following Britain's next general election that must be held by mid-2010.

"The rating could be lowered if we conclude that, following the election, the next government's fiscal consolidation plans are unlikely to put the UK debt burden on a secure downward trajectory over the medium term," S&P credit analyst David Beers said.

"Conversely, the outlook could be revised back to stable if comprehensive measures are implemented to place the public finances on a sustainable footing."

A spokesman for the British Treasury said the government was planning to halve the public deficit within five years.

A downgrade of a credit rating can have significant consequences for a country, pushing up the interest rates demanded by investors to buy new debt which is increasingly being issued to help cover soaring budget deficits.

Britain's economy is shrinking at its fastest pace in almost 30 years. GDP contracted by 1.9 percent during the first three months of 2009 after a slump of 1.6 percent in the last quarter of 2008.

US Dollar Weekly Chart

Bailing On Britain

The survey reported below indicates that many Britains are taking serious steps to leave their country because of the economic conditions and political considerations.

A bit overstated perhaps, and talking their book, but certainly a trend worth watching.

We cannot help but wonder if and when a similar emigration will take place in the US. Typically the movement has been within the United States, as in the great movement of people from the center of the country to the coasts in the 1930's.

Have you seriously considered leaving the US within the next four years, seriously enough to actually do some preliminary planning? If so, for what destination?

Online Surveys & Market Research

TheMoveChannel
Mass exodus from UK
Catherine Deshayes
Friday, May 15, 2009

New research has found that a whopping 11 million Brits are thinking of taking a job overseas within the next two years - a significant dent in the population - and a fifth of those would choose a new life down under...

Britain is experiencing the greatest exodus of its own nationals in recent history while immigration is at unprecedented levels, new figures show.

In 2007, 207,000 British citizens - one every three minutes - left the country and currency specialist Foreign Currency Direct has revealed that one in four working Brits are now looking to leave the country for sunnier climes and better job opportunities.

More British live abroad than any other nationality and the levels of emigration are now the same as those seen in the late-1950s when the £10 Poms left for Australia.

An increase in tax levelled at high wage earners coupled with rising UK unemployment is thought to be partly behind the mass exodus.

The research found that men are almost twice as likely as women to opt for a job overseas and moving abroad was most popular with Brits aged between 18 and 30 and also those in the 51 to 60 age bracket, perhaps seeking a better lifestyle for their retirement.

With the number of unemployed in Birmingham higher than in any other major UK city, people living in the Midlands are subsequently the most likely to look for a job overseas - 17 per cent of them compared to just 13 per cent in Wales and the South West.

The majority of people planned to head for a country with a warmer climate, more days of sunshine and those that were English speaking. A fifth of people named Australia as their top choice; one in six selected the USA and one in ten chose New Zealand. Canada was also a popular choice.

Peter S. Ellis, Chief Executive of Foreign Currency Direct, said, "As people struggle to find jobs, it is no wonder that Brits are considering bailing out the UK.

"In the last year, Foreign Currency Direct has seen an 37 per cent increase in the number of clients transferring funds to Australia and the USA as Britons look overseas for a better quality of life."