News Links: Downgrade watch begins as debt panel concedes defeat

Credit rating agencies reiterated Monday that the U.S. is at risk of a downgrade following the announcement that the supercommittee has failed. Standard & Poor’s warned lawmakers not to try and roll back the $1.2 trillion in automatic cuts set to begin in 2013. The rater said an effort to reverse those cuts could increase "downward pressures" on the U.S. rating, which S&P already lowered for the first time in August. Another top rater, Moody’s Investors Service, said that the nation’s rating is still on a "negative outlook."

The Indian rupee plunged to an all time low against the dollar Tuesday as global demand for dollars and India’s darkening economic picture swamped out central bank efforts to staunch the decline. The rupee hit 52.73 to the dollar, breaching its March 3, 2009 low, analysts said. Slowing growth, a swelling current account deficit and waning investor interest in India are adding to pressure on the rupee amidst a global scramble for dollars as investors flee the euro.

Bank of America Corp.’s board has been told that the company could face a public enforcement action if regulators aren’t satisfied with recent steps taken to strengthen the bank, said people familiar with the situation.

Spain’s short-term borrowing costs hit a 14-year high on Tuesday as political uncertainty over a solution to the euro zone’s sovereign debt crisis hit another vulnerable southern European economy.

UK market participants see risks of major crisis at their highest since just before the collapse of Lehman Brothers, with a eurozone break-up their top worry, according to a Bank of England survey.

Spain raised 2.98bn euros ($4bn, £2.6bn) in an auction of three- and six-month bills, but at higher yields. On the three-month bills, the annualised interest rate Spain had to pay more than doubled to 5.11%, from 2.29% at the last auction in October.

Case in point – a note by Nomura analysts published over the weekend, which has ruffled a few feathers. It’s one of the first investment cases drawing on the legal details of redenomination of euros into another currency. Nomura also treat this as quite an urgent practical matter.

If you have half an hour, read this paper (pdf) by Philip Whyte and Simon Tilford for the Centre for European Reform. It is a forensic look into the deeper causes of Europe’s crisis and why the reactionary policies being imposed on two thirds of the eurozone by Germany’s Wolfgang Schauble and the northern neo-Calvinists – with input from 1930s liquidationists at the ECB – will lead to certain disaster.

Growth in the developing economies of East Asia is moderating because of weakening external demand, said the World Bank in a report.

Zes Democraten en zes Republikeinen slagen er niet in overheidsschuld te verminderen

So am I against technocrats? Not at all. I like technocrats – technocrats are friends of mine. And we need technical expertise to deal with our economic woes. But our discourse is being badly distorted by ideologues and wishful thinkers – boring, cruel romantics – pretending to be technocrats. And it’s time to puncture their pretensions

The right thing to do right now is for the Federal Reserve and the European Central Bank to engage in further monetary stimulus. Having lowered short-term interest rates, they should buy (or in the case of the Fed, resume buying) significant quantities of government securities to help push down long-term interest rates and encourage investment.

According to new consumer survey data from ChangeWave Research, Amazon’s Kindle Fire is poised to become the first real competitor to the Apple iPad, with one in five planned tablet buyers (22%) indicating they will purchase the Kindle Fire. This is the first time since the original iPad’s launch that the number two device ever achieved a double-digit percentage in terms of consumer interest.

RIM’s new line of BlackBerrys may have already blown through that initial grace period, if RBC Capital Market’s Mike Abramsky is to be believed. Abramsky noted to investors this morning that BlackBerry sales have begun to slow down as RIM heads into the holiday season. "Despite on-time BlackBerry 7 launches, checks are showing slowing domestic sell-through, plus impacts from recent service outages and PlayBook challenges (delayed software, sluggish sell-through)," Abramsky said.

Hubris knows no bounds. AIG’s former CEO Hank Greenberg, who was a significant shareholder of AIG stock via C.W. Starr (which was basically an executive enrichment vehicle) is suing the Treasury and Fed over its rescue of AIG. He has hired litigation heavyweight David Boies, who famously made Microsoft CEO Bill Gates squirm when he put him on the stand in the Microsoft antitrust case. based on the report from Gretchen Morgenson, the argument seems to be that AIG got less good terms that Citigroup did, ergo the bailout "discriminated" against AIG.

a few users are reporting that their new Kindle Fires are being damaged after going through X-ray machines at airport TSA checkpoints. While the X-ray machine isn’t exactly to blame, according to an expert, it can be a factor.

EU-Kommissionspräsident Barroso macht sich stark für Euro-Anleihen. Bei der Bundesregierung stößt das auf heftigen Widerstand.

The shortfall in customer cash held by collapsed brokerage firm MF Global may have doubled to $1.2bn (£760m), according to liquidators. Original estimates of a shortfall in customer cash were around $600bn.

Athens establishes a Convertible drachma, a hard physical currency to be used for all commercial transactions-both internal and external trade in goods and services-to replace the common European currency for all payments. The exchange rate of this secondary currency floats, with its value determined by markets, albeit with the occasional intervention of the Greek central bank. Second, all financial transactions are handled with a Financial drachma. This is not a physical currency but an elevated fixed rate determined by the International Monetary Fund and the European Central Bank at which both the government and private debtors can exchange their Convertible drachma into Financial drachma, primarily for the purpose of settling euro-denominated debts.

Jefferies has battled repeated questions and rumors about its financial health and its exposure to the debt of troubled European countries. Today, Jefferies issued a new letter to its investors and customers that again seeks to defend the company from what it says are "malicious lies."

the eurozone crisis could well get worse in the short term. There is no political solution in sight. Angela Merkel, the German chancellor, rejects a eurozone bond. The European financial stability facility is too small to handle countries the size of Italy or Spain, let alone both. Even a fully operational, leveraged EFSF would not be in a position to give a "whatever it takes" bond purchasing guarantee.

Le socialiste francophone Elio Di Rupo tente depuis plusieurs semaines de former un gouvernement en Belgique. le pays est dans une crise politique sans précédent depuis le 13 juin 2010.

Belgien findet einfach keine neue Regierung. Wochenlang hatte Elio Di Rupo mit allen Parteien verhandelt – nun gibt der Vermittler entnervt auf. König Albert II. hat seinem Antrag auf Entlassung allerdings noch nicht zugestimmt.

Far from holding the euro zone hostage to its hyperinflation history, some German analysts see Merkel readying herself for a euro zone deal, aided by her two new pragmatic allies in Frankfurt. "Pushing for a new euro zone regime of rules is exactly what was to be expected from Berlin," said political analyst Jan Techau, director of the Carnegie Europe think tank in Brussels. "What people don’t understand is that this package of rules is the political price Merkel needs for German concessions on the ECB."

When we ask politicians to explain these deplorable results, they reply in unison: "It’s not our fault." Recovery, goes the refrain, has been "derailed" by the eurozone crisis. But this is to turn the matter on its head. The eurozone crisis did not derail recovery; it is the result of a lack of recovery. It is the natural, predictable, and (by many) predicted result of the main European countries’ deliberate policy of repressing aggregate demand. That policy was destined to produce a financial crisis, because it was bound to leave governments and banks with depleted assets and larger debts. Despite austerity, the forecast of this year’s UK structural deficit has increased from 6.5% to 8% – requiring an extra £22 billion ($34.6 billion) in cuts a year. Prime Minister David Cameron and Chancellor George Osborne blame the eurozone crisis; in fact, their own economic illiteracy is to blame.

The "time has come" to deal with Iran, Israeli Defense Minister Ehud Barak said Sunday, refusing to rule out military action to curb the Islamic republic’s nuclear ambitions. Barak, speaking on CNN’s Fareed Zakaria GPS program, indicated that Israel’s patience was wearing thin – and provided an ominous response when asked about the growing speculation of an Israeli military strike.

Over the past week, we’ve heard all sorts of propositions that the European Central Bank (ECB) "must" begin printing money to bail out Italy and other countries, because "there is no other option." There are three basic difficulties with this idea. The first is that ECB buying might help to address immediate liquidity issues of distressed European countries, but it would not address long-term solvency issues, and would in fact make them worse. The second is that the ECB, under existing European treaties, has no such authority, and the prohibitions against it are very explicit. Changing that would be far more difficult than many market participants seem to believe, because it would require an explicit and unanimous change in the EU Treaties that AAA rated countries such as Germany and Finland vehemently oppose. The third difficulty is that even if the ECB was to buy the debt of distressed European countries with printed money, the inflationary effects would likely be far more swift than anything we’ve seen in the United States. This would not "save" the euro, but would simply destroy it by other means. Investors are not likely to be treated with a "surprise" announcement that the ECB is going to expand its purchases of distressed European debt. Any significant ECB intervention would likely follow a formal revision of EU treaties that trades greater ECB flexibility in return for more centralized fiscal control.

Jonathan WIlmot reckons we’ve seen the end of the muddle through – also known as kicking the can down the road – because market forces will drag Sarkozy and Merkel kicking and screaming to the negotiating table. As the details of the union are thrashed out, Spanish and Italian bonds could hit 9 per cent and France 5 per cent. Hell, even Buund yields will rise during the Last Days of the Euro. Prepare yourselves.

A rise in interest rates on French government debt and weaker growth prospects could be negative for the outlook on France’s credit rating, Moody’s warned in a report on Monday, adding to pressure on European debt markets.