The Great Italian Auto Bailout — Courtesy of U.S. Taxpayers

At the beginning of 2014, Detroit may be bankrupt, but they’re cheering the five-year-old U.S. auto bailout in Italy. That’s because after being the beneficiary of billions in U.S. taxpayer largesse, Fiat, the leading Italian auto company, is going to buy its final stake in Chrysler from that other big bailout recipient, the United Auto Workers (UAW).

“Chrysler’s Now Fully an Italian Auto Company,” reads the Time magazine online headline. But wait a minute! Wasn’t the bailout supposed to be about saving the American auto industry? Continue reading

Ukraine Had No Option – Drop EU for Russia or Be Crushed

Collapse of talks a blow to European 
balance of power as Kremlin sanctions 
trump historic trade deal

Twenty years after the collapse of the Soviet Union, Ukraine is slipping back under Kremlin control. Ukraine’s shock decision to opt for Vladimir Putin’s Russia and pull out of EU talks on the eve of an historic deal is a dramatic upset to the European balance of power. It is the first major defeat for the EU in its eastward march since the fall of Communism. While the region’s geopolitics remain fluid, the upset may prove as fateful as the move by the Kossack chief Bohdan Khmelnytsky to turn his back on the West and accept Tsarist suzerainty in the 1640s.

“Ukraine’s government suddenly bowed deeply to the Kremlin. The politics of brutal pressure evidently work,” said Karl Bildt, Sweden’s Foreign Minister. Continue reading

U.S. opens door to Chinese investors

The United States faces a massive US$8 trillion infrastructure investment bill, and is courting Chinese investors since many of its own local governments are in financial difficulties, according to a US Chamber of Commerce report.

“The US is poised to undertake the most significant expansion and modernisation of its infrastructure since the 1950s,” the chamber said in its report.

“This is taking place in the context of significant pressure on federal and local budgets. The pressing need for capital to modernise US infrastructure is creating substantial new opportunities for Chinese investors.” Continue reading

Fitch warns it may lower U.S. credit rating

Fitch has placed its “AAA” U.S. credit rating on “rating watch negative,” a step that would precede an actual downgrade. The agency said it expects to conclude its review within the next six months. The firm says it expects the debt limit will be raised soon, but adds, “the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.” Continue reading

US default risk is real, Washington warns Wall Street

Money lenders trust America so implicitly that they generally dismiss the risk it won’t pay its debts. But in the US capital, fears are growing that political dysfunction might trigger the unthinkable.

A few years ago one would have said, ‘Don’t be silly. Of course they will raise the debt ceiling.’ But one can’t say that any more.  

Government veterans from both political parties are aghast that lawmakers openly speak of managing a default that could be triggered next month if they don’t authorise more borrowing. Continue reading

US Faces Credit Rating Downgrade By Three Top Firms This Year

In the fiscal cliff negotiations, Obama held the line against entitlement reform, but the resulting deal could lead to downgrades by all three top debt ratings agencies later this year.

When Standard and Poor’s cut the United States debt rating last year, the agency issued a press release outlining the reasons behind their historic decision. Amid criticism of partisan brinksmanship there was a bottom line which had to do with entitlements,

The [2011 debt] plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability. Continue reading

Spain: The Next Wave Of The Financial Crisis Arrives

The Eurozone can handle a Greek crash/exit. The Eurozone can handle a Spanish crash as well. However, when the crisis hits Italy, you can count the days (maybe even hours) before it collapses the US economy.

The euro zone is grappling with another dangerous phase of the financial crisis. This past Monday, Moody’s lowered the outlook on Germany‘s triple-A credit rating from stable to negative. On Tuesday, EU officials said Greece is unlikely to meet its obligations and will require further debt restructuring. What’s more, markets are increasingly wary of Italy’s fiscal situation.

Now, All Eyes On Spain

Yet it is Spain, Europe’s fourth-largest economy, that remains the focal point of the European debt crisis again this week. Interest rates on 10-year bond yields alarmingly have risen again above 7 percent. There is widespread concern that the country may require a full bailout. This is a scenario that the euro zone appears ill-equipped to handle.

Not Just Another Spanish Crisis

It must be remembered that this is not merely a Spanish crisis, nor is Spain another Greece. Just three years ago, the Spanish banking sector had received wide praise. During the darkest days of the global financial crisis, the Spanish banking sector was considered among the most solid of any rich country. So much so that in August 2009 the FDIC approved the sale of Guaranty Bank of Austin, Texas (the 12th largest bank failure in U.S. history) to BBVA Compas – the U.S. arm of Spain’s Banco Bilbao Vizcaya Argentaria SA (BBVA).

Full article: Spain: The Next Wave Of The Financial Crisis Arrives (International Business Times)

Moody’s Cuts Europe Sovereigns Including Italy, Spain

Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and revised its outlook on the U.K.’s and France’s top Aaa ratings to “negative,” citing Europe’s debt crisis.

Spain was downgraded to A3 from A1 with a negative outlook, Italy was downgraded to A3 from A2 with a negative outlook and Portugal was downgraded to Ba3 from Ba2 with a negative outlook, Moody’s said. It also reduced the ratings of Slovakia, Slovenia and Malta.

Full article: Moody’s Cuts Europe Sovereigns Including Italy, Spain (Bloomberg)