Weiss Ratings downgrades 5 European countries! New euro-zone rescue schemes dead on arrival!

While European leaders scramble to propose new euro-zone rescue schemes in preparation for still another “crunch meeting” this week …

And while the U.S. Federal Reserve prints more money to help Europe avert another 2008-style banking panic …

The entire continent continues to virtually crumble before our eyes:

  European bond markets have collapsed, driving borrowing costs to nosebleed levels.

  European megabanks have been denied global funding, driving them to the brink of failure.

  Almost all European borrowers — including cities, corporations, and entire sovereign governments — have suddenly felt the noose of disappearing credit.

  And the European Union is sinking rapidly into a great double-dip recession.

This is why we’ve been consistently warning you not to fall for the tall promises of each new, more grandiose rescue plan.

And it’s also why Weiss Ratings is making news this morning, downgrading the sovereign debts of 5 European countries, as follows:

We have downgraded Ireland to E+, indicating a high level of danger — not only for investors in Ireland, but also for Europe and the global economy.

Ireland’s GDP shrank a dramatic 21% between 2007 and 2010. Its banks are being forced to slash their operations by selling half of their non-core assets by 2013.

And to add insult to injury, its government is now preparing a new package of Draconian austerity measures destined to impose even more pain on the Irish people, creating more unemployment, and even forcing a mass emigration.

We have downgraded Portugal to D, as its economy continues to deteriorate, averaging less than 1% growth in the past decade and heading for what some observers call a “shock year” — at least a 3% contraction in 2012.

We have downgraded Hungary to C-, just one notch above junk.
Like other East European countries, many Hungarians have committed the cardinal financial sin of borrowing money in strong foreign currencies like the Swiss franc, only to see their own currency unexpectedly sink and the burden of their debts suddenly surge.
Moreover, with the highest debt per capital in Central Europe, Hungary is certainly vulnerable to the contagion.

We have downgraded Russia to C+ — still not in the danger zone, but reflecting a decline in its overall economic and fiscal stability.

Plus …

We have downgraded Sweden to B — not yet an alarm bell, given Sweden’s relatively strong finances, but another confirmation of the broad deterioration in Europe overall.

Meanwhile, we maintain our low ratings for Belgium (C-), France (C), Greece (E), Italy (C-), Spain (D+), and Germany (C+).

Most important, we reaffirm the sovereign debt rating we have assigned to the United States — C-, or one notch above junk because:

  The U.S. federal deficit remains out of control.

  Washington is still polarized and paralyzed, obviously incapable of fixing it.

  As one of the world’s most indebted countries, America is no less vulnerable to the debt contagion than European countries that have already been among its prominent victims.

  And the so-called “improvement” in U.S. unemployment announced on Friday is a farce — a statistical aberration created almost entirely by workers abandoning their job search. According to John Williams’ Shadow Government Statistics, which has been dead right in finding holes in the official numbers, “the employment circumstance generally is getting worse — not better.”

But last week’s prize for the biggest farce of all goes to …

The so-called “global” central bank “rescue”
that rallied the Dow 400 points. (It isn’t really
global and isn’t truly a rescue.)

After all we’ve been through and all we’ve seen, it never ceases to amaze me that some people can still fall for the idea that a handful of officials — meeting behind closed doors, making tall promises, and tinkering with financial markets — can actually stop the debt contagion from spreading around the globe.

Case in point: The latest “global rescue” announced last week by the central banks of the United States, Canada, European Union, Japan, the United Kingdom, and Switzerland.

Here’s why it’s a big farce:

First, it isn’t really global. The only central bank putting up significant sums of money is the U.S. Federal Reserve. The “global coordination” concept is almost entirely a public relations gimmick designed to disguise that obvious fact.

Second, it’s not a true rescue. All the Fed is doing is printing more dollars and lending them out to banks on a global scale — the same tactic that has failed to work time and time again since the U.S. housing bust began over four years ago.

Why? Because the fundamental problem at the world’s largest banks isn’t the lack of cash. It’s the lack of CAPITAL to back up the mountains of unpayable debts.

Third, and most important, the entire operation is a glaring signal that the authorities are desperate. They see the contagion spreading. They know this tactic has failed before. And yet, with their backs against the wall, they feel they have no other choice.

By taking this action, the central banks acknowledge that a 2008-style banking crisis is now taking place. They help validate our long-held thesis that the crisis will continue to intensify.

Sure, they create tremendous volatility in the stock market. And yes, they can postpone the inevitable day of reckoning a bit longer.

But these kinds of actions are producing NO CHANGE IN THE BIG-PICTURE TREND of crashing global bond markets and surging borrowing costs for sovereign nations. Nor are they resurrecting the flailing economies of Europe and the U.S.

Remember:

In the 2008-2009 debt crisis, governments bailed out banks. This time around, the ones that need the bailouts the most are the governments themselves! But there’s no entity on the planet that can provide the bailout funds.

In sum …

•   This debt crisis is far worse than the 2008-2009 debt crisis.

•   Our Weiss Ratings are telling us that the sovereign debt crisis is far worse than the leading rating agencies would have you believe, even after their recent or upcoming downgrades.

•   At the same time, our Weiss Ratings are telling us that the vulnerabilities of major global banks are ALSO far greater than most others believe.

Now, these two giant debt disasters —
sovereign defaults and bank failures —
are converging.

They are feeding on each other — sovereign debt dragging down the banks … and the banks dragging down the sovereign debts.

They are spreading — not only from Greece to Portugal and Ireland, but also Spain and Italy … not only from the weaker PIIGS countries, but also to Europe’s two strongest countries — France and Germany … and, ultimately, to the U.S. as well.

They are escalating — despite all the so-called rescues.

And they are converging in …

The same time: The year 2012, plus
The same place: Europe and the U.S.

So do not be tempted to believe that this crisis can be contained to Europe.

That simply is not the case. You’ve seen it impact us here in America yourself — as U.S. stocks skyrocket after every rumor that a solution has been reached … and as they crater after each of those rumors is proven false.

All this is precisely why central bankers, in an act of desperation, announced emergency measures last week!

All this is why 2012 is likely to be the most pivotal year of our lifetime, bringing not only major failures, but also unprecedented government responses, along with a whole new round of massive unexpected consequences.

Stay tuned for more specific forecasts!

Good luck and God bless!

Martin