Egan Jones Downgrades US From AA To AA-

Tyler Durden's picture

From Egan Jones, who downgraded the US for the first time ever last July, two weeks ahead of S&P:

Synopsis: UNITED STATES (GOVT OF) EJR Sen Rating(Curr/Prj) AA-/ N/A Rating Analysis - 9/14/12 EJR CP Rating: A1+ Debt: $15.2B EJR's 1 yr. Default Probability: 1.2%

 

Up, up, and away - the FED's QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US.

 

Some market observers contend that a country issuing debt in its own currency can never default since it can simply print additional currency. However, per Reinhart & Rogoff's " This Time Is Different: Eight Centuries of Financial Folly " , p.111, 70 out of 320 defaults since 1800 have been on domestic (i.e., local currency) public debt. Note, US funding costs are likely to slowly rise as the global economy recovers or the FED scales back its Treas. purchases (75% recently).

 

From 2006 to present, the US's debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%. In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%. We are therefore downgrading the US country rating from "AA" to "AA-".

 

Ratings History:
Egan-Jones rating history for United States (Govt of).
9.14.12  AA to AA (-)
4.15.12  AA+ to AA (Negative outlook) 
7.16.11  AAA to AA+ 

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firstdivision's picture

But...but...we haven't raised taxes on dividends yet.  Not fair EJ!  The economy will be just fine. Please re-evaluate after reading this http://www.marketwatch.com/story/why-defend-dividends-2012-09-14?dist=countdown

LULZBank's picture

LOL

I would'nt give any "credit" to that.

A = Almost boob

B = Barely there

C = Can do

D = Damn!

E = Enormous

F = Fake

boogerbently's picture

E/J, always ahead of the pack.

Divided States of America's picture

Makes no diff....we are in an asylum where the nutcases (led by Bernanke and Krugman) are running the show while the people who make sense are tied to the electric chair awaiting their fate.

Manthong's picture

"in our opinion QE3 will be detrimental to credit quality for the US"

How could anyone ever possibly come to that conclusion? After all, it is unlmited. 

franzpick's picture

U.S. bond ratings are about as trustworthy as our foreign policies: rate them all "A", for apology.

Turd Ferguson's picture

What a joke this is.

OK, so the buyer is "guaranteed to get their money back". I get that. But at what inflation-adjusted basis?

Would a corporate bond that returns to the buyer just 50% of their principal value at maturity be rated AA-???

redpill's picture

Turd you're talking about megalomaniacs that deny inflation even exists.

JohnKozac's picture

Speaking of megalomanics, where is Timmy these days?

malikai's picture

Can the corporate print his own money to pay it? If yes, AAA.

I think that's how it works.

Hype Alert's picture

I'm naming my first wheelbarrow The Egan Jones.

Rahm's picture

I gotta run to the bathroom to drop a bernanke.

viahj's picture

the geithner is the one that drops after the bernanke, it's smaller and not as well formed

r00t61's picture

.

 

"Some market observers contend that a country issuing debt in its own currency can never default since it can simply print additional currency."

I like how EJ throws in this dig against the MMT'ers.

NewWorldOrange's picture

B-b-but the Emperor is adorned in solid gold regalia! And WTF Egan? Are you trying to force the Vampire Squid's third tentacle aka the SEC to put the squeeze on you again?

Bay of Pigs's picture

Hey Turd, when are you going to let people like me come back to your blog anyway?

Banning people is a joke. ZH posters paved your way, never forget that. 

 

Zap Powerz's picture

Over the past few years, the doom sayers have been pretty might spot on about everything.  Those telling us that everything is fine are consistently wrong.

The experts are always saying things like "unexpected increase in unemployment (for 3 straight years).  The experts are always saying things like "this is the summer of recovery" and "there is no risk of inflation".

The experts (read "fake reality cheerleaders") are wrong and the doom sayers are right.  We would be fools to believe this trend will not continue.

Every horrible thing that has been predicted to happen will happen:

Hyperinflation

Riots

Starvation

Cannibalism

Famine

Disease

Societal collapse.

Have a nice day, enjoy the few good ones we have left.

Ying-Yang's picture

EJ did this because they watched Innocence of Muslims

FlyoverCountrySchmuck's picture

"EJ did this because they watched Innocence of Muslims"

 

This is OBVIOUSLY a terror attack directed at our media-beloved President! SEND IN THE DRONES!

Dr. Richard Head's picture

In a related story, Federal Reserve bankers from each of the 12 district banks, along with the SEC, have begun a demonstration at the headquarters of Egan Jones and have begun to burn effigies of rating agencies, along with burning piles of Federal Reserve Notes.  Paul Krugman noted that this should be positive for aggregate demand and should generate a GDP growth that will take the US out of the depression. 

Back to Kelly and our entertainment team to talk about Kate Middelton's nipples. Kelly........

Taterboy's picture

EJ dissed Obamy. Obamy gots to put a cap in EJ.  Plus Obamy's homey, Fittie Cent is now valued at Fortie Cent!

NotApplicable's picture

I was going to ask rhetorically "Why does Egan Jones hate freedom and America?"

But I see you beat me to it with the answer.

Well played.

azzhatter's picture

Does this mean QE4 on deck?

Hype Alert's picture

No, they knew sequential numbering would get out of hand, so they just made the last one open-ended.  And to think, we laughed at Zimbabwe.  They are now our model.

you enjoy myself's picture

how could it not?  we're now debasing our currency, but doing so to buy MBS (damn, the banks really must be on the verge of collapse) instead of funding our govt.  so we made bonds even less atractive to buyers, but didn't supply the additional uptake that will be needed.  we're so freaking doomed.  the primary dealers aren't going to buy bonds at this yield if they can't flip them right back to the Fed - so the Fed will soon add $40B in unending bond purchases too.

NewWorldOrange's picture

Sorry, azzhatter. You must have missed the news. QE4 has baby arms, so QEternity is pinch-hitting and already at bat. He'll never score a hit, though, and an endless series of fouls is a sure bet.

Zap Powerz's picture

QE infinity is already here.  No numbers needed at this point.

I cant wait to pay off my mortgage with a $1,000,000 dollar bill that I earned by working 2 hours.

Of course, I might need that 1M note to buy food for my kids.  Tough decisions ahead.

NewWorldOrange's picture

"I cant wait to pay off my mortgage with a $1,000,000 dollar bill that I earned by working 2 hours."

Ah, but The Bernank is going to implement Operation Gold Twist...you know, so the bankers just get paid off with non-money, and so the Fed can loan real, fiat paper money to the Sheeple, who of course being utter geniuses, will see that gold is worthless shiny crap that should be sold to pawn shops and other buyers springing up everywhere, and that dollars are king. Like the Bernank said, "It's not money if I can't print it."

Once you do pay off that house, be sure to rent it out. With the Fed pumping all that money into housing, it's going to 1) cause housing prices to go higher than they would have and price people out of owning, 2) cause banks to not feel so rushed about selling these assets now sure to be propped up ad infinitum, 3) cause banks to start writing mortgages with principle payments pegged to inflation, and hence 4) force people to have to rent instead of buy.

Owning is for Mr. Landlord, and they're not going to give you a loan! Now be a good little tenant and pay your $500,000,000,000 rent and quit whining about the broken hot water heater. You can't afford to heat it anyway.

FlyoverCountrySchmuck's picture

ARE THE SHEEPLE DISTRACTED ENOUGH BY THE MIDDLE EAST ATTACKS TO NOT BE PAYING ATTENTION TO ALL THE ECONOMIC DOOM NEWS??

Obama sure hopes so....

Dr. Richard Head's picture

Middle East attacks?  Did you see that fucking trick play by the Packers last night?  Holy shit that was awesome. 

Spastica Rex's picture

And Brittney Spears is BACK!!! Tits and ass, man TITS AND ASS!!!

LULZBank's picture

That was a conspiracy against Kate...

Dr. Richard Head's picture

A sexy and obviously cold one at that.  Cold hard cash and cold hard nipples.  Which will the American public spend more time pondering.  My silver is on the latter or half dollar titty grabber.

NewWorldOrange's picture

"Obama sure hopes so...."

The compliant (with whatever POS is in office) MSM will make sure of that. All these "journalists" need to be on The Lists come the Ides of March (3-15-2012) when Americans take to the streets. We're going to need a lot of rope.

CNN's subtitle below Marc Rubio as he discussed opposition to taypayer funded birth control: "Against Women's Choice on Birth Control" (not "Rubio Opposed to Taxpayer-Funded Birth Control")

CNN's subtitile below Sandra Fluke as she preached to the DNC: "Miss Fluke Supports Access to Birth Control" (not "Fluke Demands Taxpayer- Funded Birth Control", or better yet, the really accurate one, "Loose Slot Demands Payout")

I understand both parties are CRAP. Like I said, the MSM supports whoever is in power (in name), because the REAL POWERS demand it and pay their bills and salaries. THIS is how they brainwash people. It's very hard to avoid. So don't watch TV. No, I haven't, in many years. I'm still wishing I had all those decades back that I did.

mademesmile's picture

Sandra Fluke is an insult to women, a parady of a parady. I attemped to listen to her speach at the convention and shanged the channel 4 times, just to prevent vomiting. Why give her a national speaking platform?  My employer should pay for all the krispy creme dounut I want, and if I get fat, pay for the liposuction too. It's My Body! It's My Choice! You Must Pay!

blunderdog's picture

Seems mademesmile and NewWorldOrange have opinions on this...maybe either or both of you two help me out with this 'cause I still really don't understand the "debate" here.

How do you folks think insurance companies should determine which prescription drugs are covered and which are not?

DosZap's picture

ARE THE SHEEPLE DISTRACTED ENOUGH BY THE MIDDLE EAST ATTACKS TO NOT BE PAYING ATTENTION TO ALL THE ECONOMIC DOOM NEWS??

 

And if anyone thinks these attacks were STARTED,on 9-111, over a movie, your IQ is 43.

Pre-Planned event.............Sept 4th, the Gub was warned on it.

lakecity55's picture

....meanwhile, the numerous telephone threats against colleges were traced to a residence on PA Avenue.

LMAOLORI's picture

 

 

Ooh Egan Jones is going to be in deep doo doo the obama administration already went after them last time they gave a downgrade they are not Moody's after all

SEC Keeps Ratings Game Rigged

snip more at link

A case the commission filed last week epitomizes a lot of what's wrong with the agency, even under the supposed overhaul by its chairwoman, Mary L. Schapiro.

The agency brought a civil case against a tiny, iconoclastic ratings agency called Egan-Jones, run by the outspoken Sean Egan, accusing it of, well, essentially filling out forms wrong.

Before the S.E.C. charges, Egan-Jones was best known for two things: having made some bold calls about shaky credit prospects and having a business model that was different than that of the big boys — Moody's Investors Service, Standard & Poor's and Fitch. Mr. Egan's outfit gets paid by the users of his ratings; the oligopoly gets paid by the issuers whose debt is going to be rated.

You don't need to be a hedge fund quant to see the conflict of interest: the more ratings, the more profits to the ratings agencies, so the temptation is to be extra lenient. And, boy, were they.

lolmao500's picture

The funniest thing in all of this is the default probability rate... 1.2%?? In what world??? The unicorns one I presume.

Dr. Richard Head's picture

The same world of aliens that Krugman predicted will cause a world resolute in increasing GDP to defend against broken windows inevitably caused by the aliens.

redpill's picture

"Hence, in our opinion QE3 will be detrimental to credit quality for the US."

 

Ya don't say!!!

Egan Jones is clearly a domestic terrorist operation.