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Moody's Talks Downgrade of U.S. and U.K. Sovereign Credit Ratings
Today, Moody's is again hinting about sovereign credit downgrades for the U.S. and UK..
As Bloomberg writes:
The
U.S. and the U.K. have moved “substantially” closer to losing their AAA
credit ratings as the cost of servicing their debt rose, according to
Moody’s Investors Service.
The governments of the two economies
must balance bringing down their debt burdens without damaging growth
by removing fiscal stimulus too quickly, Pierre Cailleteau, managing
director of sovereign risk at Moody’s in London, said in a telephone
interview.
Under the ratings company’s so-called
baseline scenario, the U.S. will spend more on debt service as a
percentage of revenue this year than any other top-rated country except
the U.K., and will be the biggest spender from 2011 to 2013, Moody’s
said today in a report.
“We expect the situation to
further deteriorate in terms of the key ratings metrics before they
start stabilizing,” Cailleteau said. “This story is not going to stop
at the end of the year. There is inertia in the deterioration of credit
metrics.”
***
Under its adverse scenario, which assumes 0.5
percent lower growth each year, less fiscal adjustment and a stronger
interest-rate shock, the U.S. will be paying about 15 percent of
revenue in interest payments, more than the 14 percent limit that would
lead to a downgrade to AA, Moody’s said.
***
The
U.K. is likely to spend 7 percent of revenue servicing debt this year
and 9 percent in 2013, rising to almost 12 percent under the adverse
scenario, Moody’s said.
Financing costs above 10
percent put countries outside of the AAA category into a so-called debt
reversibility band, the size of which depends on the ability and
willingness of nations to reduce their debt burden by raising taxes or
reducing spending. The U.S. has a 4 percentage-point band, while the
U.K. has a 3 percentage-point band.
“Those economies
have been caught in a crisis while they are highly leveraged,”
Cailleteau said, referring to the level of private and public debt as a
percentage of gross domestic product. “They have to make the required
adjustment to stabilize markets without choking off growth.”
The
U.S. would be the “most affected” under the adverse scenario, as the
only country that would face a downgrade, Cailleteau said.
***
“The
pattern of growth and the high rate of unemployment raise the question
of how strong the recovery will be going forward,” Moody’s said. “The
ability of the U.S. economy to grow more rapidly and, therefore, for
government revenues to contribute to fiscal consolidation, will have to
depend on a revival in the growth of consumption.”
***
“The
question here is less when fiscal retrenchment ought to start, but
rather how credible it is that sufficient retrenchment will take
place,” Moody’s said.
It is no surprise that Moody's says the chance of a downgrade for the U.S. and UK is higher than for Germany and France.
This is not all that controversial any more. Even Bill Gross has said that America will lose its AAA rating.
As I've written for years, the sovereign credit rating of the U.S. and UK are higher than they logically should be.
Of course, Moody's entire business model is to take bribes in return for providing favorable ratings for the entities it rates ("It could be structured by cows and we would rate it"), they gave high ratings to Wall Street giants as they were already tipping over and hitting the ground, and some have alleged
that the government is more or less blackmailing the ratings agencies
into maintaining America's triple A rating. So I'm not exactly sure why
anyone is still paying attention to what Moody's (or S&P or Fitch)
are saying.
But the above-quoted Bloomberg article also notes one very insightful comment by Moody's managing director of sovereign risk:
Achieving
the fiscal consolidation necessary to avert a downgrade will test
“social cohesion” and may involve rewriting the “social contract”
between governments and their people, Cailleteau said. “People have to
decide what level of pain they are willing to accept to have a healthy
economy.”
Of course, stopping unnecessary imperial wars or taking steps to slash America's interest payments on financing its debt is unthinkable to the political class.
Arguably, the American and British governments have already broken
the social contract with their people. Indeed, if they hadn't launched
unnecessary wars based upon false rationales (if Iraq solely grew broccoli, and if broccoli was the main export of the Middle East, would we have invaded?) and if they hadn't sold out to the money-changers,
the sovereign ratings of the two countries wouldn't be so precarious in
the first place.
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This is proof that the markets are propped up ... if they weren't this rumor would have ripped the market by 500 Dow points.
It is about time top stomp on the market for 5-6%, so GS can grind it up once again.
I never could get all the French-bashing in America. "Socialist" this, "coward" that.....kinda makes one think. And now, the "socialist", "cowardly" French are in seemingly better shape......think I'm gonna have some "Freedom Fries".
It's simple, France won't play ball like the UK will. I think some people are still bitter about not being the De Gaulle claiming France's gold and France not playing ball in NATO for a while. Anyone who does not kneel to mighty America is to be destroyed or mocked.
Great news for Moodys!A number of their staff may be eligible for an all expense paid trip to Uzbekistan!This is only logical because a downgrade would materially threaten the security of the United States.That and nuking them would prove difficult.
There will be no downgrade.But a sudden extra-actuarial number of heart attacks, suicides, car accidents, etc is very much more likely.
If a downgrade actually happened you can be certain it was pre-approved at the highest levels of sinistrosity, and that the goal of it is ugly.Very ugly.
Not gonna happen.
Why you might ask ?
It's simple really. There just isn't enough money in circulation which can be used for collateral calls. And, as far as i know, every CDS contract has a clause written in it that clearly stipulates that every downgrade means that some collateral needs to be put by the "insurer" in case of such an event. So default is more probable than a downgrade.And default is, in itself, highly improbable.
The UK and especially the US know that their populations won't take the level of pain that is coming to them in the very near future. Our Federal liabilities to SS, Medicare and the Pensions are to much for us to even service the interest and the rest of the world knows it except the public. The local and state govt. pensions for state workers and their muni-bonds are suffering. One is that tax revenue has suffered from the Great Recession/Depression really. Two, states have been doing what the Federal govt. does and that is to not fund wholly or make rosie scenarios of what the they project their tax revenue will be and make promises and borrow on these pensions and bonds. But the problem with that is states can't print money, only the Fed can.
So Imagine if you will that your pension state or locally is cut and/or gotten rid of because they have no money. Or your SS checks and Medicare and Welfare is delayed or cut by 50% because the Federal govt. and state doesn't have money. You will riot and go insane, because in your mind you thought you where paying into these programs and that your "leader" was looking out for you. Many people who get up to retiring age don't have 10,000 saved in the bank. They must rely on SS, Medicare, whatever 401k or they have and their family members.
We have bankrupt this country because we decided to be a half-ass empire in order to show our strength. We are going down a worn path that many countries that become an empire go down. A path to an empire that is in name only and broke.
they need to remain in 14% debt servicing??
No probs...Repo 105 v2.0 will be mounted, a few trillions taken off balance sheet, and business as usual.
There are NO markets, only Govts interventions and fraudulent accounting.
Think Enron - they hid a few hundred million off balance sheet for quite awhile. Until the accounting finally fell apart.
Why can't an unauitable institution, such as ummm the Fed, hide a few trillion off balance sheet longer?
Yes, that is rhetorical
+ 1,000
It's taken 60 years of fruitless wars to finally break the bank ......and now the printing press rolls on. Only time you read about VietNam....the mother of all clusterfuk wars......is in the travel section of the NY Times.
Ike called it and nobody listened. The military/industrial cartel runs the show til the Fat Lady finally sings.
Moody's will downgrade the USA or UK 3 weeks after an offcial default + or - 1 week.
+1,000
Fuck Moody's. I'm going to eat my granola bar.
Moody's. Now there's a company you can depend on.
I grew up on a farm. Cows are smart critters. Far too smart to be in the same piece as Moody's.
Can you even see a black swan when the waters of corruption that surround us are so dark?