Egan Jones Downgrades USA From AA+ To AA, Outlook Negative

Tyler Durden's picture

A few weeks ago when discussing the imminent debt ceiling breach, and the progression of US debt/GDP into the 100%+ ballpark, we reminded readers that in February S&P said it could downgrade the US again in as soon as 6 months if there was no budget plan. Not only is there no budget plan, but the US is about to have its debt ceiling fiasco repeat all over as soon in as September. Which means another downgrade from S&P is imminent, and continuing the theme of deja vu 2011, the late summer is shaping up for a major market sell off. Minutes ago, Egan Jones just reminded us of all of this, after the only rating agency that matters, just downgraded the US from AA+ to AA, with a negative outlook.

From Egan Jones:

Inflection point - when debt to GDP exceeds 100%, a country's financial flexibility becomes increasingly strained. For the first time since WWII, US debt exceeds 100%. From 2008 to 2010, debt rose a total of 23.6% while GDP rose a total of 1.6%. Unfortunately, with an annual federal budget deficit in the area of $1.4T, debt is likely to reach $16.7T as of the end of 2012 while assuming GDP grows 2.5%, total GDP is likely to reach $15.7T. Therefore, as of the end of 2012, debt to GDP is likely to be in the area of 106%. Assuming the federal deficit for 2013 remains at $1.4T and GDP growth is 2.5%, the total debt will rise to $18.1T and GDP will rise to $16.1T, resulting in debt to GDP of 112%. In comparison, France's and Italy's debt to GDP are 81% and 117% respectively. Regarding efforts to address budget problems, the Super Committee was seeking spending cuts of $1.5T over 10 years or merely $150B per year, and was a failure. Obviously, the current course is not enhancing credit quality.


Without some structural changes soon, restoring credit quality will become increasingly difficult. Yields on 10-year treasury notes have fallen to their lowest since early Feb 2010 with US Federal Reserve's aggressive purchases of US Treasuries. A concern is the rise in interest rates placing higher pressure on the US's credit quality. Excess growth of money supply (i.e., debt monetization) harms creditors and ultimately, the economy. Weak debt reduction efforts force a neg. watch.

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maxmad's picture

hats off to Jones!!!!

Careless Whisper's picture

call boxer and revoke their passports ! 

TheFourthStooge-ing's picture

The PhD economists all agree: nobody, nobody, could have seen this coming.


Doubleguns's picture

Well Timmy did not see it coming thats for sure. Does that make him a nobody?

Comay Mierda's picture

do their ratings include probability of currency crisis/hyperinflation?  or just a hard default?

the US credit rating is junk in my book

DeadFred's picture

Bunch of rank optimists!

q99x2's picture

I just got depressed. American Idol until 2030.

mp95bravo11208's picture

Timmy could not see anything anytime and anywhere. The man never had another job in his life outside of the Fed.  Truly pathetic this entire government now is.

sof_hannibal's picture

Dr. David Brusca, PhD (of the Bernak school of psychoanalytic printing - a for profit online university with the full backing of 1 trillion in unsubsidized student loans) and his disertation student, Mr. MDB, million dollar bailout, unlicensed life coach to the stars) are predicting a housing turn around shortly. No worries, good things to come.

The economy is heating up people, but you have to "play to win..."

johnu1978's picture



Primitive Skills Classes

CryingBear's picture

I'm pretty sure the Republicans did and they probably put on leveraged positions before the debt debates because there is no reason not to raise tax revenue when the ratings agencies clearly stated that spending cuts and revenue increases must be included to retain AAA rating. Even closing tax loopholes wouldve prevented a ratings cut.

It was so easy to avoid the ratings cut but Republicans simply refused everything. Its almost like they wanted a ratings cut.

kengland's picture

Egan Jones who? I think my downgrading the US may have more of an impact.

CryingBear's picture

S&P already said they wont cut before elections are over.

Chump's picture

We'll see won't we?


“That is going to have to say something about entitlements, and that is probably going to have to say something about revenues.”

Bond investors ignored the downgrade, driving Treasury yields to the lowest levels in history, amid concern the U.S. economy was stalling and as Europe’s debt crisis intensified.

Treasuries have returned 3.9 percent since the rating cut and gained 9.8 percent last year, the debt’s best performance since 2008, according to Bank of  America Merrill Lynch index data.

“I don’t think anything is going to happen between now and the election in November,” Chambers said.

S&P said in August that political brinkmanship over increasing the government’s debt ceiling year showed the U.S. is becoming “less stable, less effective and less predictable” as the Treasury almost reached its borrowing limit before the government reached a compromise.

The “political brinkmanship hasn’t gone away,” Chambers said today. “That simply doesn’t happen in other AAA economies.”

He must not read Zerohedge, or do any sort of legit analysis.  If political brinkmanship is his main gripe then just wait until he sees what happens when we hit the debt ceiling nearly two months before the selection.


Chambers may just have to eat crow, again, as S&P has no choice but to downgrade well before the elections.

Iconoclast's picture

Actually as a canary in the contaminated coal mine they are incredibly accurate..being light on their feet and devoid of political persuasion offers such liberty and freedom.. ;-)

GeezerGeek's picture

Just wait until casting doubt on the U.S. government's ability to act responsibly is considered an act of terrorism. Bad news is not to be allowed!

bank guy in Brussels's picture

Had a laugh just being reminded of that failed American 'Super Committee'.

How quickly the Great Idea of one day, is a Forgotten Fiasco soon afterwards.

Next time it should be a 'Super Duper Committee'.

Seer's picture

Do people demand a really just system? Well, we'll arrange it so that they'll be satisfied with one that's a little less unjust ... They want a revolution, and we'll give them reforms -- lots of reforms; we'll drown them in reforms. Or rather, we'll drown them in promises of reforms, because we'll never give them real ones either!!

- DARIO FO, Accidental Death of an Anarchist

IrritableBowels's picture

Super mega-ultra thunder committee.

sof_hannibal's picture

On triple secret probation... the super friends

azzhatter's picture

I would just turn over the whole thing to Maxine Waters

nmewn's picture

lol...what's the over and under on a "law enforcement" raid on Egan anyways? ;-)

Non Passaran's picture

As long as they can print, they can't default. AA is reasonable.

DeadFred's picture

I doubt that the real return on the bonds will be worse than the Greek writedown since they can print. Well, except the 30yr... and maybe the 10yr and... oh I give up, who knows how bad it can get.

vast-dom's picture

No hats off! AA is not even close. Sorry.

azzhatter's picture

Is this rating seasonally adjusted?

Straying from the flock's picture

The end of the paper ponzi scheme is almost upon us.  I am preparing accordingly:

If I am wrong, I will have lost nothing.  If I am correct, will you have prepared yourself?

Lost Wages's picture

Cue QE. $18.1 Trillion to pay it all off.

maxmad's picture

QE will only come after the 20% or better correction, bitchez!  Get your dow 10k hats out again!!!

HelluvaEngineer's picture

Not to piss on your parade but my slide rule says 20% won't get us to 10k.

Rainman's picture

When it breaks through 10K you bitchez won't be hearing from me much.... I'll be too busy partying in Monte Carlo.

Auburn's picture

Thank God for long weekends and short memories - all bullish

Tsar Pointless's picture

O 4 fukcs sake!

Does this mean we go directly to 1500, without passing 'Go' and collecting $2,000,000,000,000 digi-dollars?

Oh, say - can you see?

Just how bullish this will be.

Egan Jones are freedom-hating terrorists!

TheFourthStooge-ing's picture


Egan Jones are freedom-hating terrorists!

El Qaiegan and Osama bin Jones are freedem hatting terrists!!1!


sof_hannibal's picture

They're on Obama's no terrorist on american soil watch list for sure, right next to ZH and the Michigan Milita

Theta_Burn's picture

It's not that America can't pay her bills...she can, thats why we need to pass this debt ceiling increase, to instill faith & trust in the US government...

Barack Obama....during the last debt ceiling debate...

centerline's picture

LOL.  The system working against itself.  If PhD economists were so right, why is the system operating so wrong?  Rhetorical question of course.

Shit - it seems mainstream economics is going to go down the ship swearing that if they just went faster the water would not flood the hull and drag them down.

Well, I suppose I could only conclude that mainstream economics is nothing more than smoke and mirrors intended to disguise a greater game that understands better the world dynamic, human behavior, history, etc. - and I am just along for the ride.

LowProfile's picture

In fact the USA's rating should be AAA+!

But that's only because they can print as many dollars as they need to continue payments.



resurger's picture

i think Dagong now will rate US debt B+ with default outlook once they dump their treasuries

sitenine's picture

This is an interesting point.  However, I just saw an interesting interview: Max Keiser interviews Jim Rickers in the second half of his latest show

Paraphrasing, Rickards states that the Treasury/Fed can freeze China's bonds in the event that they try to dump, thereby putting the bonds in 'escrow', and preventing them from being sold.  He further asserts that this 'escrow' action would actually boost the market for bonds because of the coincidental shortage that occurs when $1T of an asset 'disappears'.

Any thoughts?

HurricaneSeason's picture

It looks like Japan bought $200 billion in 2011, I don't see any other country buying any significant amount. I thought there was at least $1 trillion in old debt rolling over every year along with at least $1 trillion in new debt. Japan and Iran should be able to buy all they want. I cant see Japan thinking they should shoot for $300 billion this year just because China might get screwed out of $1 trillion.

GeezerGeek's picture

And then China stops exports of iPhones, iPads, drywall, tainted pet food, electronic devices, etc. How long will the American public put up with the deprivations associated with a lack of smartphones, new TV sets, etc. Barack would be impeached in a heartbeat if he deprived the U.S. consumer of all those trinkets.

Besides, nothing can be done before every American has at least one TV set - made in China of course - that can spy on the user even when not turned on.

DeadFred's picture

They may be able to print but unless they get enough occupants out of the DC clown cars to vote 'yes' they can't spend.

bingo was his name's picture

Remeber D is for Degree so we got plenty of room before we have to be worried / sarc off