S&P's Message Falls on Deaf Ears

By all accounts, the stock market should be in free fall after a holiday weekend in which “the cosmic Brink’s truck of free money went over a cliff,” as Vancouver veteran James Howard Kunstler put it.

Alas, so much for the latest euro-driven meltdown.

After the close in Europe on Friday, Standard & Poor’s downgraded nine European countries, including heretofore AAA-rated France. Then on Monday, as a coup de grace, it downgraded the eurozone rescue fund.

But if S&P was trying to send a message, nobody listened.

European bond yields have come down. European stock indexes have stabilized, and many are rising.

Meanwhile, the holiday-shortened trading week has begun with major U.S. indexes up close to 1%. The S&P 500 might break 1,300 at day’s end.

For a glimpse at the seamy underbelly of 21st-century Europe, look no further than Hungary. It belongs to the European Union, but is yet to adopt the euro currency.

The ruling party there — elected in 2010 with a two-thirds majority — has cheesed off leaders in both Brussels and Washington big-time. So much so that this morning Bloomberg reports the EU is threatening the nation with a lawsuit.

Among the “sins” of Prime Minister Viktor Orban, as recounted by Rep. Ron Paul’s foreign policy aide, Daniel McAdams: “…using his mandate to bring the Hungarian central bank under the oversight of elected officials, rather than remain the purview of highly paid bureaucrats who more often than not do the bidding of their foreign counterparts at the expense of those who pay their salaries.”

“It is not quite an ‘end the Fed’ movement in Hungary, but it certainly could be seen as a move to curb the seemingly limitless power of an unelected Hungarian Ben Bernanke.”

But Orban has his limits: With Hungarian bond yields soaring, a Moody’s downgrade to junk status, and the forint sinking 15%, he sent an envoy to Washington last week to seek a bailout from the International Monetary Fund. He might have to bend on the central-bank law to get that bailout… and stave off the EU lawsuit.

Viktor Orban
Viktor Orban: Case study in what happens when you cross the eurocrats…

Meanwhile, “The price of a bailout to Hungary’s creditors,” McAdams writes, “will be a new austerity program on its population. It seems the government is in a panic and will agree to anything for IMF assistance, but they would do well to have a look at Greece, where IMF ‘reform’ is producing its usual results.”

“Why should the current population be squeezed to death to repay the endless borrowing by the communist regime in the 1970s and 1980s? The great Bill Bonner suggested last year, ‘Why Greece Should Default and Go Broke With Dignity.’ He could be writing for Hungary as well.”

Addison Wiggin
for The Daily Reckoning