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

ECB keep rates steady at 1.5%

This months ECB meeting in Frankfurt has kept the main interest rate steady at 1.5% which will be welcomed by everyone with a mortgage, and cursed by people with money on deposit!

The growing concern over the borrowing costs of Spain and Italy and sluggish growth figures worldwide have allowed them to bypass their inflation phobia for a time. The ECB have recommenced their controversial policy of buying Eurozone member states bonds in an effort to reduce yields which have risen to unsustainable levels for both Spain and Italy, whose economies are literally 'too big to fail'.

The EU commission president have admitted that the re negotiated bailout deals for Greece, Ireland etc did not go far enough to provide the stability that the bond market have been seeking, he urged governments to go further in providing funding other troubled countries, this idea was swiftly rebuffed by EU economic superpowers Germany and the Netherlands.

FS 100th Post :)

Time to Lock in your savings

Excellent article in today's Irish Times. It suggests that due to a 'normalising' in the banking sector after near Armageddon, the bumper deposit rates may be coming to an end.

http://www.irishtimes.com/newspaper/pricewatch/2011/0711/1224300491656.html

FS