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Another U.S. Sovereign Downgrade Likely By 2011 Year End, Says Merrill
By EconMatters
While some of us are still recovering from the first ever U.S. sovereign credit downgrade from S&P in August, BofA Merrill dropped another bomb. From Reuters,
"The United States will likely suffer the loss of its triple-A credit rating from another major rating agency by the end of this year due to concerns over the deficit, Bank of America Merrill Lynch forecasts.
The trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the U.S. deficit, the bank said in a research note published on Friday [Oct. 21, 2011]."
If the "super committee", the bipartisan congressional committee formed to address the U.S. deficit, fails to agree on a plan by November 23, $1.2 trillion in automatic spending cuts, mostly in discretionary spending will be triggered, beginning in 2013, which would negatively impact the already fragile U.S. economy, says Merrill. The bank also cut its 2012 and 2013 U.S. GDP forecast to 1.8% to 1.4% respectively.
As to which agency would hand down the downgrade first, Moody's looks good for now, since Fitch still has a stable outlook on its AAA rating on the United States, which suggests it is more likely to revise to negative outlook before the actual downgrade. Moody's, on the other hand, already has a negative outlook on the United State's Aaa rating, and indicated that failure by the committee to come up with an agreement "would be negative information".
Among the advanced economies, France is another country whose AAA credit rating could be at risk with its promise to back the European Financial Stability Facility (EFSF) guarantee to shield Italy and Spain from the Greek debt contagion. France's share of the planned $600 billion rescue fund is about $200 billion— equivalent to roughly 8.5% of France’s annual GDP.
Moody's already put France on notice that France is “the weakest” of Europe’s triple-A nations, and
“The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government’s Aaa debt rating. ...The French government now has less room for maneuver in terms of stretching its balance sheet than it had in 2008.”
Bloomberg estimated that Italy and Spain alone must refinance more than 420 billion euros of bonds that come due next year. But for now, we think it is fair to say no one knows for sure how much France (and the rest of the EU) is on the hook for.
Meanwhile, Bloomberg data indicated the cost of insuring French bonds (credit-default swaps, or CDS) has soared to 191.5 basis points, even more costly than some of the nations rated AA- by S&P, including China, Estonia and the Czech Republic. And given the increasing vulnerability of the French banking system (Moody's just downgraded two major French banks), France could even be a bigger downgrade target than the U.S.
Nevertheless, looking at one of the scary Euro debt crisis charts from NYT Sunday (full report here, interactive charts here), it seems a downgrade could be coming, but not limited to just the United States.
Related Reading - A U.S. Sovereign Credit Downgrade Is No Laughing Matter
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Where's Galt's Gulch when we need it?
Sign of whats coming Bitchez. Alarming. But its for our own good.
http://www.techdirt.com/articles/20111019/17424316421/louisiana-makes-it-illegal-to-use-cash-secondhand-sales.shtml
It's always for our own good. Then one day we wake up in a police state completely managed by the central planners for our collective good...and we don't feel so good.
I watched three red-light cameras go up near my home. They tell me it's for the good of all. I also read they make $1.5million per year per camera. That must be for someone's good, too.
Unless it is France, then it just doesn't matter. Markets just don't care anymore as long as McDonalds is selling hamburgers, Coke is selling soda and John Deere is selling tractors...When their weekly payroll loans dry up...then the market will care..
Ron Paul has a plan to cut $1T per year. Problem solved.
Italy and Spain alone must refinance more than 420 billion euros of bonds
Have you ever had a Spanish/Italian guy owe you money? It's like pulling Excalibur out of Howard's Rock.
420=bongs hit of reality
It means nothing, of course. Politicos will say that the rating agencies simply have it wrong, they don't understand and anyway this time is different.
The markets will continue to grind up, Benny and Timmy will take the full credit for our national economic strength and banksters will get nice bonuses. There are an infinite number of cans and an infinite number of roads to kick them down. Everyone talks about the fragility of the banks, bonds, the euro, the dollar. Nothing will change the continued indebtedness of the country short of removing the cause of the debt, the government and the banks, and since you need an enlightened electorate for that to happen, we are screwed.
Relax and enjoy it while you can.
sunny
Does anyone really care what ratings agencies say about governments? They constantly close the barn doors after the animals have escaped. It just makes press releases.
In other news, apparently credit ratings agencies no longer matter. That's pretty much the message being disseminated by the MSM. I wish someone would tell that to Equifax, Experian and TransUnion. Welcome to bizarro world, ladies and gents.
I find this very ironic that the organization that just shifted it's derivatives exposure onto the backs of the US Taxpayers (via FDIC) is now proclamining a further downgrade of the US government.
Why do rating agencies have derivative exposure?
Oddly, cutting the trillion dollar wars and the military installations in over 150 countries never comes up.
Let's be a republic again, it's so much cheaper.
Go Ron, GO!
Merrill CEO will be fired in a few days after this. Bankers hate someone not a "team player."
So, how long until we hear that the U.S. Gov't is investigating Merrill?
I've heard the CEO still has a outstanding parking ticket!
OFF WITH HIS HEAD!!
I don't think the US or France will simply accept another downgrade, they will quickly 'restrict' 'short selling' of their creadit ratings or outright dismember the 'evil rating speculators'
http://www.youtube.com/watch?v=htq2GINcBXE
Well, not so much anymore.
cue Timmay: "No chance."
"Asked directly whether Standard and Poor’s could realistically downgrade the United States’ credit for the first time in history, Geithner clearly answered there was “no risk.” “You see the leadership of the United States of America,” he said of raising the debt limit, “recognizing now this is the right thing to do for the economy.” He said he was “absolutely” sure there was no chance of a downgrade."
Reporter: What is the chance of US defaulting on its debt?
Timmay: No chance.
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http://journey-to-alpha.blogspot.com/
This is Bank of America saying this, arguably one of the largest insolvent banks on the planet. I guess they have the experience necessary to recognize a bad economic situation when they see it.
Either that or they should be completely ignored. You pick.
Takes one to know one.
A steady drumbeat of US downgrades is inevitable until entitlement spending is cut to something sustainable (or the US defaults).
He's right. All of our problems are debt-centered, all made possible by the welfare/warfare state.
And our warfare state can't exist without the welfare state. With so many dependents, the govt. gets a pass on whatever it wants to do - obviously. They're attacking one sovereign nation after another. And a giant welfare state gets people used to paying a lot for government. 20% of the government's budget isn't unreasonable for defending the country. But 20% of $4 trillion is completely insane, and is only possible because of the other 3+ trillion.
Merrill Lynch, biting the hand that feeds them.