Recession 2, the sequel?

Stock markets have fallen to their lowest level since August 2009, the price of gold is booming and the talk of 'double dip' recession is on the lips of every media minded economist. So whats going on, we thought this was all behind us?

In the recent days:

• Rating agency Standard & Poor's have downgraded the US credit rating from AAA+ to AAA, the first time America has dropped from the top credit rating since 1941. They site the reason of the possibility that the US could re-entre recssion in the coming months. They were also less than inpressed on the political stalemate and point scoring between Reuplican's and Democrat's during their recent debt ceiling negotiations.
• China is taking the opportunity to criticise the US economy as they try to get the Yuan named as the new global reserve currency. Seeing as China holds one Trillion dollers of US debt, what they have to say carries some weight. 
• The cost for Italy and Spain to borrow money by selling bonds on the international market went up past 6%, this is unsustainable. The EU began buying the bonds of the two countries today, this has reduced the cost somwhat but is this a solution or just a sticking plaster? Spain and Italy's economies are far to big to be bailed out. The ECB will have to act decisvly if the Euro is to remain in place.
• Investors are fleeing the stock markets in their droves, the Irish ISEQ index dropped 4.4%, the French and German indices dropped 4.7% and 5% respectively today alone. This is having a major effect on pension funds and investors who are exposed to the stock market directly or through life insurance companies investment funds.
• There is a flight to quality, Gold is seen as a safe haven during market turmoil, this has increased the price to €1700 an ounce.
• In Ireland the tax take is 1% up on expectations, thats good right? Well yes and no, the increase is due to corporation tax, exporting multinationals based in Ireland are booming . VAT take (a sign of consumer confidence) is low and getting lower. Expect to see VAT figures drop dramatically in the coming weeks, now that the scrappage deal is finished.
• The live register figures indicated a further 1500 people out f work in the last month.
• Morgan Kelly, UCD economist thinks that property prices still have some way to fall and this will mean that by 2015, Ireland will have a national debt for betweem €240-250 billion.

Its not all doom and gloom though, the cost of oil has dropped in the last few days, and due to the recent Erozone troubles we can fairly safey say that there will be no interest rates hikes coming from Frankfurt untill 2012 at the earliest.

FS

Ireland's credit rating cut to Junk status

Moody's credit rating agency yesterday reduced Ireland's credit rating to junk status (Ba1 with a negative outlook) http://www.moodys.com/research/Moodys-downgrades-Ireland-to-Ba1-outlook-remains-negative?lang=en&cy=global&docid=PR_222257

Look back at a earlier post of mine 'Bonds, a beginners guide' for more information on what the credit rating means to us. They claim that it is due to the fact that Ireland will likely need a second bailout as they doubt we will be able to return to the bond market as planned in 2013. Ironically by moving our credit rating to this level we are even less likely to engender confidence from the markets.

Predictably the move has predictably been criticised by the ECB, NTMA, and government. Europe is getting mighty peeved with the ratings agencies who they believe have been less than helpful in ensuring the never ending Euro 'crisis' gets towards a resolution of sorts.

In future we may see a Euro bond, where any Eurozone member state can borrow based on the strength of Europe as a whole and not strictly based on the performance of their own individual economy.

FS

Whats your credit rating?

We have all heard that the different credit rating agencies have downgraded Irelands creditworthiness time and again over the last few years but have you ever wondered what your personal credit rating is?

The Irish Credit Bureau allows you to do this. The reports they prepare can be help full if you plan to apply for credit (or if you wonder why you have been turned down for a loan). There is a fee to access your credit report, currently €6.

See www.icb.ie to apply.

FS