The fact that the Senate and the House of Representatives voted earlier this week the plan to increase the U.S. debt ceiling does not solve the serious problems of the American budget.
With an aging population and a growing deficit, the solution found by the Democrats and Republicans is not sustainable. And the investors realized it. Scared of the approaching danger, they fled from the U.S. market, the New York stock market falling on Thursday with up to 5%, which is the worst session since early 2009.
Moreover, rating agencies keep an eye on the U.S. and a wrong decision could be charged with the dropping of “AAA” rating, the highest awarded to a country.
What would that mean? The entry into tail spin of the entire global financial system. Again, the same chaos created on the markets three years ago.
And let us not forget that in Europe the situation is not rosy as well. Sovereign debt crisis threatens to encompass more and more states and the strength of European economies able to give a helping hand is still lower compared with growing needs. Steep falls on U.S. and Asian stock markets were followed by drops of European stock exchanges.
Decreases to the lows of the last 14 months. “Investors throw in the towel because they can’t find peace on any front”, an U.S. analyst comments.
Is there a way to stop the snowball? Scared that the crisis will cross the Pacific to Asia, Chinese and Japanese leaders, as major U.S. lenders have already made this morning an emergency call to a closer international cooperation. In Europe, Sarkozy called Merkel and Zapatero in an effort to find a solution, and European Commissioner for economic and monetary affairs, Olli Rehn, interrupted his holiday to return to Brussels. Is there something to do, now at the last moment? After months of just postponing payment of the bill for the economic crisis by the monetization of debt, a catastrophe is difficult to avoid.