Geithner fury over US downgrade
Treasury secretary Timothy Geithner said today credit rating agency Standard & Poor’s showed “terrible judgment” in lowering the US government’s AAA status.
Mr Geithner said the agency’s decision showed a “stunning lack of knowledge” about the basic maths used to develop the US government’s budget.
Republicans have blamed President Barack Obama for the first downgrade of the government’s credit rating.
But Mr Geithner said Congress owned the credit rating because the US Constitution gave Congress the power to tax and spend.
Standard & Poor’s cut the nation’s top-ranked AAA credit rating to AA+ on Saturday.
Australian and New Zealand markets opened lower today in response to the US downgrading.
The bourses were among the first to open following the historic news.
Australia’s benchmark S&P/ASX-200 index lost almost 2% in early trading and key New Zealand indexes showed a fall of more than 3%.
Finance ministers from major industrial countries have pledged increased co-operation to attack economic problems.
The Group of Seven nations issued a joint statement saying they were committed to taking all necessary measures to support financial stability and growth.
The G7 statement came after the group held an emergency conference call to discuss the debt crisis in Europe and market prospects following the US downgrade.
Mr Geithner and US Federal Reserve chairman Ben Bernanke participated in the conference call.
In a sign of early fallout, Middle East markets tumbled yesterday on their first day of business after the downgrade. Egypt's benchmark EGX30 index fell more than 4%, and other Gulf markets also were sharply lower. Israel's benchmark TA-25 index plunged 7% to close at 1,074 points.
US markets and others reopen today but have had rough patches recently. The Dow Jones industrial average dropped 512 points on Thursday, its worst performance since the financial crisis of 2008, and regained only a fraction of that drop on Friday.
Many economists see the world’s big central banks as the last line of defence at this moment in the crisis, after policymakers in Europe and the US have failed to agree on the kind of shock-and-awe moves that many investors demand.
Investors have also been calling on the US Federal Reserve to start pumping money into the American economy again to help underpin the slowing economic recovery.
Japan's Nikkei 225 stock average was down 1.3% at 9,178.30 and Seoul's Kospi dropped 1.6 % to 1,913.58.
Hong Kong’s Hang Seng tumbled 2.6% to 20,409.01 while Australia’s S&P/ASX 200 pared its initial sell-off to be down 1% at 4,062.70.
Futures pointed to losses on Wall Street today. Dow futures were off 225 points, or 2%, at 11,177 and broader S&P 500 futures shed 23.6, or 2%, to 1,174.20.
Standard & Poor’s downgrade of the US sovereign credit rating is another blow to confidence in the struggling US economy, analysts said.
Worries that the US economy, the world’s biggest, is heading back into recession have been compounded by signs that Europe’s government debt crisis is threatening to engulf bigger economies such as Italy and Spain.
“The loss of AAA status will plainly add some salt to the wounds of weak sentiment” in stock markets but concern is likely to quickly return to the prospects for US and global economic growth, DBS Bank in Singapore said in a report.
“Investors are far more concerned about the weak economy than what the S&P has to say about US politicians and their inability to wrap a plan around the deficit,” the DBS analysts said.
