Moody's was saying, essentially, "We are not fooled by all the bells and whistles," proclaiming Greek bonds were in trouble as the service rated the country's debt "Ca," just above default. Meanwhile, economic leaders are scratching their heads. What could they have done that was so wrong? They worked through endless, tiresome and late meetings to put together the best package they could for Greece. Their reward was a kick in the seat of the pants.
Greek President George Papandreou looked visibly disturbed in a news photo after the downgrade -- as if someone had pulled the rug out from under him. He worked hard for that kick in the pants.
Moody's, meanwhile, said, "The impact" of that enormous rescue package "on Greece's debt burden is limited."
In effect, here's a lesson many have to learn and should learn quickly: Economic Band-Aids keep the wound clean, perhaps, and buy more time, but they do not help the underlying problem. In the case of Greece, the loans forestall the day of reckoning but the billions in austerity cuts the European Union demanded are potentially the equivalent of giving someone a loan, then taking away their ability to earn money to pay it back. Athens is selling billions of dollars worth of assets that it could use to prop up revenue.
In Washington, beware the politician who says, "We need to make huge spending cuts in order to help our economy … or create jobs." The federal government may well need to make spending cuts to shrink a huge budget deficit, but that is different than creating jobs.
The connection is clear: Don't be surprised if Democrats and Republicans agree on a deficit reduction package that Moody's, perhaps even the very next day, ignores, downgrading the U.S. triple A credit rating, anyway.
The International Monetary Fund said Monday "the outlook is for continued albeit modest growth" for the U.S. economy. But the public information notice never directly said "a consolidation phase to address (the government's) unsustainable trajectory" had anything to do with the mathematics of recovery.
Therein lies the rub: In some circles, despite the lack of math behind it, the argument is made that investor confidence cannot be overlooked and will fade if the United States does not address its deficit issue.
There's truth there, too. Without infrastructure, sustainability is a lost cause.
In international markets Tuesday, the Nikkei 225 index in Japan rose 0.47 percent while the Shanghai composite index in China added 0.53 percent. The Hang Seng index in Hong Kong rose 1.25 percent while the Sensex in India fell 1.87 percent.
In Australia, the S&P/ASX 200 rose 0.95 percent.
In midday trading in Europe, the FTSE 100 index in Britain rose 0.17 percent while the CAC 40 in France fell 0.56 percent. The German DAX 30 index was flat, off 0.02 percent while the Stoxx Europe 600 dropped 0.31 percent.
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