As trouble brews overseas in Greece, Italy and Spain and more is
owed to China than could ever be repaid, our economy continues to cool from the
less than robust “jobless” recovery.
What is next on the economic horizon you may ask? On June 21, 2012 Moody's
Investors Service, Inc. lowered or downgraded the credit rating on a number of
Let’s look at what this means.
The Moody’s rating is a measure of how likely it is for a company to repay its debts given what is known about the company in the current economy and business environment. By downgrading the credit rating of some of our largest financial institutions such as JP Morgan Chase, Citigroup and Bank of America, Moody’s is telling us that business conditions are weak even for these major banks.
Investors should be very concerned about buying into financial
institutions in a weakening market but the stock market, being what it is does
not always follow the rules of logic. For example, shares of Morgan Stanley actually increased in value because investors expected a larger downgrade than Moody’s issued…does that make sense?
Job markets have, once again, stalled. The number of unemployed people has increased substantially to 7.4 percent on Long Island and that is using the very slanted figures issued by the Federal Government. Many in the financial sector believe that the actual unemployment rate is double what is reported by the Federal Government and that is frightening!
A mere couple of months ago some were predicting that we were headed for a substantial period of financial recovery but there has been a recent reality check which could signal a dreaded double dip recession in the making. The Moody’s downgrades of our largest financial institutions may be a signal that our
economy has weakened and is spiraling back to recessionary levels.
Credit markets are tight and we all know that loans are just not
available. The lower Moody’s credit rating will make it more difficult to
borrow and some cash strapped banks will lend even less, therefore, large and small businesses alike will be unable to expand or to hire and, in short, our weak economic recovery will stall.
Yes, it is difficult to predict our financial future. Do the above facts mean we will definitely slip back into a double dip recession? No, they do not, but the light at the end of our financial tunnel may have just flickered at a time when we need it to burn brightly.
Patrick Ingegno can be reached at firstname.lastname@example.org or www.innercircledebtsolutions.com