Egan Jones Downgrades US From AA To AA-

[Roland99]

Source: ZeroHedge

From Egan Jones, who downgraded the US for the first time ever last July, two weeks ahead of S&P:

FSynopsis: UNITED STATES (GOVT OF) EJR Sen Rating(Curr/Prj) AA-/ N/A Rating Analysis - 9/14/12 EJR CP Rating: A1+ Debt: $15.2B EJR's 1 yr. Default Probability: 1.2%

Up, up, and away - the FED's QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US.

Some market observers contend that a country issuing debt in its own currency can never default since it can simply print additional currency. However, per Reinhart & Rogoff's " This Time Is Different: Eight Centuries of Financial Folly " , p.111, 70 out of 320 defaults since 1800 have been on domestic (i.e., local currency) public debt. Note, US funding costs are likely to slowly rise as the global economy recovers or the FED scales back its Treas. purchases (75% recently).

From 2006 to present, the US's debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%. In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%. We are therefore downgrading the US country rating from "AA" to "AA-".

Read more: http://www.zerohedge.com/news/egan-jones-downgrades-us-aa-aa

[progressivebydesign]

1. WHY? Is this political??

Consumer Confidence is up, jobs are up, spending is up, manufacturing is up, business start ups are up, home sales are up, construction is up.

What gives????

[defacto7]

4. You bet it's political.

I'm no expert on economics but it seems to me there has to be some relativity to this. If you downgrade the US, so what. Everyone else has to be downgraded to relatively match the fact that we are still on top. I don't see how it puts the US into a different category in a logical sense, only in a psychological sense, therefore... Politics!

I would imagine the economic reality is, it's meaningless.

[originalpckelly]

5. Unfortunately, back here in reality...

The jobs are shitty McJobs, spending is on shit we don't need from China, manufacturing is going the way of the dodo bird, businesses still cannot get loans easily enough, the rental market is shit and that's because people aren't buying enough homes, and even though construction is up, we're wondering what the fuck to put in it...perhaps another McDonalds. That's the ticket.

[JDPriestly]

6. Last weekend I rode Amtrak.

When my train was canceled at the last minute, I talked to the person in the ticket booth at the station. He told me that the round-trip ticket that I had been issued in another city was in an obsolete format. Seems Amtrak has switched/is switching to computer issued tickets.

"There goes my job," he said.

So Amtrak is spending who knows how much to buy expensive computers to replace a perfectly good ticketing system -- and end the jobs of the people who now answer your questions about train schedules and sell and issue your tickets.

Will it mean cheaper travel for me and other Amtrak passengers? I wouldn't bet on it. The computers will soak up the savings.

Replacing people with computers has made so many things we do so much less pleasant. The human element is gone. Computers don't smile. They don't tell you they are sorry when you explain you need a ticket right away because there as been a death or a birth in the family.

But worst of all the Amtrak computers will mean more people out of work and hurt our economy. We need to stop and think.

How can we keep our economy going if we continue to replace paying jobs for people with computers?

To say nothing of how we can keep the economy going when so much of our work is done outside the US and so many of the products we buy are produced out of the US.

There is a fundamental flaw in our thinking about economics. We seem to have forgotten, that money is just a symbol for the flow of economic activity, not an end in and of itself.

If the flow of productive human activity ends, money becomes so hard to get for most of us as to be meaningless.

[Yo_Mama]

9. Where are you getting your economic news?

Consumer confidence is very low, jobs measured by the Household survey have fallen over the summer, manufacturing surveys have been taking a dive, and this was confirmed by August industrial production dropping 1.2%????

The economy looks terrible. I think we are in another recession.

[cstanleytech]

11. We first have to have really been out of the recession before we can be back in one.

And honestly the economy hasnt had time to truly catch its breath and recover especially with the fucking stupid stunts the republicans keep on pulling in their effort to oust Obama.

[Yo_Mama]

13. It would technically not even be a double dip

I'm not disputing the correctness of your observation. Most people have not seen a "recovery" by post WWII standards, as the latest Census income report clearly documents.

Nonetheless, t's more than three years since the recession ended and GDP recovered to former level, so by the somewhat arcane categories of economics, we would be entering a new recession.

Recessions used to come around every three or four years before the central bank took over and goosed things with interest rates. However the credit explosion of the prior two decades means that the Fed is unable to effectively do that any more. Before the central bank era, it was the inventory cycle that controlled business cycles. The credit cycle superseded that, but once you max out credit the inventory cycle becomes the controlling aspect again.

If you look at the NBER business cycle dates, aside from the modern era, historically it's about time for a new one:
http://www.nber.org/cycles.html

As for the inventory cycle:

[still_one]

2. I don't know about these clowns, but my money is we don't default

[Yo_Mama_Been_Loggin]

3. Who is Egan Jones?

Never heard of them.

[Roland99]

8. about the only worthwhile credit agency

[Yo_Mama]

10. The only credit ratings firm paid by buyers instead of creditors

I'd take it seriously.

The reason they are downgrading the US is that the Fed is going to hurt the economy instead of helping it. Most people are strapped. Raising asset prices (commodity prices) in comparison to average incomes suppresses real incomes.

[Missycim]

7. TAX THE RICH FOR CHRIST SAKE!!!

Printing money with nothing backing it isn't going to help the poor and middle class, the price of everything is going to sky rocket.

[Kolesar]

12. Moody’s: Living in Cloud Cuckoo Land

Yesterday, Moody’s Investor Service said that it might downgrade federal debt because the deficit is in danger of going . . . down.

Moody’s is one of the “Big Three” credit rating agencies. They are in the business of judging the chance that bonds might go into default. The market generally is of the opinion that U.S. government bonds have essentially no chance of going into default, because they are backed by the “full faith and credit” of the Government (a term that appears in the Constitution). As a result, the federal government generally pays interest rates lower than any private entity pays, and in times of financial crisis, government bonds are viewed as a port in the storm.

Last year witnessed the bizarre spectacle of Standard & Poor’s, another credit rating agency, downgrading federal debt because the government almost stopped increasing it. Now obviously, if federal debt stops increasing, then it becomes easier to pay; the government is less likely to go into default. What actually was at stake in the debate over increasing the federal debt limit was this – would the Government go further into debt, or would it stick with what it had?

I don’t remember any elected official, in either party, saying that the government should default on the debt that it had. In fact, because the Fourteenth Amendment says that, “The validity of the public debt of the United States . . . shall not be questioned,” I’m not even sure that defaulting on the debt would be constitutional. If the Government stopped borrowing more money, federal revenue would be more than enough to pay the interest on existing debt. But because we came close to not increasing the debt, S&P downgraded that debt.

{I’m not saying that the federal debt limit should not have been increased (although I did vote against raising the debt limit - twice). I am saying that it is strange beyond words that a bond rating agency would downgrade the debt of any entity because it might not increase that debt.}

Yesterday, in a report called “Update for the Outlook of the US Government Debt Rating,” Moody’s, which is S&P’s main competitor, took this illogic a step further. Moody’s said that it would maintain a “negative outlook” on US government debt if the so-called “fiscal cliff” occurs. The “fiscal cliff” is the Orwellian propaganda term that refers to spending cuts and tax increases that automatically go into effect at the end of this year, if no bill is passed to change that. According to the Congressional Budget Office, these spending cuts and tax increases would reduce the deficit by $560 billion a year.

Since Barack Obama was sworn into office, we have endured incessant kvetching from certain quarters about the deficit and the debt. Now, if nobody does anything, that deficit drops by $560 billion a year, less than four months from now. And Moody’s somehow thinks that that’s a bad thing for bondholders?

It’s a bad thing for the unemployed; they stand to lose $40 billion in unemployment insurance. But a bad thing for federal bondholders? No.

Here is what I think. Moody’s, like the rest of Wall Street, very much wants the Bush tax breaks for the rich extended. If we do jump off the so-called “fiscal cliff,” then the Bush tax breaks end. So Moody’s is playing the downgrade card, fear-mongering, to try to prevent that.

That’s actually the generous interpretation. It’s either that, or Moody’s is living in what Aristophanes called “Cloud Cuckoo Land.”

Courage,

Alan Grayson

http://www.democraticunderground.com/125193955