Time to repair dented investor confidence   2011-08-10 00:27:04 FeedbackPrintRSS

BEIJING, Aug. 9 (Xinhua) -- The yield on 10-year Treasury bonds on Monday declined to its lowest level this year despite the first-ever U.S. credit rating downgrade, indicating that U.S. debt remains a safe haven for investors worldwide.

What made the decision by Standard & Poor's to remove the United States' prized AAA status so devastating to global stock markets was that it dealt a stiff blow to the already jittery investor confidence across the world.

Understandably, investors are just a trigger away from global panic, given the stubbornly spreading debt crisis in Europe and the disappointingly low efficiency of the politically divided Washington in making difficult decisions.

Also contributing to investors' nervousness are the anemic U.S. economic recovery which is at risk of a double dip and the mounting inflation pressure in China and other emerging economies.

With U.S. debt remaining a sound investment, dollar assets held by foreign investors are likely to remain in good shape at least in the near future. What deserves more attention from global policymakers is the confidence crisis and the deeper economic problems it has exposed.

Given the heft of the U.S. and European economies, should the U.S. economy plunge into renewed recession and eurozone members fail to tame their debt troubles, shattered confidence would push global markets into the doldrums.

In that case, the world economy, especially developing countries, would suffer a number of traumas.

From the financial aspect, prolonged weak U.S. economic growth would prompt the Federal Reserve to roll out yet another round of the so-called quantitative easing.

Such a move, equivalent to printing money, would heap more inflation pressure on China and many other countries.

Additionally, should the U.S. and Europe remain economically hamstrung, their appetite for foreign goods would significantly shrink. That would depress global trade and send biting chills through many exports-dependent countries.

In today's globalized world, major economies are heavily interdependent. At this current moment of challenge and stress, it is time for those economies to close ranks and implement responsible, effective measures to ride out the rough patch.

A model to remember is the surge of the "All-In-The-Same-Boat" spirit that followed the last international financial wipeout in 2008. With those handshakes two years ago still a fresh memory, policymakers worldwide need to join hands again now.

Editor: yan
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