Internationalisation or Globalisation affect us in a more profound way. Over the past few week we saw a rating company Standard & Poor (S & P) cut the long-term U.S. credit rating by one notch to AA-plus. S & P strips United State of America (USA) of its AAA credit rating over concerns on government budget deficit and rising debt burden.
The downgrade will no doubt raise borrowing for the US government, companies and consumers.
How does this affect you, myself and other Non- Americans?
The action by Standard & Poor carries negative consequences in global markets. Stocks around the world fell and they continue to do so as investors lose confidence in the manner in which the world economy is playing out. Asian markets plummeted overnight, after the Dow Jones Industrial Average closed down 3.7% Thursday (18 August 2011), and the Johannesburg Stock Exchange all share index and JSE top 40 closed 2.95% and 3.37% lower, respectively on the day.
So, amid all this market activities, the question that ponders on everyone’s mind is are we are up for another recession or is the market oversold? I say without fear of contradicting myself that even the worlds savviest investor do not know what is really going on. It seems to me that the future looks bleak.
As things stands-and I stand to be corrected on this one-I believe that we will see another recession sooner rather than later. This conviction of mine is supported by Reuters’s James Saft when he noted:
Mathematically, that profits could be maintained at current levels or rise in the face of declining government spending would be for households to save less or borrow more. That isn’t happening: households are saving more than they did a few years ago, but less than they ought to given the poor performance of their assets and wages and the lousy state of their personal balance sheets.
So the fall in the stock market is rational. There will be some mixture of falling corporate profits and slow to negative growth in the medium term.
Let’s exchange ideas, taking all the world economic events into account, are we up for another recession? I value your opinion on a comment box below
*A continuing student of life keeps on blogging about matters that affects the economy. In pursuit of being relevant in life, excuse any inaccuracies that might be contained in this blog post.
SOURCE: Time Magazine and Reuters.