Economic Downgrades Hit Europe

Global credit rating agency S&P on Friday (1/13) cut the credit ratings for France, Austria and 7 other European nations, further endangering the rescue funds several of them desperately need as investors grow more scared. Other than from the two World Wars, the magnitude and depth of this massive European Economic Crisis is unprecedented and its impact will ultimately be felt all over the world.

Why? Because starting with Greece, these nations will begin to default on their debt obligations, forcing the investors in them to take huge write offs. Those investors are banks, sovereign funds, hedge funds and other vehicles whose money comes from citizens across the globe. It may be money from your retirement account or from my savings as those who manage our money were seeking the highest rates of return for our money by placing it in supposedly safe investments.

In response, the global banking system will begin to freeze up as banks and investors panic. They will cry out for taxpayer funded bailouts but the magnitude of the bailouts will be too big to pay as the situation falls apart. Some thriving export oriented nations such as China, South Korea and Brazil may assume they won't be affected but if so, they will be wrong for they will suffer a sharp reduction in exports to Europe and their economies too will get hit.

Some people will assume the U.S. with all of its resources will come to the rescue. But they will be wrong for the U.S. is by far the biggest debtor nation in the world and its government stays afloat now based only on its gargantuan borrowings.

Please take protective action. Pay down your credit cards if you can for the interest alone on those cards can eat you alive. Sell off any costly assets you no longer need such as a motor home, an extra car, boat or motorcycle. If you have a home to sell, consult with a local real estate professional but sell it now before prices drop further. At work, protect your job by cross training and by helping others to do their jobs better.

And don't lose hope. Together we will get through this economic Armageddon by helping one another as people did during the Great Depression. Eventually, as has happened throughout history, we will resurrect our economies and come into far better economic times.

Dick
To learn more, please see "Europe Hit by Downgrades: S&P's Ratings on France, 8 Others Are Lowered, Sparking Fresh Worries," The Wall Street Journal http://online.wsj.com/article/SB10001424052970204542404577158561838264378.html

As to why I am so confident the global economies will resurrect themselves, please see "This Time Is Different: Eight Centuries of Financial Folly," by Carmen M. Reinhart & Kenneth S. Rogoff.