US crisis: blessing in disguise?

With the very integrity of Standard & Poor in question, downgrading of the US credit rating is unlikely to have a lasting impact on the global economy

US crisis: blessing in disguise?

With the very integrity of Standard & Poor in question, downgrading of the US credit rating is unlikely to have a lasting impact on the global economy.

Furthermore it has also brought some good things to cheer about. The BSE may well have crashed by 460 points on Monday morning, but the fall in the market provides you with a buying opportunity.

We should go by Warren Buffett's tips of buying, when others are selling. He said, "I buy on the assumption that they could close the market the next day and not reopen for five years." So, say thanks to S&P.

A weak dollar will help bring down prices, as it will reduce the cost of oil imports that has been a large contributor to inflation

With the US sliding one notch down from AAA to AA+, it has to pay more interest on its bonds on account of default risk, and this crisis has come as a blessing in disguise for investors. Now, technically we can say bonds issued by many countries are superior to the US bonds in terms of safety as these countries continue to enjoy AAA rating. None of these bond markets have the liquidity or the depth of the US markets. So, enjoy the windfall.

China, the top most creditor of the US, is trying to create a hue and cry, while India and others are adding to the noise. The move is uncalled for, but necessary to put pressure on the still biggest economy. However, it has given a reason for exporters to worry. With the US spending more on debt service it might trigger slowdown if not a double-dip recession as feared. The slowdown stoked by the weakening greenback might make a dent on their profits, and currency insurance would be a better bet.

There is no immediate solution for the decline in sales as expected. A weak dollar will help bring down prices, as it will reduce the cost of oil imports that has been a large contributor to inflation. Weakness in the US markets would also curb demand for commodities and keep the process under check.

Do you remember the paradox where people paid high prices, when the government was moving heaven to earth to avert deflation amidst the downturn two years ago? People were not able to comprehend the cruel joke of the government projecting a lower inflation rate when in reality, commodity prices continued to tread northwards. The need is to change the archaic method of assessing inflation. Revive the basket by including commodities that matter in daily life, and go for consumer price index regime. We know there are many hurdles to put CPI in place, but it is time for us to take it on the chin.

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