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Federal Reserve Begins To Panic As Global Banks Ratings Are Cut

By: Steve Johnson

12/1/2011 - 0 Comments

Yesterday S&P ratings services downgraded more than a dozen of the largest banks in the world, including the six biggest U.S. institutions.

Fearing a major stock market meltdown, the Federal Reserve issued a statement that they are more than willing to make is easier for distressed banks to get access to dollars whenever needed.

The rating cuts will make is more expensive for them to fund their day-to-day borrowing needs, by increasing the interest rates they will be expected to pay when borrowing money.

The rating agencies have been criticized for underestimating the risks of debt for several years, starting with the market crash of 2008.

The funny thing is that S&P only downgraded the banks by one notch, when just about everyone in the financial community known that most of the banks are still insolvent and without the government bailout money from the Fed’s lower interest rates and TARP, most of these banks would already be gone.  They should be rated at junk.

According to the Wall Street Journal article, if S&P would have lowered the rating of Bank of America within the third quarter, they would have had to post an additional $5.1 billion in collateral. But since S&P waited until after the end of the third quarter they don’t have to.

What kind of games are the rating agencies playing? 

Today, S&P said in a report that Europe is likely headed back into a recession, with a 40 percent chance of a severe recession.

But S&P didn’t even downgrade the European banks, like they did with all six major U.S. banks. So it Europe is headed for a severe recession, what is the U.S. headed for?

That is why the Fed hit the panic button. 

The debt crisis is snowballing, which is decreasing the likelihood that government bonds will ever be paid back.  

When government bonds default, nations go broke and financial systems unravel.  The global financial system is so intertwined in the computer age that any nations bonds can threaten to take down the entire system.

That is why the Fed hit the panic button. 

The stock market shot up 400+ points, but there is little the Fed can actually do at this point.  The debt has been allowed to spread to so many nations for so many years that is has changes the entire global economy, from savings and producing to spending and consuming. 

Just like the Fed could not stop the housing bubble from bursting, they cannot stop the global debt bubble from bursting.

The problem with financial bubbles is that sooner or later they always burst and no one can stop them. 

Bubbles burst when the price to pay becomes higher than anyone is willing to pay, and each person is part of the equation.  Bubbles burst when the value of money or work is higher than we are willing to pay for our labor. 

The reason the global debt bubble is bursting is because people all over the world are no longer willing to work to pay for bloated governments and unemployed workers. The prices have become too high.  

The Fed cannot stop the bubble from bursting because it cannot force people to work more hours than they are willing to or capable of working to support the systems that are dependent on their labor.

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