World wakes up in new financial era

The economic crisis in the United States and the downgrade of the American credit rating has already affected the Russian reserves. The markets of Asia and Israel reacted to the news first. The setback was registered on the stock markets of Australia too. In Moscow, the RTS index lost two percent during the first ten minutes of the tender. The European Union and the United States may remember August 8th as the Black Monday.

According to experts' estimates, the downgrade of the US credit rating may mark the beginning of the new financial era. Global financial markets may wake up in a new world on Monday. Mohamed El-Erian, chief executive of Pacific Investment Management Co., or PIMCO, referred to the current situation as the "Sputnik Moment." He compared the reassessment of US financial positions to the shock, which the Americans experienced when the USSR launched its first satellite in 1957, in the midst of the Cold War.

Many other countries already begin to count the losses. Russia has already lost over 108 billion rubles because of the reduction of the US credit rating. Russia's Reserve Fund and the Fund of National Welfare have the following structure: 45 percent in dollars, 45 percent in euros and 10 percent in British pounds. The loss of a part of reserves is only a start, experts say. The crisis may exacerbate the situation on the world market of oil, which will inevitably strike a serious blow on the Russian economy.

"The credit rating is an assessment of the risks to lose money. In this particular case, one may say that the rating was reduced post factum, so it reflects the losses that foreign investors have already suffered," Yevgeny Gavrilenkov, the chief economist of Troika Dialog private investment bank said.

"The losses are connected with the weakening of the dollar by 12-14 percent against world's major currencies. The weakening of the dollar means that Japan, for example, which holds nearly 900 billion dollars in US securities, has lost nearly 100 billion dollars," he said.

A storm may hit the financial markets of the world in connection with the revision of basic interest rates and risk levels. Until recently, interest rates in the whole world were linked to the American standards. The standards have changed now, so the markets will have to go through a long process of adaptation.

"Russia may suffer from the collapse of speculative markets. The world market of oil is one of them," Mikhail Khazin, the President of Neocon consulting company said. The markets in Arab oil producing companies continued to decline on Saturday and Sunday.

The Russian ruble is declining against the dollar and the euro as as oil prices continue to slide. Urals oil became 7.7% cheaper as the price lowered to $106.1 per barrel.

Russia's Deputy Finance Minister Sergei Storchak said that Russia was not planning to revise its dollar reserves because of the downgrade of the US credit rating. "There is no big difference between AAA and AA+," the minister said.

"The correction that has been made is so mild that one may ignore it from the point of view of long-term investment management," he said. The US debt market continues to remain the most liquid and one of the the most reliable markets, the minister added. Unlike independent experts, the official believes that the credit rating downgrade was a signal to the United States rather than to investors.

Sergei Shvetsov, deputy chairman of the Central Bank of the Russian Federation said Saturday that the credit rating downgrade would not affect the financial stability of Russia in the short term.

The deficit of the US budget and the level of the state debt of the United States approaches the numbers comparable to the periods of two world wars. It is worthy of note that the majority of analysts did not predict any serious changes either for the global or for the Russian economy prior to the crisis of 2008.

The dollar and the euro - the world's two leading currencies - are facing serious problems. The situation unveils a very deep crisis of the current financial system, which reduced the role of gold in the international monetary system and acknowledged the system of 'floating' exchange rates.

The reserve currencies, in which gold and currency reserves of the world are formed in the current system, are the US dollar, the British pounds sterling, the Japanese yen, the Swiss frank, the Deutsch mark and the French frank. The euro became a natural successor to the Deutsch mark and the French frank. Over three-thirds of world currency reserves consist of dollars and euros.

Many economists say that the crisis of sovereign debts is the last call signaling the end of the traditional Western economic model based on the "economic-growth-paid-with-loans" principle. Living in debt is no longer affordable, and it is about time one should pay their bills.

China, the largest creditor of the United States, whose reserves are evaluated at $1.15 trillion, harshly criticized the US authorities. "The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China's official Xinhua news agency said. "China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets," the agency also said.

India's reaction to the US rating downgrade was also negative, whereas Japan and South Korea set out a certainty that American state bonds were still trustworthy.