Armageddon (end time) in world stock market on 2 August 2011?

by **hlk** Tue 26 Jul 2011, 08:03

In
some religions, Armageddon refers to the site of a battle during the
end times. Will that happen on 2 August 2011 and the whole world stock market crash, including Bursa Malaysia Stock Market?
The
U.S. borrowing limit, currently at 14.29 trillion U.S. dollars, and if
by 2 Aug 2011 the US President Obama still unable to convince the US
politicians to approve the increase of the ceiling limit, this will
cause US to default its loan. After few tries, Obama still fail. Why so
serious and the politicians may not want to approve it? The reason is
Politics.
I'm not so good at economics. Extract some articles for your reading pleasure.
-----------------------------------
Pacific
Investment Management Co. LLC Chief Executive Officer Mohamed El-Erian
said a short-term default by the U.S. on its debt might have
'catastrophic' legal consequences.
'We
would be in the land of the unpredictable' if lawmakers fail to reach
an agreement to raise the $14.3 trillion debt ceiling and the U.S.
misses a payment 'simply because of the technical linkages,' El-Erian
said in an interview on CNN's 'Fareed Zakaria GPS' program, scheduled to air today.

U.S.
lawmakers are seeking a path to increasing the debt limit and to
cutting at least $1 trillion from the long-term deficit before an Aug. 2
deadline. President Barack Obama plans to hold separate meetings at the
White House June 27 with Senate leaders Nevada Democrat
Harry Reid and Kentucky Republican Mitch McConnell in an effort to
break an impasse that scuttled a seven-week negotiating effort led by
Vice President Joe Biden.
'My
advice is please try and get together and solve this issue in the
context of a medium-term reform package,' El-Erian said. 'If you can't
do that and you're going to kick the can down the road, kick the can
rather than face something that could be catastrophic in terms of legal
contracts being triggered.'

Pimco,
the world's biggest manager of bond funds, sees more value in non-U.S.
government bonds than U.S. Treasuries as the Federal Reserve prepares to
end its $600 billion bond-repurchase program this month, El-Erian said.
Pimco, of Newport Beach, California, is a unit of the Munich-based
insurer Allianz SE. (ALV)
'A
basic rule as an investor is don't buy something unless you know who
else is going to be buying,' he said. 'So when we look at Treasuries, we
see the big buyer stepping away from the market, for certain. And we
ask the question, who else is going to be buying at these levels, and we
can't identify another buyer of the size of the Fed.'

El-Erian
said the U.S. fiscal problems are dwarfed by those of Greece, whose
debt reached 143 percent of gross domestic product last year.
'It
is inevitable that Greece would have to restructure its debt,' he said.
'Greece has two problems: it has too much debt and it cannot grow. And
until these problems are solved, more and more of Europe is going to
become contaminated.'

Europe
has been treating Greece 'not as a solvency issue, but as a liquidity
problem,' El-Erian said. 'We had a massive bailout a year ago in Greece,
massive. A year later, every single indicator in Greece is worse off.'
--
With assistance from Heidi Przybyla, Julianna Goldman, Cheyenne Hopkins
and Ian Katz in Washington. Editors: Ann Hughey, Christian Thompson.

Source:bloomberg.com/news
-----------------------
Republicans and Democrats
have reached an impasse in an escalating ideological battle over
raising the US debt ceiling, with the rating agency Moody's threatening
to downgrade Washington's credit worthiness if the two sides fail to
find a compromise by August 2 - a move that could destabilize the global
economy.

"It's
the foundation of our financial system," US Federal Reserve Chairman
Ben Bernanke said during a recent congressional hearing. "The notion
that it would become suddenly unreliable and illiquid would throw shock
waves through the entire global financial system."

Tax increases versus spending cuts

Both political parties
agree in principle that the US must increase its $14.29 trillion (9.8
trillion euros) debt ceiling in order to continue paying its bills and
avoid a short-term default on its financial obligations. Negotiations,
however, have reached a stalemate due to a partisan divide over the
appropriate balance between taxes and spending cuts.

Bildunterschrift: Gro''ansicht des Bildes mit der Bildunterschrift: Democrats like Nancy Pelosi are reluctant to cut spending
Republicans
have preconditioned any debt limit increase on parallel cuts in
spending while at the same time rejecting tax increases across the
board. Democrats, meanwhile, have been reluctant to make cuts in social programs such as Medicare and Medicaid that could alienate their electoral base, proposing instead to raise taxes on wealthier Americans.

Republican
House Speaker John Boehner and President Obama appeared on track to
bridge the divide through a "grand bargain" that would have included a
$3 trillion reduction in spending and $1 trillion in tax increases.
Rank-and-file Republicans led by House Majority Leader Eric Cantor,
however, rejected the deal due to the tax hikes.

In
lieu of the politically risky "grand bargain," Cantor reportedly called
for a short-term solution rooted in spending cuts. Cantor's proposal
prompted Obama to dig in his heels against Republican demands in what
has become a volatile game of political brinkmanship.

"The problem is that there is no party discipline," Josef Braml, an expert on American politics at the German Council on Foreign Relations, told Deutsche Welle.

"Obama can't get his liberals on board. On the other side, it's difficult for Republicans to get the Tea Party guys involved because they would commit electoral suicide if they agreed to tax increases."

Domestic dangers

Christian Lammert, an expert on US domestic politics, says that while fiscally conservative Tea Party Republicans stubbornly reject tax increases, many progressive Democrats are adamant in their opposition to cuts in social programs like Medicare, Medicaid and Social Security.

"That's
the third rail of American politics," Lammert, with the John F. Kennedy
Institute at the Free University of Berlin, told Deutsche Welle.

"If you touch it, this is political suicide especially for the Democratic Party.
There is a lot of opposition within the party, especially in the
progressive wing that will not support any deal between Obama and the
Republicans that will be about such huge spending cuts."

Bildunterschrift: Gro''ansicht des Bildes mit der Bildunterschrift: The fiscally conservative Tea Party has become a powerful force in Congress
According
to Lammert, the US ultimately has no choice but to implement both tax
increases and spending cuts in order to gain control over its $14
trillion national debt, regardless of what the ideological
predispositions of the far-right and far-left prescribe.

Such
measures, however, remain difficult to implement because they place new
burdens on an American public still reeling from high unemployment,
stagnant wages and low savings.

"The
income inequality is rising in the United States to a level that the
United States has not known since the New Deal and this will be a
problem if this gap widens and the poverty rates go up," Lammert said.

"It's just a question of time until this gets [to be] so huge a problem that there might be some forms of social unrest."

No longer a 'safe haven'

Not
only has the weary American voter lost patience with Capitol Hill, but
the international community is also beginning to challenge Washington's
economic policy. Moody Investor's Service has placed America's AAA
credit rating on review for a possible downgrade.

Such
a move would be "extremely painful" for the US, said Jacob Kirkegaard
from the Peterson Institute for International Economics in Washington.
The US market for government bonds is, after all, not just some exchange, but rather the safe haven for investors worldwide, he said.

"The
problem is that when you lose the status of 'safe haven' - which
inevitably occurs with a downgrade - interest rates rise over a longer
period of time," Kirkegaard said. It could take decades for the
situation to normalize again.

In addition, the US would have to work hard to regain the trust it wilfully put at stake, he said.

"The
US is not bankrupt, we aren't Greece," Kirkegaard said. The blame lies
elsewhere: "A political system in America that is unfortunately unable
or reluctant to raise the funds necessary for the style of government we
want." This does not only apply to domestic policies, but also the
global role of the US, he said. International commitment costs money.

According to Lammert, a downgrade would make it even harder for the US to get new credit.

"This
will not help the economic recovery," he said. "This will mean a rise
in unemployment and that's the major problem right now for the United
States."

Global fallout

Washington's
creditors in Asia have also begun to speak more forcefully as they
worry that their own national interests are at risk in a system that
appears unable to resolve its own problems.

"We
hope the US government adopts responsible policy and measures to ensure
the interests of investors," Chinese Foreign Ministry spokesman Hong
Lei said recently.

The
consequences of a US default are difficult to predict, although
borrowing costs would certainly increase, putting even more pressure on
an ailing American economy that still stands at the center of the global
financial system.

"You
can never tell where sheep are running," Braml said. "If it was true
that markets are rational you could predict it, but we all know that the
markets are anything but rational."

Authors: Spencer Kimball (Reuters, AFP), Christina Bergmann, Washington DC
Editor: Rob Mudge

Source:dw-world.de

-----------------------

New
chief of the International Monetary Fund (IMF) Christine Lagarde said
Sunday that there would be "real nasty consequences" for global economy
if the United States defaulted on its financial obligations.

Lagarde,
who took the post of the IMF managing director on July 5, said in an
interview with the U.S. media that the default would cause interest rate
hikes and stock market falls across the world.

Her
comments came at a moment when the White House and Republicans are
intensively involved in deficit reduction and debt limit talks.

The U.S. borrowing limit, currently at 14.29 trillion U.S. dollars by Aug. 2, was reached on May 16.

The
U.S. Treasury Department said the United States would begin to default
if there was not an agreement to lift the limit before the Aug. 2
deadline.

"If
you draw out the entire scenario of default, yes, of course, you have
all of that -- interest hikes, stock markets taking a huge hit and real
nasty consequences, not just for the United States, but for the entire
global economy, because the U.S. is such a big player and matters so
much for other countries," said Lagarde, former French finance minister
and the first female head of the 187-member international financial
institution.

On
July 6, Lagarde said sovereign debt challenges were threatening a broad
range of advanced economies, not only many European countries, but
Japan and the United States

Souce:http://news.xinhuanet.com