Will Moody's downgrade the US?
Hey, we all knew it was just a matter of time.
Right on the heels of the Ben Bernank quashing the Dollar, Moody’s placed the US on review for a possible downgrade, citing the current asshattery on the debt ceiling debates as their main concern:
The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such, there is a small but rising risk of a short-lived default.Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis. An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and an Aaa rating would likely no longer be appropriate. However, because this type of default is expected to be short-lived, and the expected loss to holders of Treasury bonds would be minimal or non-existent, the rating would most likely be downgraded to somewhere in the Aa range…
…While the debt limit has been raised numerous times in the past, and sometimes the issue has been contentious, bond interest and principal have always been paid on time. If the debt limit is raised again and a default avoided, the Aaa rating would likely be confirmed. However, the outlook assigned at that time to the government bond rating would very likely be changed to negative at the conclusion of the review unless substantial and credible agreement is achieved on a budget that includes long-term deficit reduction. To retain a stable outlook, such an agreement should include a deficit trajectory that leads to stabilization and then decline in the ratios of federal government debt to GDP and debt to revenue beginning within the next few years.
I know I rail about the absurdities in Europe and China a lot, but fact of the matter is the US is far worse and I just don’t see how it has kept its AAA rating all this time. Granted, my personal metrics might be a little different than that of Moody’s, which seem to be a simple pass/fail in escaping default but I’m sure few of you would disagree with me in saying that an ailing economy with $14 Trillion in debt and a 99% Debt to GDP ratio does not equal to Aaa.
That said, how would YOU rate the US?
And do you think it will lose its Aaa rating this time?
I’d give it an A at the most, but as much as I try to keep an open mind about things, a US downgrade is a pretty hard pill to swallow, raising some doubts that this could be nothing but a ploy by the ratings agencies to regain credibility. After all, Tim, Benny, and the Keynesians wouldn't be very happy if this were to happen. Not to mention the massive bond funds and their gazillion investors.
How about you monkeys, what do you think?
Have a good one WSO.
I agree that it is shameful that we are still Aaa, however I can't really imagine downgrading our Treasury bonds. To me, you seem to be comparing USA's debt obligation to revenue ratio in the same way as you would a company. We should definitely reconsider our current debt policies, but unlike a company, the US can essentially just print more money. So however bad it gets, I really don't see us getting downgraded, and if we do I have no idea what would happen, don't even care to think about it.
But basically, I agree with you in the sense that we need to formulate a better solution to settling our debt instead of squabbling over the debt ceiling. Cheers
I think a solid fiscal Republican is pushing the issue at Moody's. I hope this is an early wake up call for the USA and forces Obama's hand.
Yeah dude, Obamarama tried to scare the old heads a few days ago. Now everyone can be scared.
as T.O. says, "Get your popcorn ready"... this is about to get ugly as fuck
I am honestly amazed that the U.S. is still AAA. While I do not think that we will renege on our debt anytime soon, I think there is more risk and uncertainty in our debt than a AAA rating would imply. While, yes, the debt-to-GDP ratio is insufficient to measure risk in the short term, the long term inflationary aspect of printing money will cancel it out. So it is, undoubtably, correct in seeing that we are getting too debt loving. In all honesty, the spending and current debt-to-GDP isn't scary at all, but the long term prospects of Medicare, Medicaid, SS, etc. is.
It is honestly disgusting that we have let all of this get so out of control- I still propose myself as the dictator of the US for the next decade or so. Phase out SS, Medicare, Medicaid, release regulations governing healthcare, enact tort reform, cut defense spending. All those things are necessary, but no one party advocates all of them. The AARP has such a stranglehold on SS and Medicare. And it is the elderly's right to get the money they paid into SS. We just shouldn't have more people throw money into the fire. You think Medicare and Medicaid are necessary? With current regulations they are. But most hospitals have charity care for the poor and elderly, and more charity care would occur if not for the two programs / the restrictive regulations governing HC companies. I do think pre-existing conditions should be covered though, some people- like myself- had no control over their disease and cannot get healthcare in the private market unless they we are self-employed or get it from their company. Why is healthcare so expensive... government mandated oligopolies. It's ridiculous. Welfare reform...remember all the doom saying in Clinton's administration in like 1996? People will die, it's gonna be like the cholera epidemic all over again, babies dying on the street....blah blah blah. You know what happened, less welfare motivated over 2 million to climb their way out of poverty. Hmmmm.... The war on drugs is another huge waste of money. Legalize marijuana? Jails are no longer overcrowded, less people die on the streets selling it, less people die protecting it in the fields, less police $ is spent going after those people, and more tax money. For what? Essentially alcohol in a smokable form. Tort reform...you lose you pay...that simple. Defense spending...why do we still have no bid contracts? Do we need to support all these non-oil producing countries? No. There are so many easy cuts, that people want, but the politicians want to be re-elected more. And doing nothing is easier and less controversial.
I am happy that fiscal responsibly is finally going to be addressed, but I am not terrified or anything.
The USA is like a person with a fully loaded cable package, 3 cell phones, 5 rolex watches and 3 mansions. Yeah, debt burden can hit us hard, but we can easily cut back and be just fine. There is PLENTY or fat for the US to cut. Can't say that for Greece or Spain.
All we need to do is raise the retirement age, cut back on defense spending a little and shrink the government some. Cut back on entitlement programs and poof, we are back rockin and rolling.
Plenty of fat to cut boys, no worries here.
Agreed. In the end the US shouldnt' be downgraded because there is no real credit risk. The debt ceiling is just a political peculiarity in US law that is being leveraged by congress. It's not like we don't have access to the printing presses if need be, it's that republicans are holding the cash hostage (not suggesting this is necessarily a bad thing) to push the platforms views.
I remember a banker telling me five years ago that BANKERS run the white house, and that THEY make all the decisions. Then I saw the fearsome Lehman fall apart in a few short hours, and the mighty Goldman Sachs grovelling in front of Congress and realized how false that attitude was, and how firmly in control the government really is. Credit agencies have far less power, and far less credibility than banks, and certainly are not any less responsible than any other party for the recession.
I think it highly unlikely that they will be stupid enough to piss off the White House and potentially be demonized and fined into oblivion to score cheap political points: the response would merely be, "WHO THE FUCK ARE YOU TO SAY ANYTHING??" The point is not that they are right or wrong, the point is that they function within the context of a larger system whose rules they are subject to. They are not sophisticated, connected, or coordinated enough to survive a direct political assault.
Just my opinion.
So long as we are confusing the nominal interest rate with the true interest rate, all of this debate is hogwash.
We have already defaulted. They can screw with the core/non-core CPI and all that econobullshit all they want. But I say: look at a pint of ice cream from Ben and Jerry's today and 10 years ago. We've gone from 2.5 to 4.5. For the same mix of milk, cream, sugar and vanilla beans in a cardboard container. They can't tell me that somehow today's ice cream is that much better.
Since we present the reserve currency, of course we will never default in nominal terms. Why would we have to? The Fed is buying up half the OTR treasurys anyways. The market doesn't even want our shitty sovereign debt. We can just print and rob the savers.
Inflation is normal though. When ice cream costs 50 USD a gallon, then I will worry.
I am quite surprised at you, ANT -- this statement seems totally out of character with your conservative persona.
Inflation is the most efficient wealth transfer mechanism from producers to financial interests. The people who are at the front of the borrowing window for a currency being debauched rob all the suckers downstream who have to wait until the price of everything is bid up around them. And the guy who doesn't want to play the game and deliver his savings into the hands of the Wall Street jackal class can be content that his money will be on average worth half as much (measured in ice cream or whatever other constant unit you care to select) each 20 years.
We had a deflationary economy during our greatest economic expansion from after the Civil War to the founding of our third central bank. Technological progress and capital accumulation drive a more efficient economy which drives prices down.
Ice cream will be $50 a pint in your lifetime. Big Macs were 15 cents each in 1955.
If you believe in high inflation for the next decade, there are some ridiculously attractive investments you can make right now. I suggest you join me at the front of the borrowing window...
One of the nice perks of lactose intolerance is never having to care about the price of ice cream...
anyway, I'm still hoping the debt ceiling issue does get resolved soon, but with a fiscally responsible solution, not something conjured up at the last minute to ensure re-election.
That's 6% inflation. Not outlandish. If this makes you cringe you're not fit for finance.
If that was accompanied with an equivalent rise in wages then it wouldn't be outlandish.
About time for someone to step up to the plate and call BS on Benny. If they do downgrade, years from now it'll look like either the smartest move ever or the stupidest move ever.
Get your popcorn ready indeed...good thing there's happy hour tonight!
If the US doesn't deserve a AAA rating, then which country does? We may not be in the best shape, but like ANT said, we're not fucked either. I'd compare the US to an out of shape Shaq. Easily could've put up better numbers and had an even longer career if he put his mind to it.
According to BlackRock's sovereign risk index, 14 countries deserve a better credit rating than the US. Short treasuries, and lend to places like Canada, Australia, Norway, China, Switzerland...you'll get long-term currency appreciation and a higher yield to boot...(see below for BlackRock's report...June 2011, so it's recent)
https://www2.blackrock.com/webcore/litService/search/getDocument.seam?v…
According to BlackRock's sovereign risk index, 14 countries deserve a better credit rating than the US. Short treasuries, and lend to places like Canada, Australia, Norway, China, Switzerland...you'll get long-term currency appreciation and a higher yield to boot...(see below for BlackRock's report...June 2011, so it's recent)
https://www2.blackrock.com/webcore/litService/search/getDocument.seam?v…]
I read that report... it doesn't consider a lot of factors, which just goes to show how complex the scenario is. For example, Norway's number 1 on the list. Except its external debt to GDP = 153%, which is fine considering majority is from the banking sector, but it also has financial assets equivalent to that amount, probably with a large exposure to the EU. CDS spiked like 20% this week.
There are definitely safe countries, and a AAA rating isn't offered to just one country. There can be multiple AAAs and the US should be a part of that group. For now anyway.
Ratings agencies have never been in control. They serve as a scapegoat foremost and a reason for people to not perform due diligence.
My point is I could give you a reason why every country on that list is risky in some form. US prints money, devalues currency, China gets fucked, etc.
I think the way we look at credit ratings has fundamentally changed. Sovereigns are so tightly correlated nowadays, it's hard to say what's safe.
wonder how many entities that are mandated to hold only AAA paper will have to drop USTs if the US is downgraded. The shit storm that that follows would be catastrophic. I also wonder how long it would take before those entities can disregard that requirement because a law is signed suspended the requirement that they only hold AAA paper. Remember monkeys the gov't can re-write the rules...
the ratings agency are a pack of worthless clowns. how many smart people do you know who went to work for them?
if the shittiest tranches of MBSs can be rearranged into AAA paper and the rating agencies couldn't call them out on it in the grand housing ponzi of 2002-2007, why are we still listening to these clowns?
there is not enogh liquidity in Canadian or Norwegian bonds for most sovereign wealth funds
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