It's okay, no worries. It can be pieced together. None of the English speakers here could do very well in a second language forum. Not nearly as well as the German, Dutch, or Finnish speakers manage here. :up:
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It's okay, no worries. It can be pieced together. None of the English speakers here could do very well in a second language forum. Not nearly as well as the German, Dutch, or Finnish speakers manage here. :up:
I have to admit, if I were not so lazy I would be able to do better. Translating the whole article by myself is just too much.
But it isn't in the interests of the US to downgrade Greek debt or force a default! That's naive thinking, as is the conspiracy theory in your linked interview. Let's take it point by point:Quote:
Originally Posted by earthJoker
First, US public debt is among the lowest in the developed world; hardly as 'dramatic' as the Greek. Secondly, the reason the euro hasn't caught on has a lot more to do with weak centralized fiscal policy and opaque monetary policy rather than some 'attack' on the euro as a reserve currency.Quote:
Now, you believe that speculation is against the euro at a good part also staged in the background and different interests work against the euro.
Yes, absolutely. The U.S. was not so keen that the euro was on its way to become the second "global currency". The euro had begun to replace the U.S. dollar as global reserve and transaction currency. This, however, would have threatened the funding the U.S. current account deficits increases. For one must not forget: The U.S. debt is at least as dramatic as the Greek. The Americans live by the U.S. government bonds have a high rating and the rest of the world is willing to finance the purchase of American treasury bonds, the current account deficit.
I love how he denies he thinks there's a conspiracy, and then goes ahead and suggests there's a conspiracy. The reason why rating agencies haven't downgraded US and UK debt is the same reason Japanese debt hasn't been downgraded, or any number of other heavily indebted developed nations. It's because they're in far better shape than Greece.Quote:
They suspect an American conspiracy against the euro?
No. But it is certainly the case that we saw in the crisis in Greece a chance to drive an attack against the Euro. This has been tried again and again by the major U.S. rating agencies. Fitch, Moody's and Standard & Poor's have a market share of 95 percent. If one of these three sets anything in the world, the markets will react immediately nervous. It's striking that the highly indebted countries in Europe are thrown into a pot and they are threatening to lower the ratings, while it has left in the case of the USA in verbally and also in the UK so far nothing has happened.
I suspect there's some translation difficulties here, but having dollar-denominated assets hardly means there's a conspiracy to attack the euro. I don't deny the US (and the US dollar) has a particularly special place in the global economy right now, for a number of reasons. But this isn't the result of collusion, or some concerted attempt to attack other potential reserve currencies.Quote:
The rating agencies act on behalf of the United States?
For the purposes of the United States or any case of loans to it in U.S. dollars. The problem of rating agencies has been known for years: they act not long ago in the interest of creditors, but can be paid by the borrowers. Therefore, it is for them at the moment all about, papers in U.S. dollars can appear more attractive and safer, than they actually are. And accordingly makes it bonds worm, which are denominated in euros.
Really Wiggin? You don't see anything fishy if Italy comes in the line of fire before the UK? I don't know which planet you're living on, but the real life Italy is set to being close to a balanced budget in little under two years and as we speak already has one of the lowest budget deficits of the EU. Quite unlike the situation in the UK where the deficit is one of the highest in the EU and where the sovereign debt is set to grow significantly over the next few years. Italy has no problems that should make the markets accutely worried about its ability to pay back its debt (actually, those markets should start worrying about Italy no longer issuing new debt soon, as in other than rolling over old debts).
Also, we all can see the glaring truth that the US is digging a hole deeper every day, with a political deadlock that may lead to default in weeks, and yet the rating agencies are giving it a full AAA rating. Who are they trying to fool? The risk that the debt ceiling is NOT raised is a real one Wiggin, it's not
just something that could only happen in a parallel world. If you see how rigorously such possiblities are factored in for EMU countries, there is no way one can understand how lax they are with the US.
Your believe in 'the market' and rating agencies is of a kind that belongs in the pre-financial crisis times, but today is of a naivete that's gobsmacking.
Deficit != Debt, and Italy's debt-to-GDP is the real concern in an anemic growth environment. And some economies are more equal than others.
As for the chances of US default, I still think they're nil. So does the market - prices on Treasuries haven't budged. The fact of the matter is that Greece/Portugal/Ireland physically can't pay off their debts, while countries like the US absolutely can; it's just a question of political will. And normally when push comes to shove, Congress does get their act together, albeit at the last minute. Italy is sorta in-between; they have high debt levels and an inefficient and weak economy, but their budget management in the last few years has been vaguely palatable (I believe deficits in 2010 were ~5% of GDP, and they have just put out a very small austerity plan). I think Italian default is a remote chance, but certainly higher than richer countries with less overall debt (i.e. the US, UK, Germany, France, etc.).
Really? Even for you that is remarkably blasé.Quote:
Originally Posted by Hazir
Italian debt:GDP is 118%, whereas in the UK it is 76%
It's funny how by thinking like that you turn a blind eye to the fact that the rating agencies ignore the actual crisis in the US debt situation whereas any hint of anything less than perfect unity in the EMU gets punished by downgrades.Quote:
Originally Posted by wiggin
There is no reason whatsoever anyway for an investor to think that the US will really be good for the money as the country consistently has devalued itself out of its debt. That also never got factored into the 'mint' rating of the country.
And PUHLEEZE ... your lecturing about how deficit is not debt. I am not so stupid that I would confuse the two. What I was pointing out is that there is nothing accute to the Italian debt position that justifies the panic about its ability to honour its obligations. The chances of an Italian default are as far in the future as those of a default of the US (if they raise the debt ceiling in a meaningful way before august).
@Randblad; sigh. The Italian debt is high but not rising. The UK debt is jumping up, in combination with a deficit that is NOT under control. Your 76% looks horrifying if you put it next to the figure for 2007, when it was 43%. A detached observer would place the risk of buying UK debt higher than the risk of buying Italian debt.
There is no US 'debt crisis', there's just a political crisis. The debt is fine. Obviously if deficits stay at current rates, there will be a problem in the future, but that's being aggressively addressed (IMO too aggressively, actually). And the EMU was given a lot of leeway for years assuming things would be managed adequately, but when push came to shove it was clear that there was zero fiscal coordination, so the debt of troublesome countries was reevaluated.Quote:
Originally Posted by Hazir
When has the US devalued itself out of debt? US debt started getting hefty in the 80s, and in the last 30 years, US inflation has been remarkably well controlled by the Fed.Quote:
There is no reason whatsoever anyway for an investor to think that the US will really be good for the money as the country consistently has devalued itself out of its debt. That also never got factored into the 'mint' rating of the country.
Uhm, no. The whole point is that having 120% debt-to-GDP doesn't give you much room to maneuver in the event of a crisis - say, a financial crisis that screws up your banks and credit markets, persistently high unemployment, and awful growth prospects. All of these will do bad things to your debt levels, and if you're already maxing out what you can reasonably pay without crushing austerity, you're a greater risk for default.Quote:
And PUHLEEZE ... your lecturing about how deficit is not debt. I am not so stupid that I would confuse the two. What I was pointing out is that there is nothing accute to the Italian debt position that justifies the panic about its ability to honour its obligations. The chances of an Italian default are as far in the future as those of a default of the US (if they raise the debt ceiling in a meaningful way before august).
Italian debt is rising; deficits as a proportion of GDP are higher than growth rates. They've done pretty decently on cutting their deficit from truly ridiculous levels, but that was because they had no choice.Quote:
@Randblad; sigh. The Italian debt is high but not rising. The UK debt is jumping up, in combination with a deficit that is NOT under control. Your 76% looks horrifying if you put it next to the figure for 2007, when it was 43%. A detached observer would place the risk of buying UK debt higher than the risk of buying Italian debt.
Here you're making your typical flaw. What the markets need to see isn't "unity in the EMU" its a solution. The EMU is putting up too much of a united front if anything, which is precisely why Greece got treated like Germany in the first place and why Greece is now infecting everyone else.Quote:
Originally Posted by Hazir
The US has never defaulted on a debt ever in its entire history.Quote:
There is no reason whatsoever anyway for an investor to think that the US will really be good for the money as the country consistently has devalued itself out of its debt. That also never got factored into the 'mint' rating of the country.
Yes there is. They have far more debt to start with and still have a deficit.Quote:
And PUHLEEZE ... your lecturing about how deficit is not debt. I am not so stupid that I would confuse the two. What I was pointing out is that there is nothing accute to the Italian debt position that justifies the panic about its ability to honour its obligations. The chances of an Italian default are as far in the future as those of a default of the US (if they raise the debt ceiling in a meaningful way before august).
Actually it is rising. Italian deficit is over 3% this year, which is less than its anaemic growth rate has been in a very long time. In addition fears over Italy were sparked in no small part by reasonable fears that the austerity plans (weak as they are) that Italy is introducing will not happen. Not just due to protests but because of comments made by none other than Berlusconi himself. When Berlusconi is questioning whether they'll go through is it a surprise that others are asking the same question?Quote:
@Randblad; sigh. The Italian debt is high but not rising. The UK debt is jumping up, in combination with a deficit that is NOT under control. Your 76% looks horrifying if you put it next to the figure for 2007, when it was 43%. A detached observer would place the risk of buying UK debt higher than the risk of buying Italian debt.
The UK deficit was awful and unforgiveable. I despise Brown for the damage he did to our nation, but he's gone. The country (as I said for years here and at the other place) at the last election chose to elect a government that is committed to austerity. Despite wistful soundbites from a few dinosaurs there are not even any serious protests let alone serious talk of the austerity plans being rejected here.
Quote:
Originally Posted by earthJoker
What is this madness that credit agencies are some kind of Zio-American conspiracy? Just a few months ago a credit agency threatened to downgrade US debt and our stock market fell by 5% in a day. The credit agencies have similarly told US politicians that they consider a temporary "strategic default" (IE stop paying out debts in August if we need more time to discuss a long-term plan) still constitutes a technical default in their eyes.Quote:
Originally Posted by earthJoker
The reality is that some countries have developed truly awful debt situations and are being called-out on it.
For those who wish the ratings agencies had been even more vocal about this a decade ago, there would be another half ten years ago claiming the credit raters were meddling in politics or restraining social spending.
I've said this too, but apparently it's not entirely true. I was listening to a piece on NPR; apparently the US technically defaulted on a few hundred million dollars back in 1979 because, well, the Treasury had some technical problems (not either a lack of money or a lack of political will). So it technically counts as a default, but everyone got paid fairly quickly, and business eventually got back to usual. There does seem to have been a transient increase in yields as a result of this mini-default, though.Quote:
Originally Posted by RandBlade
</digression>
I said common interests, not that they talk to each other behind closed doors (which IMO must be the case before you can talk about a conspiracy). I stay to what I said until they actually put the US to an AA rating and not just talk about it.Quote:
Originally Posted by Dreadnaught
I'm curious - why do you think the US should be given an AA credit rating?Quote:
Originally Posted by earthJoker
Political incapability of deficit-reduction.
All evidence to the contrary?
Well you say that there is no chance that there is no agreement, but others disagree. An AA1 or AA+ rating is still a high grade, it would just include that minimal chance of a non-agreement.
On the other hand, is makes absolutely no sense to downgrading countries that actually took measurements already.
Actually it is quite funny to see how Americans (and Randblade, but he's just the fool that blurts out every now and then about things he doesn't understand) get extremely defensive if it is pointed out that American rating agencies and the American government may have interests that have more than a little bit in common.Quote:
Originally Posted by earthJoker
And here we go again, we judge the US on past performance (past performance if you ignore an actual default and inflating yourself out of debt) and EMU countries on the basis of scepsis about the future. Stunning how you manage to miss the difference.Quote:
Originally Posted by wiggin
Patent nonsense as usual; the core of the problem is that part of the EMU members want the tax-payers to bear the burden of the Greek situation and part of them want banks to bear part of the burden. There is no unity on the NEW bail-out package which actually should have very little bearing on the situation right now, as its results would be many months off.Quote:
Originally Posted by RandBlade
Not, it's just consistently being ignored. Which has got everything to do with the ability of the US to inflate itself out of its debt, which of course also is a default by another mechanism. Something that quite interesting also isn't reflected in the rating for US sovereign debt. The inconvenient truths.Quote:
The US has never defaulted on a debt ever in its entire history.
I see you read British newspapers, bravo, now try to learn something from the tripe you read. Italy's problems are far in the future, Britains problems are very accute and there is no way of telling if it can get the growth of its debt under control (where is its banking sector in 6 months from now, would have to be a serious point of concern. Will the government - again - attempt to save them?). Is the Cameron government capable of cutting the immense 10+% deficit? Very questionable. And then of course we could throw in the usual Keynesian argument of years of stagnation that you and Wiggin love to use for Italy. If Italy has to fear stagnation because of its limited needs for cutting back an already small deficit, why don't you throw it in the face of your own country?Quote:
Yes there is. They have far more debt to start with and still have a deficit.
Actually it is rising. Italian deficit is over 3% this year, which is less than its anaemic growth rate has been in a very long time. In addition fears over Italy were sparked in no small part by reasonable fears that the austerity plans (weak as they are) that Italy is introducing will not happen. Not just due to protests but because of comments made by none other than Berlusconi himself. When Berlusconi is questioning whether they'll go through is it a surprise that others are asking the same question?
Bla bla, it is totally irrelevant who caused your problems, the problems are real today. It's also rather easy to point to the difference in public unrest in Greece, where actual people have experienced job losses and cuts in income 10% and bigger and the UK, where such cuts are still over the horizon. I remember you lot had pretty bad riots not so long ago about student fees.Quote:
The UK deficit was awful and unforgiveable. I despise Brown for the damage he did to our nation, but he's gone. The country (as I said for years here and at the other place) at the last election chose to elect a government that is committed to austerity. Despite wistful soundbites from a few dinosaurs there are not even any serious protests let alone serious talk of the austerity plans being rejected here.
Not all countries are called out in quite the same way; inflation capital US is getting the velvet glove treatment, whereas the EMU members are getting an excessively harsh treatment. Greece definately deserves junk status, but Portugal? The last downgrading for that country was outright ridiculous.Quote:
Originally Posted by Dreadnaught
Quote:
Originally Posted by earthJoker
What interests? The political dynamic is the same here that it is over there: US politicians don't like credit agencies when they say things they don't like.Quote:
Originally Posted by Hazir
But there are notable differences between the US debt market and the PIIGS in Europe. The US debt markets haven't had auction near-failures and other crisis-level issues. While our debt is a long-term problem, in the medium-term our debt market is stable and our debt yields are very low. When the world's largest government debt market is that stable, there's no reason to downgrade it.
If the US defaults in August, then we'll merit a downgrade. Which the credit agencies have made clear.
Uhm, I'm not sure you get the point of a credit rating. It's supposed to provide a measure of the agency's assessment of the risk of a default, period. If a country has a much tougher fiscal position - even if they have done more to address the issue than another country with a much better fiscal position - they are going to have a worse situation. Italy is acting - albeit rather late for their debt loads. The US is acting, too, but their debt loads are still quite manageable and not a threat of default.Quote:
Originally Posted by earthJoker
More on this 'inflation out of debt' nonsense. Proof, please? Inflation rates have been remarkably stable for ~30 years. Also, it's not the job of the credit rating agency to speculate on currency values, but rather to judge the chances of default.Quote:
Originally Posted by Hazir
Whoa, you think Italy has problems only in the future but the UK has problems now?! It's precisely the opposite! Italy has debts at 120% of GDP, which makes it very challenging for them even to make the interest payments now even if no more debt is added. The UK can make current payments with ease, but if deficits continue to be larger than trend growth, they'll get into trouble in the future. To respond to this, they've enacted fairly harsh austerity to bring down deficits. They also have absurdly long maturity, which gives them rather a lot of flexibility if bond markets are skittish for a little while.Quote:
Originally Posted by Hazir
Wiggin, puhleeze again; anybody remotely interested knows that internal inflation figursare rather irrelevant for the single country that has been able to export it s excess money creation (and inflation) ever since the breakdown of the Bretton woods system. You have flooded the planet with a currency of questionable value. You are not alone to blame for that but it sure as hell means That the 'full faith and credit' of the United States only means that at some time you will chuck out some more of the same.
So if you ask me; does the US have an interest in the failure of the euro, the only answer is Hell Yes, more than anybody else. For starters because you could go back to where you could default and not suffer the consequences.
You can buy a reasonable amount of goods with the US dollar; what more matters? Yes, there are global imbalances that need to be fixed, but that's not part of some concerted US strategy to inflate away our debt, nor does it mean US Treasuries are a bad investment (which is what matters from a credit rating agency's perspective). The fact of the matter is that the US dollar has for a very long time been the only highly liquid, relatively stable currency in the world. So it's not surprising that it features in a lot of foreign exchange reserves around the world, and that US debt is highly valued as a safe investment. I don't deny that the euro is gaining some prominence as well, and I don't begrudge it a piece of the pie; I just currently doubt whether the management of the EMU is going to give investors and nations the stability they crave.Quote:
Originally Posted by Hazir
First of all, it would be awful for the US economy if the eurozone broke apart and everyone knows that. I don't doubt there's some schadenfreude among economists here who doubted the efficacy of the weird hybrid EMU system from the getgo (just as they criticized the ERM), but that doesn't mean anyone thinks it would be good for the US if the global financial system suffered another major shock.Quote:
So if you ask me; does the US have an interest in the failure of the euro, the only answer is Hell Yes, more than anybody else. For starters because you could go back to where you could default and not suffer the consequences.
Secondly, why would a US default be tolerated in the absence of the euro? A US default would be catastrophic, nearly apocalyptic, regardless of the presence or absence of the euro.
Nice try but there is no way to tell if you could really get a reasonable amount of (American) goods and services for all those dollars. Only on repatriation can we see how much a dollar is actually worth. And you're right to mention the imbalance, because the US dollar would not survive full repatriation. I am not saying that imbalance is the effect of consious American policy choices, but US governments have used the possibilities that the system gave them extensively. No US government would like to give it up just like that. The euro is and was a game changer. Does that mean I think the US government wants to break up the euro? No, it doesn't, it also doesn't mean there wouldn't be an upside to the US dollar returning to its previous role as (almost) single reserve currency of the planet. The US economy would suffer the fall out of a break up of the EMU, US sovereign debt would be a big winner. Which one is the better scenario for the US is anybody's guess.
Anyway, that was just a loose remark on the side. The core is that the US is not quite as credit worthy as the rating agencies would have us believe.
Also, I am really not impressed by economists who keep hammering on the so-called shortcomings of the EMU. In a rationally operating world, those shortcomings would actually have been advantages, as the existence of the restrictive monetary policy in combination with the discipline of the markets would have forced countries like Greece to reform immediately.
A US default in the absence of the euro? With the ability to simply print the stuff you pay with unlimited and no alternative for it? Really?
That's a ridiculous bit of logic. No one's going to suddenly dump trillions of dollars into the market, and if they do the Fed will just respond by tightening monetary policy. Just because a lot of people are holding onto dollars doesn't mean we've inflated away our debt. You're making up crazy scenarios ('full repatriation of US dollars') to support a very simple (and very wrong) statement about the US inflating away its debts.Quote:
Originally Posted by Hazir
Why not? The US has never defaulted (okay, except for that tiny technical one in 1979), has the strongest and largest economy in the world, is home to a remarkably well integrated and diversified market, and has total debt loads well within manageable parameters. *If* US debt levels continue to rise towards unsustainable levels *and* it doesn't like the government is taking strides to deal with it, then there's plenty of reason to lower the US' credit rating.Quote:
Anyway, that was just a loose remark on the side. The core is that the US is not quite as credit worthy as the rating agencies would have us believe.
Printing money to pay our debts isn't a default, actually... but we don't do that, full stop. The monetary supply is managed to target inflation and employment levels, not to reduce our borrowing costs. Anyways, people wouldn't just accept a US default and move on. They would desert Treasuries in droves, driving up borrowing costs to unheard-of levels and probably destroying the US financial system (and, let's be honest, most of the world's financial system). Imagine Lehman brothers 100 or 1000-fold worse.Quote:
A US default in the absence of the euro? With the ability to simply print the stuff you pay with unlimited and no alternative for it? Really?
The 'flight to quality' that happens with US debt (and to some extent, US dollars) happens not because the US is suppressing other candidates for a reserve currency and 'safe' debt, but because US debt is safe, and US currency is the only universally accepted currency. The euro has gained some adherents, yes, but it's clearly still in its birth throes and frankly other currencies don't have deep or liquid enough markets (the GBP and Japanese yen coming the closest).
More evidence of Amerikan-founded credit rating agencies favoring the US government.
Those anti-Euro fascists!
Quote:
Moody’s Places U.S. on Review for Downgrade
By John Detrixhe and Daniel Kruger - Jul 13, 2011 7:50 PM ET
Moody’s Investors Service raised the pressure on U.S. lawmakers to increase the government’s $14.3 trillion debt limit by placing the nation’s credit rating under review for a downgrade.
The U.S., rated Aaa since 1917, was put on review for the first time since 1995 on concern the debt threshold will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low, Moody’s said in a statement yesterday. The rating would likely be reduced to the Aa range and there is no assurance that Moody’s would return its top rating even if a default is quickly cured.
President Barack Obama is considering summoning congressional leaders to Camp David this weekend to work on a plan to raise the debt ceiling after yesterday’s negotiations on a deficit-cutting plan of at least $2 trillion stalled, according to two people familiar with the matter. A failure to raise the debt limit that causes a default may lead to slower economic growth and another financial crisis.
“It’s obviously very serious in so many different ways,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of 20 primary dealers that trade bonds with the Federal Reserve. “Most people still believe there will be some type of an agreement struck to avoid all this stuff, and that’s what the market’s banking on.”
Dollar, Bonds
The dollar weakened and Treasuries were little changed after the Moody’s statement. IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, including the euro, yen and pound, slid for a second day, shedding 1.2 percent.
The 10-year note yield was little changed at 2.88 percent yesterday in New York, according to Bloomberg Bond Trader prices, after increasing earlier as much as eight basis points to 2.96 percent. The yield dropped to 2.81 percent, the lowest since Dec. 1. The price of the 3.125 percent security due in May 2021 declined 1/32, or 31 cents per $1,000 face amount, to 102 2/32.
The Aaa ratings of financial institutions directly linked to the U.S. government, including Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks, were also put on review for cuts, Moody’s said. It also placed 7,000 municipal ratings on review for possible downgrade.
“What we’re looking for is a raising of the limit. It doesn’t matter the process that they get there,” Steven Hess, the senior credit officer at Moody’s in New York, said in a telephone interview.
Debt Talks
Senate Republican Leader Mitch McConnell proposed a “last choice option” on July 12 that effectively would grant Obama power to raise the debt limit in installments. McConnell’s plan would let the president raise the limit in three stages unless Congress disapproves by a two-thirds majority, while Obama would also be required to propose offsetting spending cuts. The spending reductions would be advisory, and the debt-ceiling increase would occur regardless of whether lawmakers enact the cuts.
Obama “abruptly” walked out of yesterday’s White House meeting with legislative leaders on the federal deficit, House Majority Leader Eric Cantor, a Republican from Virginia, told reporters.
“This report underscores the warning I outlined months ago,” House Speaker John Boehner, Republican of Ohio, said in a statement. “If the White House does not take action soon to address our nation’s debt crisis by reining in spending, the markets may do it for us.”
Lowest Level
“I think it reflects what we all know -- that this is a serious time and serious discussions and we can’t continue to have people not contribute to solving this problem,” said Senator Patty Murray of Washington, the No. 4 Democratic leader in the chamber.
Standard & Poor’s put the U.S. government on notice on April 18 that it risks losing its AAA credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt. The firm said at the time that there’s a one-in-three chance that the rating might be cut within two years and that its “baseline assumption” is that Congress and the Obama administration will come to terms on a plan to reduce record deficits.
S&P would lower its sovereign top-level AAA ranking to D, the last rung on its scale, if the U.S. can’t make its payments because of a failure to raise the debt ceiling, John Chambers, chairman of the sovereign rating committee, said June 30.
The U.S. is among 17 countries, from Australia to Canada to Switzerland, rated Aaa by Moody’s. S&P gives 18 countries its top ranking.
‘Credible Plan’
It’s likely that the debt ceiling will be raised without a credible plan for debt reduction, pushing yields higher for longer-term securities, according to Bank of America Corp.
The debt ceiling will likely be increased before Aug. 2, which would lead yields on 30-year Treasury bonds to rise faster than five-year notes, reflecting an increase in investor concern the long-term fiscal situation will worsen, wrote analysts led by Priya Misra, head of U.S. rates strategy in New York at Bank of America Merrill Lynch.
“The rating outlook will be determined by the longer-term debt trajectory,” Hess said yesterday of the Moody’s rating.
‘Timely Reminder’
Treasury Secretary Timothy F. Geithner said he has taken steps to prevent a federal default until Aug. 2, using accounting measures that involve two retirement funds. The U.S. reached its borrowing limit on May 16.
The Moody’s announcement is a “timely reminder” that Congress must “move quickly” to avoid default, the Treasury said in a statement.
Government bonds yields are at about the lowest this year. Ten-year yields remain below 3 percent, compared with an average of 7 percent during the past four decades. Two-year U.S. government debt yields 0.36 percent, compared with the low for 2011 of 0.32 percent on June 24.
Demand has been higher than average this week at the Treasury’s auctions of three- and 10-year notes this week as investors continue to seek a refuge in U.S. government debt against Europe’s worsening sovereign debt crisis.
While yields remain low, investors remain concerned they will increase as the borrowing deadline approaches. Yields on 10-year notes would rise about 37 basis points if the U.S. government temporarily misses a debt payment while promising to make bondholders whole as soon as the debt limit was raised, according to a mean estimate of 45 JPMorgan Chase & Co. clients that were surveyed by the firm. Foreign investors forecast yields would rise 55 basis points.
‘Underscores the Importance’
An increase in Treasury yields of 50 basis points would reduce U.S. economic growth by about 0.4 percentage points, JPMorgan said in a report, citing Fed research and data.
“It certainly underscores the importance of passing the debt ceiling and not putting us in default status, and making sure there’s a longer term fiscal plan to contain spending and the deficit we’ve been running up over the last few years,” said Anthony Cronin, a trader at primary dealer Societe Generale SA in New York.
http://www.bloomberg.com/news/2011-0...lks-stall.html
Didn't S & P downgrade the US back in April or May, or put us "on notice" and give us a couple of years to get our act together? Nobody was too concerned back then, were they? I mean, either the agencies' ratings actually mean something, or they don't. Which is it? :confused:
The stock market went down 5% that day. It recovered eventually, but that's the thing with these sovereign debt issues: they don't have a huge impact until suddenly they do.
And asshole legislators can do nothing and get away with it for a couple of years, until "suddenly" they have to do something. :rolleyes:Quote:
Originally Posted by Dreadnaught
A tangent of questions, but relative.
Does this mean Washington is ruled by Wall Street? Are our legislators just puppets of "the markets"? Would that be Freeee Markets, or central economic planning from SIFI and bond vigilantes? :bulb:
So now they considering a step that Hazir and me are saying they should have already done, that is very same a step that Wiggin told me is absolutely off and against all evidence.Quote:
Originally Posted by Dreadnaught
I think it was never claimed, that the US & UK were sacrosanct to rating agencies, but that the ratings were in favourable for those countries. That said, with the current announcement put themselves under zugzwang.
A second thought here, and I might add, this is just some brainstorming.Quote:
Originally Posted by GGT
Why is a rating agency actually threatening the government to downgrade their rating, what is the sense in that. Does that mean they really want to influence it? As I see it, they either see a chance of failure, and than they need to adapt their rating now, or they don't see any reason for concern, but than they wouldn't need to warn. The only reason to warn and not to change the rating would be, if they actually think that their warning will make a difference on the outcome of the talks.
If the effects weren't so negative, I would actually like to see if Moody's will also do the walk and not only the talk.
Brainstorming, indeed. :D While it's true that the 3 rating agencies carry a lot of clout, it's also true that their ratings don't make much sense or follow a pattern of true value:risk assessment. Whether it's for an individual stock or bond, or sovereign wealth. Why? Because to be truly credible, they'd have to include political analysis, and use much more data in their ratings than they do now.
Their current threats of downgrade are nothing more than rating political dysfunction and polarity paralysis, not really fundamentals.
Isn't that kind of funny, as politics are one of the major factors of rating a country's ability to pay.
Yeah, politics, go figure. :noob: I'd still like someone to answer my question.....why are there only 3 rating agencies, all with ties in the US?
Why aren't there some competing agencies from european nations?
See #39, in a nutshell, I think no-one bothered about it, till now.
Quote:
Originally Posted by earthJoker
That's #39. Still doesn't explain WHY no one bothered to try and compete, though. It doesn't even have to be a government mandated thing.Quote:
Well nobody for the private marked established one, for whatever reasons - and it seemed the EU didn't found it to be so crucial that the government has to establish one.
You know, people don't need reasons to don't do things, they need reasons to do things. Maybe it was simply the fact, that yet another rating agency wouldn't run on profit.
Sorry, I have no idea what you just said EJ. :(