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11 Aug, 2011 09:09

US to suffer worst if global finances collapse

While the financial markets struggle to regain ground after S&P’s downgrading of the US sovereign debt rating, the dire economic situation in the US might spring from worries to eventual unrest, says financial journalist Demetri Kofinas.

Standard and Poor’s credit rating agency knocking US debt to the less privileged AA+ credit rating has shifted the topic of debt burden from bankers’ agenda to the government’s protocols. This will not gain public approval in the US – and financial journalist Demetri Kofinas explains why to RT.“The downgrade [by] S&P of the United States, whether it was warranted or not, speaks volumes about the shift of risk from the balance sheet of banks to the balance sheet of sovereign countries, which are effectively the backstops for the welfare state. So when that gets thrown into question, of course you’re going to have mounting unrest,” says the journalist.The US dollar being the international reserve currency only adds fuel to the fire in the global financial system, continues Kofinas.“Because the system architecture is such with the banking system and the way sovereign countries have been effective backstops for the banking system, I think you are going to see more unrest, especially in the US, because it is an empire and it is the reserve currency of the world,” he adds. “So when the system collapses it is going to be most felt in the US, because the empire sits on a nation state, within which it resides like a giant parasite. So when that crumbles, it is the final piece to go.”Meanwhile, major markets on both sides of the Atlantic dropped over four per cent on Wednesday, erasing whatever gains there were on Tuesday. Thus, the Dow Jones Industrial Average fell 520 points to 10,720, a total of 4.6 per cent. The index has now lost more than 2,000 points in less than three weeks.Despite these fluctuations, Moody's agency finds most US authorities issuing debt in the municipal bond market "well-insulated from shock," reports Reuters.Still, Moody’s does not exclude the possibility of downgrading some US areas and institutions in case the issuers cannot cope with market conditions, which are now expected to grow hostile, added the agency in their Wednesday statement.