Economic Slippery Slope
Oct 21, 2012 21:22:25 GMT -5
Post by Michael Downing on Oct 21, 2012 21:22:25 GMT -5
Prepare yourselves. No matter what the outcome of the election we will have to face the economic reality as we head into the new year...
Ratings firm downgrades U.S. credit
(CBS/AP) NEW YORK - Credit rating agency Egan-Jones is downgrading its rating on U.S. debt to AA- from AA, citing Federal Reserve plans to try to stimulate the economy.
The firm said the Fed's plans to buy mortgage bonds will likely hurt the economy more than help it. Egan-Jones said the plan will reduce the value of the dollar and raise the price of oil and other commodities, hurting businesses and consumers.
"Up, up and away -- the Fed's QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the U.S. economy and, by extension, credit quality," Egan-Jones said in a report Friday, alluding to a third round of quantitative easing announced by the central bank Thursday. "Issuing additional currency and depressing interest rates via the purchasing of [mortgage-backed securities] does little to raise the real GDP of the U.S., but does reduce the value of the dollar... and in turn increases the cost of commodities (see the recent rise in the prices of energy, gold and other commodities)."
Egan-Jones said that, since 2006, U.S. debt as a ratio of GDP had grown to 104 percent, from 66 percent. By comparison, Spain's debt-to-GDP ratio of 68.5 percent, the firm added.
www.cbsnews.com/8301-505123_162-57513390/ratings-firm-downgrades-u.s-credit/
Pimco: U.S. Credit Downgrade Coming Soon
Bloomberg is out with a story saying Pimco is expecting a U.S. credit rating downgrade, likely sometime in early 2013, as the U.S. faces down the fiscal cliff that looms at the end of this year. Bloomberg’s Tracy Withers reports:
“The U.S. will get downgraded, it’s a question of when,” Scott Mather, Pimco’s head of global portfolio management, said today in Wellington. “It depends on what the end of the year looks like, but it could be fairly soon after that.”
The Congressional Budget Office has warned the U.S. economy will fall into recession if $600 billion of government spending cuts and tax increases take place at the start of 2013. Financial markets are complacent about whether the White House and Congress will reach agreement on deferring the so-called fiscal drag on the economy until later next year, Mather said.
In a “base case” of President Barack Obama being re- elected and Congress becoming more Republican, there is a high likelihood an agreement “doesn’t happen in a nice way, and we have disruption in the marketplace,” he said.
Lest you think the U.S. is alone in facing a downgrade threat, it’s more likely going to be just another step in the ongoing global competitive devaluation race. Pimco’s Mather continues:
“Almost all sovereigns with poor debt dynamics are going to get downgraded, we’re just talking about the pace,” Mather said. Credit rating companies “have been slow in downgrading some sovereigns, but we think the pace probably picks up in the year ahead.”
But fear not about your returns, bond investors. Bloomberg says that about half the time, government bond yields move in the opposite direction suggested by new ratings, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back to 1974.
blogs.barrons.com/incomeinvesting/2012/10/18/pimco-u-s-credit-downgrade-coming-soon/
Ratings firm downgrades U.S. credit
(CBS/AP) NEW YORK - Credit rating agency Egan-Jones is downgrading its rating on U.S. debt to AA- from AA, citing Federal Reserve plans to try to stimulate the economy.
The firm said the Fed's plans to buy mortgage bonds will likely hurt the economy more than help it. Egan-Jones said the plan will reduce the value of the dollar and raise the price of oil and other commodities, hurting businesses and consumers.
"Up, up and away -- the Fed's QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the U.S. economy and, by extension, credit quality," Egan-Jones said in a report Friday, alluding to a third round of quantitative easing announced by the central bank Thursday. "Issuing additional currency and depressing interest rates via the purchasing of [mortgage-backed securities] does little to raise the real GDP of the U.S., but does reduce the value of the dollar... and in turn increases the cost of commodities (see the recent rise in the prices of energy, gold and other commodities)."
Egan-Jones said that, since 2006, U.S. debt as a ratio of GDP had grown to 104 percent, from 66 percent. By comparison, Spain's debt-to-GDP ratio of 68.5 percent, the firm added.
www.cbsnews.com/8301-505123_162-57513390/ratings-firm-downgrades-u.s-credit/
Pimco: U.S. Credit Downgrade Coming Soon
Bloomberg is out with a story saying Pimco is expecting a U.S. credit rating downgrade, likely sometime in early 2013, as the U.S. faces down the fiscal cliff that looms at the end of this year. Bloomberg’s Tracy Withers reports:
“The U.S. will get downgraded, it’s a question of when,” Scott Mather, Pimco’s head of global portfolio management, said today in Wellington. “It depends on what the end of the year looks like, but it could be fairly soon after that.”
The Congressional Budget Office has warned the U.S. economy will fall into recession if $600 billion of government spending cuts and tax increases take place at the start of 2013. Financial markets are complacent about whether the White House and Congress will reach agreement on deferring the so-called fiscal drag on the economy until later next year, Mather said.
In a “base case” of President Barack Obama being re- elected and Congress becoming more Republican, there is a high likelihood an agreement “doesn’t happen in a nice way, and we have disruption in the marketplace,” he said.
Lest you think the U.S. is alone in facing a downgrade threat, it’s more likely going to be just another step in the ongoing global competitive devaluation race. Pimco’s Mather continues:
“Almost all sovereigns with poor debt dynamics are going to get downgraded, we’re just talking about the pace,” Mather said. Credit rating companies “have been slow in downgrading some sovereigns, but we think the pace probably picks up in the year ahead.”
But fear not about your returns, bond investors. Bloomberg says that about half the time, government bond yields move in the opposite direction suggested by new ratings, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back to 1974.
blogs.barrons.com/incomeinvesting/2012/10/18/pimco-u-s-credit-downgrade-coming-soon/