Fitch Finds US Worst Of The AAA-Rated Best, Sees QE2 As Stoking Inflation Expectations

Tyler Durden's picture

Since by now it is all too clear that none of the rating agencies will dare to downgrade the US until well after its creditors realize they have all been taken for the proverbial ride, and even longer after the Fed owns a vast majority of US treasury bonds, which according to CNBC is great, but according to Weimar Germany is sucky to quite sucky, one is forced to pay attention to the fine print and carefully worded nuances in all public statements to see just how they really feel. Today provided just such an opportunity. According to Market News, "Fitch Ratings Wednesday said it believes “the U.S. fiscal metrics will be the worst of any ‘AAA’-rated sovereign,” due to the higher-than-expected deficits and debt levels expected following the extension of the Bush era tax cuts." That's about as diplomatic as it gets without getting (nearly) fired for telling the truth (see NJ governor Christie). The punchline: "Absent a credible plan, the rating on the U.S. federal government will come under pressure." Too bad the US has not had a credible plan for about 30 years now aside from "...print?"

More from Market News:

This despite the expected boost to U.S. GDP this year and in 2012.

And just like their peers at Standard & Poor's and Moody's, analysts at Fitch Ratings warned in their latest Credit Outlook that "the absence of a credible medium-term fiscal consolidation strategy is eroding confidence in the sustainability of public finances and commitment to low inflation, with potentially adverse implications for the U.S. sovereign credit standing."

Still, they note the "higher debt tolerance than for other 'AAA' and highly rated sovereigns" due to the "extraordinary fundamental credit strengths" of the U.S., the flexibility and dynamism of its economy and the status of the greenback as a global reserve currency.

Fitch recently had upgraded the U.S. economic growth forecast, expecting the extension of the Bush-era tax cuts to add 0.6% to GDP growth in 2011 and 2012.

It warned, however, that risks stemming from the weakness of the labor and housing markets persist.

The report, titled 'Navigating a Risk-Laden Recovery' also warned that fiscal and monetary measures that have been taken also imply risks.

In particular, the second round of asset purchases announced last November by the Federal Reserve -- the so-called QE2 -- "could undermine confidence in the U.S. dollar and raise inflation expectations." Inflation expectations would also be fed by the fact that QE2 implies higher asset prices.

It also poses challenges to the rest of the world.

Huh? Challenges? Have these people heard about the Chairman put?

Also what is this BS about inflation and QE2? Don't they understand that inflation is only there (and it is 100% contained) because it is an indication of the deflation that would have been there had QE not been enacted... or something just as schizophrenic.

Unfortunately for Fitch, their analysts appear to have also not read the World Economic Forum's massive report which states that unless the world doubles it net leverage in 9 years, we can call it a day. And how on earth can the world double its leverage unless the US continues to monetize between $5-10 billion in debt all day every day. Which is why we urge you to ignore this blasphemy, and keep buying every fucking Russell 2000 dip: after all that is the only indicator His Chairmanness cares about.