The Star Online: Business
The Star Online: Business |
- What happens to markets if the US defaults?
- Samsung LED seeks US import ban on Osram products
- Clinton: US backs tough Greek austerity measures
| What happens to markets if the US defaults? Posted: 17 Jul 2011 06:10 PM PDT NEW YORK (AP) - Time is running out for Washington to raise the country's borrowing limit and avoid a default. Wall Street isn't panicking yet. But if the unthinkable happens, a default could strike financial markets like an earthquake. "If we just get higher longer-term interest rates, we'd be lucky," said John Briggs, Treasury strategist at the Royal Bank of Scotland. What might markets look like after a default? The tremors from even a short-lived default could take unpredictable paths. Stocks, bonds and the dollar would likely plummet in the immediate aftermath. There's wide agreement among economists that a default would drive up borrowing costs for everybody. U.S. Treasury yields act like a floor for other lending rates, so raising them makes it more expensive for Americans to take out mortgages, for corporations to finance new spending and for local governments to borrow. But analysts say predicting exactly how a default would play out in stocks, bonds and currency in the hours and days following the Aug. 2. debt ceiling deadline is practically impossible. "If I were to draw a flow chart, it becomes so complex it's impossible to analyze the impact of a default," said Guy LaBas, chief fixed income strategist at Janney Montgomery Scott. When pressed, investors say the immediate aftermath could look like the financial crisis in September 2008. Stocks would lead the way down. In the month following Lehman Brothers' bankruptcy, for instance, the Standard & Poor's 500 index lost 28 percent. Gold may offer some refuge. Fear has driven traders into precious metals in droves in recent years, but gold is at a record $1,594 an ounce, without taking inflation into account. But two places where traders usually hide -- the dollar and U.S. Treasurys -- are likely to sink as the world's investors flee the U.S. There would be few places to hide. A deeper fear is that a default could freeze the short-term lending markets that keep money moving throughout the global financial system. Treasurys and other government-backed debt are widely as used collateral for loans in these markets. A default and a downgrade of U.S. debt by rating agencies would shake the trust in that collateral, Briggs said. Lenders could respond by demanding borrowers to post more collateral, forcing them to sell other investments to meet those demands. A similar selling cycle spread turmoil across markets when Lehman Brothers collapsed in 2008. But the fallout from a U.S. default could be much worse. "I don't even want to think of the ripple effects," Briggs said. Indeed, most analysts agree that if the world's largest economy reneges on its debts, the consequences would be catastrophic. That's why so far they've trusted Congressional Republicans and President Barack Obama to reach a deal. Federal Reserve Chairman Ben Bernanke certainly drew a dire picture in testimony before the Senate Banking Committee on Thursday. He said a default would be a "calamitous outcome" and "create a severe financial shock." The global financial system relies on Treasurys, backed by the world's largest economy and long considered one of the world's safest bets. "A default on those securities would throw the financial system potentially into chaos," Bernanke said. The widespread selloff that might trigger could have one benefit, Briggs and others say. Panic-selling might force Washington to quickly agree to raise the debt limit. Think back to September 2008 for some historical perspective. After the House of Representatives voted down the bailout bill to create the Troubled Asset Relief Program on Sept. 29, the Dow Jones industrial average nosedived 777 points. Congress made an about face and four days later passed the TARP bill. President George W. Bush quickly signed it into law. "We're setting up for a TARP-like moment," said Neil Dutta, U.S. economist at Bank of America-Merrill Lynch. "The politicians don't come to a resolution, but the market forces a resolution." Traders are still banking on a deal to increase the borrowing limit before the Aug. 2 deadline. That's one reason stocks and bond yields have remained relatively stable thus far, even after Moody's and Standard & Poor's warned they may soon take away the country's top credit rating. "What would shock is if Washington failed to beat the deadline," said Tony Crescenzi, market strategist at Pimco. Crescenzi and other investors believe the negotiations could drag on until the last minute. Markets would likely greet a deal with a "relief rally," analysts say. The effect would be the reverse of a default: Stocks, corporate bonds and the dollar all jump. "The market will react well to it," said David Kelly, chief market strategist at J.P. Morgan Funds. Kelly said a deal would lift the uncertainty hanging over investors, especially those too worried to buy stocks now. After President Bush signed the TARP into law in 2008, for instance, the Dow made large jumps, adding as many as 946 points in a week. When Washington finally agrees to raise the debt ceiling, Treasurys could drop because investors would be more willing to take risks in other investments, Kelly said. That's how they normally trade: Good economic news pushes Treasury prices down and yields up. The relief may not last long. If the agreement leads to deep spending cuts, Wall Street economists say it will likely drag down economic growth. Similarly, in late 2008, the wild gains evaporated as the financial crisis took hold. The S&P bottomed out in March 2009. Federal spending makes up 8 percent of gross domestic product, a broad measure of the economy. Goldman Sachs economists estimate that a deal to cut $2 trillion in spending could take 0.8 percentage points off economic growth next year. The bank already predicts modest real GDP growth of 3.1 percent in 2012. Knock off a quarter of that and the economy won't look much better than it does now. Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by USA Best Price. |
| Samsung LED seeks US import ban on Osram products Posted: 17 Jul 2011 05:50 PM PDT SEOUL, South Korea (AP) - A Samsung unit is raising the ante in a patent dispute with a German rival over energy-saving LED lighting amid intensifying legal disputes among global companies jockeying for supremacy in key consumer technologies. Samsung LED Co. said Sunday that it asked the United States International Trade Commission on Friday to bar products of Osram GmbH and two units from entering the U.S. Suwon, South Korea-based Samsung LED said it also filed a lawsuit in U.S. District Court for the District of Delaware alleging infringement of its LED patents, seeking unspecified damages. Samsung LED is targeting Osram, Osram Opto Semiconductors and Osram Sylvania Inc. in the actions. Munich-based Osram GmbH is a unit of German industrial engineering giant Siemens AG. Osram Sylvania is Osram's North American operation based in Danvers, Massachusetts. Last month, Samsung LED sued Osram Korea Co. and two local companies that sell its products in South Korea in retaliation for what is said were suits by Osram at the USITC, in the Delaware court and in Germany. "Samsung LED intends to vigorously enforce its intellectual property rights, and these lawsuits reflect Samsung LED's commitment to that enforcement," the company said in a release. "Osram is well prepared regarding possible actions by Samsung," said Stefan Schmidt, Osram's head of media relations. Samsung LED is alleging infringement of eight patents covering what it calls "core" LED technologies used in products such as lighting, automobiles, projectors, mobile phone screens and TVs. Semiconductor-based LEDs, or light emitting diodes, are becoming increasingly popular for their durability and energy-saving capability. Samsung LED also suggested it could expand the scope of the USITC case. "As new information becomes available it will continue to evaluate the potential to add additional parties who may be importing, using or selling the accused Osram LEDs in the U.S. market," the company said in the release. Samsung LED was established in 2009 as a joint venture between Samsung Electronics Co. and Samsung Electro-Mechanics Co. Such complaints and lawsuits over patents are common in the global technology industry and seldom lead to market disruptions as disputes take months or years to resolve and typically end with payments of licensing fees rather than import bans. Still, they highlight the intensity of competition in which technological advantage can give companies a key edge in attracting consumers. Rochester, New York-based Eastman Kodak Co. has an ongoing patent dispute over photo technology at the USITC with Apple Inc. of Cupertino, California, and BlackBerry maker Research in Motion Ltd. of Waterloo, Canada. Samsung companies are taking an aggressive stance in global technology patent wars. Samsung Electronics is embroiled in multiple complaints and lawsuits with Apple over smartphone and tablet technology. Separately, Samsung and Taiwan's AU Optronics Corp. have launched legal actions against each other over alleged patent infringement in liquid crystal displays. Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by USA Best Price. |
| Clinton: US backs tough Greek austerity measures Posted: 17 Jul 2011 05:48 PM PDT ATHENS, Greece (AP) - U.S. Secretary of State Hillary Rodham Clinton voiced strong American support Sunday for financially troubled Greece's economic recovery plans and urged the nation to forge ahead with painful reforms that have sparked unrest. During and after meetings with senior Greek officials, Clinton underscored Washington's backing for their deficit and debt reduction programs that have hit the country hard, even as the Obama administration grapples with a similar issue at home. She acknowledged the reforms were "strong medicine" that are difficult to swallow, but said the United States had complete confidence in them. "America is just as committed to Greece's future as we are to preserving your past," Clinton said before signing an agreement at the Acropolis Museum that will protect Greek cultural objects from being looted or illegally sold on the international market. "During these difficult economic times, we will stand with you." Standing before a bank of large windows looking up at the Acropolis, she said: "We are confident that the nation that built the Parthenon, invented democracy and inspired the world can rise to the current challenge." Earlier, at a news conference with Greek Foreign Minister Stavros Lambrinidis, Clinton said the U.S. and Greece "have a lot riding on our relationship together." Lambrinidis thanked her for U.S. support. "Friends prove themselves in difficult times and, as we know, Greece is going through a difficult time," he said. "The U.S. has stood by us in a decisive manner." Lambrindis said that many on "both sides of the Atlantic" had predicted Greece's collapse. He said Greece had proved them wrong and would continue to prove them wrong. The Greek financial crisis loomed overshadowed other items on Clinton's agenda here, including improving ties between Greece and Turkey, resolving their long-standing dispute over divided Cyprus, the Middle East peace process and the wave of popular discontent sweeping the Arab world. Greece's government has embarked on a punishing new round of austerity measures after missing its deficit-cutting targets so far in 2011. Spending cuts and tax hikes have already sparked frequent strikes and demonstrations, with protests often turning violent in central Athens. Clinton appealed for the Greek people to stay the course. "We know these were not easy decisions," she said. "While the payoff from these sacrifices may not come quickly, it will come. ... Greece has inspired the world before and I have every confidence that they are doing so again." Clinton's meetings with top Greek officials come as Greece prepares for an emergency summit on Thursday in Brussels of the leaders of the 17 eurozone countries at which they will attempt to forge a deal on a second bailout for the nation. Greece needs an extra $162.68 billion (euro115 billion) to keep it afloat until mid-2014, according to the European Commission - on top of a euro110 billion bailout it was granted last May. Fears that Greece's private creditors may have to take losses as part of the deal dragged the big economies of Spain and Italy into the debt crisis, which has so far been confined to small states like Greece, Ireland and Portugal. Clinton is visiting Athens on the second leg of a 12-day around-the-world diplomatic tour. She came to Greece from Turkey and will travel to India, Indonesia, Hong Kong and southern mainland China before returning home on July 25. Full Feed Generated by Get Full RSS, sponsored by USA Best Price. |
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