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Portugal downgrade hits European bank shares
Fears that the eurozone crisis was entering a new stage intensified on Wednesday after Portugal's credit rating was slashed to junk, with European bank shares falling sharply and some government bonds coming under renewed pressure.

Portuguese bank shares tumbled in early trading, while the yield -- or interest rate -- demanded by traders to hold the country's debt jumped sharply. UK banks also lost ground, pulling the FTSE 100 down. UK government bonds, known as gilts, benefited, however, as investors looked for a safe haven.

The euro lost value against the dollar, dropping more than one cent to $1.4335.

Traders were alarmed by Moody's warning that Portugal -- like Greece -- will need a second bailout, as it became the first credit ratings agency to cut the country's debt to junk status.
Strange but the solution in Portugal and Greece is the same as in the U.S.: stop issuing debt. Okay, okay, you have to roll-over existing debt, and past profligacy requires a higher interest rate today as a penalty. You have to pay that. But stop issuing new debt and the pressure on rolling over current debt goes down.

I barely passed Econ 101 in college, but this seems like a no-brainer to me: if you're in debt up to your eyeballs and your creditors really don't want to buy anymore of your paper, stop issuing new debt. Sure it sucks as you then have to bring your government under control. Sure, you have to control expenditures and start saying 'no' to all the various interest groups.

But either you're a greedy, spineless, amoral pol or you're a statesman. Which would you rather be known as in the history books?

Posted by: tipper 2011-07-06
http://www.rantburg.com/poparticle.php?ID=325870