Global financial crisis fears after US rating downgrade

• • *Analysts start talking GFC mark 2
  • *US credit rating cut to AA
  • *Black Friday: How does it affect you
  • *Gallery: Blood on the trading floor

WORLD markets are preparing for a shocking week after Washington lost its AAA rating and Europe's debt continues to grow.

Standard & Poor's cut the US's rating to AA+ with a negative outlook, saying US politicians were increasingly unable to come to grips with the country's huge fiscal deficit and debt load.

"The news that S&P finally pulled the trigger... will surely rock the financial markets when they open on Monday," said Capital Economics analyst Paul Dales.

And he warned: "If the market mayhem continues, the risks of a recession will rise further."

Saxo Bank economist Steen Jakobsen described recent turmoil as evidence of a second financial crisis, as many western nations buckle under vast debts that were incurred in the 2008 banking crisis and subsequent global recession.

"Welcome to the official Crisis 2.0 which is now in progress," Mr Jakobsen said.

"Crisis 1.0 was the failure of the banking system to sustain the losses from the (US) subprime loans.

"This created a run on the banks, which the policymakers solved by moving the debt burden from the private sector into the government sector, under the presumption that governments would be able to finance these debt obligations cheaper and guaranteed by tax issuance.

"This was followed up with massive fiscal and monetary policy in a size not seen before in economic history. The policymakers used all the tools in the toolbox in order to buy some more time.

"This worked short-term - but, as seen in Europe, the market is now questioning government ability to repay their debts."

World reaction to US downgrade

The United States and the world struggled to come to grips with the first-ever US credit rating downgrade, as Washington is held to account for months of political acrimony and years of swelling US debt.

S&P said the "political brinksmanship" of recent months shows that governance in the country is becoming "less stable, less effective, and less predictable," raising the risks that one day it might not honor its debt.

The move - which came late Friday after US markets closed, allowing the world to digest the news over the weekend - was the first time the US was downgraded since it received an AAA rating from Moody's in 1917.

It has held the AAA S&P rating since 1941.

Other G7 nations such as Britain, Canada, France and Germany have a triple-A rating.

A bruising and embarrassing partisan fight between the White House and Republicans over the US debt ceiling had sent jitters across the global economy ahead of the downgrade.

China - the largest foreign holder of US Treasuries - hit out at the United States, saying via state media that the world's largest economy needed to cure its addiction to debt.

Beijing said in a stinging English-language commentary carried by the official Xinhua news agency that it had "every right" to demand Washington address its structural debt problems and safeguard Chinese dollar assets.

"To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means," it said.

Other Asian nations such as Japan and South Korea reacted cautiously and, along with Australia, warned against over-reaction.

An unnamed Japanese government official told Dow Jones Newswires Saturday that Tokyo continued to trust US Treasuries "and their attractiveness as an investment will not change because of this action."

India described the downgrade as "grave," while Russia and France said they were untroubled by the rating slip, and Britain's Business Secretary Vince Cable called it "entirely predictable."

The United States versus S&P

The rating downgrade came after a strong pushback from the White House, which called S&P's analysis of the economy deeply flawed and politically-based.

A Treasury spokesperson alleged that there was a "two trillion dollar error", arguing that S&P admittedly used the wrong baseline and erred on spending plans and debt projections.

But John Chambers, chairman of the S&P sovereign ratings committee, defended the decision.

"It's a matter of the medium and long-term budget position of the United States that needs to be brought under control," he said on CNN.

"This is a problem a long time in the making."

He pointed to the White House, Democratic and Republican lawmakers battling for months until the country was on the precipice of default Tuesday before they finally agreed to a deal to raise borrowing limits and slash the deficit.

Tuesday's fiscal consolidation plan "falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in its ratings statement.

"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned" back in April, it said.

"Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising US public debt burden in a manner consistent with a 'AAA' rating."

A debt downgrade is a symbolic embarrassment for President Barack Obama, his administration and the United States, and could raise the cost of US government borrowing - a move that would likely trickle down to most Americans in the form of higher interest rates.

But S&P, which based its case in part on the assumption that Bush-era tax cuts would remain in place, also pointed the finger of blame at Republicans who had insisted that no new tax revenue be a part of the debt deal.

"We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act," S&P said.

There are worries that the downgrade will wreak unpredictable havoc in global financial markets where the US dollar has long been the most important currency, but some analysts believe the cut will not have much impact.

Indeed, despite a downgrade hanging overhead, the Treasury easily auctioned off tens of billions of dollars in new debt this week, and Treasury yields fell to the year's low.

S&P is considered the most influential of the three major rating agencies ahead of Moody's and Fitch - both of which said this week that they continue to review the country's deficit reduction plan for possible downgrades.

S&P first warned Washington of a possible downgrade in April.

Then in July, during the protracted political standoff over raising the government's debt ceiling, S&P placed the United States on credit watch and warned of a possible cut within 90 days.

The plan finally agreed on Tuesday calls for $917 billion in cuts over 10 years, but also mandates an as-yet unnamed congressional panel to come up with another $1.5 trillion in cuts by the end of the year.

That fell short of what S&P has been saying would merit retaining the AAA rating: $4 trillion in deficit reduction over 10 years that includes both cuts and revenue increases, which Republicans have refused to accept.

Tasmania to make Kronic a controlled drug

TASMANIA will toughen its restrictions on the sale and manufacture of synthetic cannabis, but has stopped short of completely outlawing the drug.

The State Government has put the synthetic cannabinoid Kronic on the state's poisons schedule, which restricts where the drug can be sold.

The Government has also moved to prohibit the use of precursor chemicals in the manufacture of drugs, which takes into account illicit drugs with altered chemical compositions.

The new laws will take effect from tomorrow, but will not completely outlaw the substances.

Western Australia and New South Wales have recently banned synthetic cannabis, while other states and territories are considering outlawing the substance.

Thousands of prank callers clog up the National Security hotline

THOUSANDS of prank callers are impeding the nation's prime anti-crime hotline with fake reports.

Documents obtained through a Freedom of Information application by The Advertiser show this year already 1385 of the 5684 calls to the 1800 123 400 National Security hotline number have been hoax or nuisance callers wasting the time of national police and anti-terror agencies.

Since the hotline was set up in 2002, operators have been trained to take every call seriously but documents show they have reported that 31,495 calls of the total 156,694 are hoaxes, The Advertiser reported.

Victims of Crime Commissioner Michael O'Connell attacked those who were knowingly wasting the time of police and other crime-fighting authorities.

But he has urged those who genuinely believed they had information, even if it was later proven false, to continue using the service, which was a valuable preventative tool for crime-fighters.

"The line was set up for the purpose of preventing people becoming the victims of terror and it is shameful that people are using it to perpetrate hoaxes," Mr O'Connell said.

"The consequence of the police and other authorities being distracted by such hoaxes puts all of us at risk should there be a genuine terror threat."

Australian Federal Police have credited the hotline since its inception for providing information for every major Australian terror investigation.

The hotline was controversial when first established by the former Howard government with the slogan "be alert but not alarmed" as overkill, possibly leading to the high level of hoax and nuisance calls.

Mr O'Connell said since its original purpose as purely an anti-terror tool, the hotline had transformed into an effective anti-crime device for a broad range of illegal activity as well as terror threats.

"The public at large over the years have become less fearful of terrorism and more concerned with more conventional types of crime, which is leading to more use of the hotline to prevent mainstream crimes," he said.

The information released by the Attorney-General's Department because of the FoI application also shows many people contact the hotline to be comforted about their fear of crime or terrorism, or to seek information about attending a major event or travelling.

These calls accounted for 16,109 of the 156,694 total, while people providing information were numbered at 69,923, emergency callers 26 and people responding to advertising campaigns asking for information numbered 70,638.

Brisbane flood victims eye class action after Queensland inquiry's interim report

A GROUP of 120 flood-hit Brisbane property owners are weighing a class action after a report into January's floods opened a potential legal avenue.

Ken Madsen, of Flood Affected Businesses and Householders, says he's yet to study the Queensland Floods Commission of Inquiry's interim report.

But he hopes the finding that Wivenhoe Dam operators breached the manual might help a class action.

The report, released yesterday, found engineers in charge of the dam during the floods did not use the best available forecast information when deciding how much water to release.

Mr Madsen said he hoped this was something flood victims could launch legal action on.

"The flood inquiry has allowed the data to be made available which is something we've been struggling to get a straight answer on ever since the floods," the industrial real estate agent from flood-hit Rocklea told AAP.

"We will review the data and seek legal advice."

As well as compensating flood victims, a successful class action would hold bureaucrats accountable, and help insurance claims, Mr Madsen said.

"It seems that the only time bureaucrats take any notice of any changes is when they've been forced to legally," he said.

"The class action will be one way of making them wake up to their responsibilities and accountabilities.

"The class action will also highlight to insurance companies and others that whilst we were affected and damaged, it wasn't our fault and it wasn't necessarily where we were that was the problem."

He said any successful action would also give flood victims some closure.

"The buildings can be repaired and fixed relatively easily," he said.

"But the loss of confidence and the psychological damage to people, the sleepless nights ... that's immeasurable."

Maurice Blackburn lawyers is representing 78 individuals or families at the flood commission as part of the Fernvale and Surrounding Communities Action Group.

The firm's Queensland principal Rod Hodgson said he was still examining the findings.

"We will then be in a position to consider a range of legal options for our clients who have suffered property loss and damage, and loss of business revenue and profits," he said.

Premier Anna Bligh today said she was uncertain whether the technical breach opened the possibility of people suing the state, saying it would have to be tested in the courts.

Queensland flood actions would be different in hindsight - Water Minister Stephen Robertson

"I have instructed my department to make this issue their top priority," he said in a statement.

Mr Robertson also said the Government would legislate to "ensure there is greater clarity and understanding about whose role it is to undertake certain actions in relation to our dams in times of heavy rainfall."

It comes after the report found there was confusion in the lead up to the flood about whose responsibility it was to provide advice on releasing water from the Dam.

It found Mr Robertson had failed to resolve that confusion.

"We wanted frank and fearless advice and we will not back away from these findings," his statement said.

"The State Government will be in a much stronger position going into the next wet season."

The Courier-Mail revealed on Saturday an email trail which highlighted the state of ill-preparedness in the government in the months before the floods and after extraordinary warnings were given to State Cabinet about the looming wet season.

For parents with preference, more want boys than girls, but 60 per cent say they don't care

PARENTS are overjoyed to just have a healthy bub, but new figures show a leaning towards bouncing baby boys.

A major snapshot of Australian families shows a third of men want a boy as their first child, compared to 19 per cent of mums-to-be. Only 6 per cent of men and 16 per cent of women wanted a girl first.

But 60 per cent of men and women have no preference in the gender of their child.

The report, by the Melbourne Institute of Applied Economic and Social Research, says 35 per cent of men and 27 per cent of women in 2008 wanted a gender balance - one boy and one girl.

Psychologist Sally-Anne McCormack said she believed that for most couples any desire for a particular gender was subconscious.

"For males, although this is something that is changing, it may have something to do with keeping of the family name," she said.

Kealba's Renata Furst, who is 27 weeks pregnant, said she had no real preference.

"As long as they are healthy, I really don't mind," the 27-year-old said.

Diggers hurt in Afghan base accident

• -Diggers wounded on training range
• -Serious injuries from shrapnel
• -Investigation to find out how it happened

TWO Australian soldiers have been seriously injured in an accident at the heavy weapons range at the Tarin Kot base in Afghanistan.

The soldiers, serving with the Provincial Reconstruction Team in Oruzgan province, suffered shrapnel wounds and will be flown to the Landstuhl Regional Medical Centre in Germany for specialist care in the next few days.

Chief of Joint Operations, Lieutenant General Ash Power, has said the incident on Saturday was the result of an accident rather than an insurgent attack.

"The two soldiers received fragmentation injuries in an accident at the Multi National Base - Tarin Kot heavy weapons range," Lt Gen Power said.

He says an investigation will be launched into how the accident happened but said the health and wellbeing of the soldiers was his foremost concern.

"Fortunately, their location in Tarin Kot meant that both soldiers were able to receive emergency medical treatment at Tarin Kot's ISAF Medical Facility immediately after the accident occurred," he said.

One soldier remains in a very serious condition following initial treatment and the other is in a serious but stable condition.

The families of the two soldiers have been notified and are receiving support from Defence.