The financial crisis which started in 2008 is deepening. The crisis is the result of decades of reckless borrowing by states. The borrowed money has been used to finance considerable numbers of pensioners, permanently unemployed and non-western minorities, but also to finance unending wars in the Middle East.
In the US credit rating bureau Standard & Poor lowered the status of US Treasury bills from AAA to AA+. Standard & Poor cited doubts about the ability of the US to pay back the money it has borrowed as the cause for the lowered credit rating.
The response of the Markets
Because it is Sunday there is no trading and the markets are not responding. However TASE, the Tel-Aviv Stock Exchange does trade on Sunday. TASE stopped trading after its index fell by 6 percent. This will most likely be repeated tomorrow at Stock Exchanges accross Europe and then the US.
(Interestingly, while share prices are falling due to the panick in the markets, most listed companies are profitable now and paying dividends. Consequently Price Earnings ratios are excellent. This is a good time to buy stock).
Meanwhile in Europe
The German Government states that Italy and Italian government debt is too large to be safed by the EFSF (European Financial Stability Fund). The EFSF was established to funding the saving of "bankrupt" European countries like Greece and Ireland.
Basically the German government of Angela Merckel and her party, the CSU, are unwilling to bail out "bankrupt" countries like Portugal, Italy, Ireland, Greece and Spain (PIIGS). As a result the European Monetary Union (EMU) and the currency are in a crisis.
The EU solution
The crisis will lead to a move by the ruling clique of the EU to try to extend the power of the EU over the member states. These Eurocrats will want the solvent member states, such as Germany and The Netherlands to pay more in order to shore up the state budgets of the southern states. But because the southern states are in trouble because they have allowed narrow interests groups such as civil servants to gain great unearned compensation in the form of pension entitlements starting in the early fifties the solvent EU states are unwilling to fund said narrow interests. Why would a Dutch or German private sector employee go on to work until 67, in order to fund a Greek or an Italian public worker who retires at 55?
The solvent nations
German and Dutch politicians are not able to get the support of their constituencies in order to support this arrangement. And so the EMU will fall apart.
The coming days
What will be next is completely unclear. Ahead are days of uncertainty and doubt.
Both the US and the EU are in trouble by taking on too much debt. This crisis is the result of bad habits and bad morals (welfare, borrowing) that have been spreading since the late sixties.