Economy Watch: Asian Markets Get U.S. Debt Ceiling Blues

3 min read

Equities markets in Asia reflect worry over U.S. default; Jefferson County, Alabama, may vote on Chapter 9 bankruptcy; and a Gallup poll shows Americans feeling grim about the economy.

On Monday morning in Asia and Australia, the world began chiming in louder on the impasse in Congress over the debt ceiling  when equities markets on those continents opened. Investors are voting with their feet, one might say. Japan’s Nikkei 225 opened down, and by the end of the trading day was off 0.8 percent, while the Standard & Poor’s/ASX 200 index, which tracks Australian blue chips, lost 1.5 percent.

Hong Kong’s Hang Seng Index lost 0.85 percent, and China’s Shanghai index lost about 2.9 percent. These numbers contrast with last week, when all of the Asian and Australian indices gained between 2 percent or 3 percent.

Why are the markets in far-flung places worried about the state of U.S. finances? It turns out–and this might be an education to some newer members in Congress–that U.S. Treasuries are traded by everyone everywhere in all kinds of transactions. Borrowers might be reconsidering this state of affairs for now, but until recently U.S. Treasuries have been considered so safe that they have become a kind of de facto universal currency of high finance in every part of the world.

Jefferson County Alabama eyes municipal bankruptcy

Most eyes are on federal debt problems at the moment, but state and local fiscal woes aren’t going away, and in some places are worse than ever. According to a public notice by Jefferson County, Alabama, over the weekend, its commissioners may vote on Chapter 9 bankruptcy later this week. Jefferson County includes the city of Birmingham and is the most populous county in the state.

Or the commissions may vote to extend the negotiation period with creditors led by JPMorgan Chase & Co. on restructuring about $3 billion worth of sewer bonds. Since the worst throes of the credit crisis about three years ago, Jefferson County has been unable to refinance them, and its problems only grew worse after a court voided an occupational tax that generated about 25 percent of the county’s revenue.

County commissioners reportedly met with attorneys from Los Angeles-based Klee, Tuchin, Bogdanoff & Stem L.L.P., last week, a move that doesn’t bode well for the county’s finances, because that firm was involved in the nation’s largest municipal bankruptcy (to date), that of Orange County, Calif., in 1994. The commissions may also vote this week to hire the firm if they decide on Chapter 9. When all is said and done, Jackson County’s bankruptcy might be larger than Orange County’s and set a new record in that unenviable fiscal category.

Gallup says Americans feeling poorly about the economy

Perhaps unsurprisingly, considering the state of nervousness about the economy since this spring, Gallup’s Economic Confidence Index fell to minus 41 in the week ending July 17, down from minus 34 the prior week and minus 31 during the same week a year ago. The latest reading is, in fact, the lowest since the grim days of early 2009.

Exactly 50 percent of those surveyed by Gallup during the week ending July 17 said that current economic conditions are “poor,” the worst reading on that sentiment since August 2010. Not only that, more than two-thirds said that the U.S. economy is getting worse–a two-year high for that feeling. The results are based on Gallup’s latest phone survey, which was conducted with a sample of 3,489 adults in all 50 states and the District of Columbia.

Most of Wall Street barely moved on Friday, perhaps afraid of what next week might bring, with the Dow Jones Industrial Average off 43.25 points, or 0.34 percent. The S&P 500, however, was up a slight 0.09 percent, and the Nasdaq gained a more healthy 0.86 percent.

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