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Wednesday, 22 November 2017      
 
 
 

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US and UK Markets Crash

Monday, 08 August 2011
     

"Markets will rise and fall, but this is the United States of America. No matter what some may say, we've always been and we'll always continue to be a AAA country," - Obama

Following the US credit rating downgrade at the weekend after it nearly defaulted on it's national debt, Obama has made a statement saying that he refuses to recognise the down grade. In response, the US stock market has begun to crash.

Shortly after Obama made his statement, the trading screens turned red, almost without exception, and the the Dow Jones dropped below 11,000 eventually closing down 5%.

In anticipation, £46,000,000,000 was wiped off the FTSE 100 at close leaving it down 178 points at 5,068.95, almost 30% down from 6950 in 1999. However, the Dow Jones is currently suffering even more, meaning that further losses are expected in the UK market tomorrow.

Combined with losses last week, both indexes have suffered a crash. As a consequence of all the turmoil, the currency of last resort, gold, has hit a record high, at $1,700 an ounce.

Obama did concede that tax reform is necessary for any recovery, and agreed that compromises on Medicare are inevitable, whilst urging Congress to keep allow his payroll tax cut, and urging them to provide unemployment benefits for the millions of registered voters that are either out of work, or likely to be out of work in the near future. He said that he would submit more recommendations for long-term plans in the next few weeks. These are clearly moves to attempt to agree a way forward with Republicans with whom he he has been unable to agree a long term plan. This uncertainty is what triggered the credit downgrade.

Last week a 6 month compromise was hammered out at the last moment, but the uncertainty beyond that makes the US government a huge default risk.

If no agreement can be reached before then, the likely outcome is that Obama will have to implement a Republican budget just before his term expires, or the US government will default, and the government will be unable to function. All government services would cease. That won't happen, but expenditure reductions will have to be agreed.

 

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