Monday, April 25, 2011

America appears to be sleepwalking towards disaster – does no one care?

So let me get this straight. The Standard and Poor's rating agency last week took the historic step of putting the US government's AAA credit rating on "negative watch".

There is now, according to S&P, "at least a one in three chance" that American debt will be downgraded from its top-notch status over the next two years – which would be a first in modern times.

A New York Times/CBS News opinion poll has also suggested the US public is now more economically pessimistic than at any time since President Barack Obama's first two months in office in early 2009 – when the country was still caught in the "Great Recession".

Amid renewed talk of a "jobless recovery", the number of Americans who think the economy has deteriorated spiked by 13 percentage points over the past month. Congress, meanwhile, is locked in a bitter dispute over the federal government's ability to make ends meet.

These are the stark realities facing the world's largest economy. They are set, furthermore, against Europe's sovereign debt turmoil, Japan's nuclear crisis and ongoing violence in the Middle East.

Yet despite all this bad news, this veritable litany of woe, the Dow Jones Industrial Average ended last week at a three-year high. US equities are now at levels not seen since mid-2008 – before the credit crunch really took hold. On top of that, despite S&P's announcement, the price of Treasuries kept rising, as their yield – the cost the US government must pay to borrow – fell to its lowest level in a month. Has the world gone mad? (read more)