Crisis Hits the Markets

The New York Stock Exchange reacted with heavy losses to last Friday’s downgrade of the United States credit rating by Standard and Poor (from AAA to AA+), as did other Latin American stock markets, with Sao Paulo at the top.

The President of the United States, Barack Obama, assured that the U.S. will always be a triple A country. The S&P downgraded the U.S. “not so much because they doubt our ability to pay our debt if we make good decisions, but because after witnessing a month of wrangling over raising the debt ceiling, they doubted our political system’s ability to act… Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we’ve always been and always will be a AAA country. For all of the challenges we face, we continue to have the best universities, some of the most productive workers, the most innovative companies, the most adventurous entrepreneurs on Earth. What sets us apart is that we’ve always not just had the capacity, but also the will to act — the determination to shape our future,” he said in his address after Frankfurt, first position in the Eurozone, lost 5.02 percent, Paris 4.68 percent, and London 3.39 percent. Madrid and Milan ended in last with 2.44 percent and 2.43 percent, respectively, although they had benefited from an apparent calm after the decision by the European Central Bank to buy their securities in the secondary market.

“It’s not a lack of plans or policies that’s the problem here. It’s a lack of political will in Washington,” Obama said, recalling that the two parties (Democrats and Republicans) came close to an agreement that would have avoided the current situation by elevating the debt ceiling of the country.

Various leaders of the world agree with Obama. “Political foolishness cannot cause the world to suffer the consequences. We must make clear that we do not share the hasty and somewhat quick assessment of the agency that lowered the credit rating of the U.S.,” said the President of Brasil, Dilma Rousseff.

In reality, investors are worried by the growing risks of a world recession, the threat of the difficulties of the banks and the growing lack of confidence in politicians to resolve the debt crisis and the crisis of the banks, according to statements by Neil MacKinnon, analyst for VTB Capital.

But the debt crisis not only faces the United States; it also affects the eurozone, so the outcome is unpredictable in a globalized macroeconomic environment. According to the Organization for Economic Cooperation and Development (OECD), in June, “stronger signals of a reversal of the growth cycle have appeared in the United States, Japan, and Russia.” And Ecuador, above all, should be concerned that, in this environment, the price of petroleum continues to fall. A devaluation of the dollar does not help, because Ecuador’s principle commercial partner continues to be the U.S., and it should be remembered that it is good to have a cushion for these occasions.