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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+ 

Full report


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Fri, 09/14/2012 - 19:20 | 2797452 lakecity55
lakecity55's picture

.....which is simply more proof he is not making any decisions. He just wears the Suit and reads TOTUS.

Fri, 09/14/2012 - 16:45 | 2796940 yogibear
yogibear's picture

Watch when gas stations start changing their signs to add the addional digit. The Mad money printer Bernanke says his PhD thesis has to work. He will keep printing and QEing until it does.

Fri, 09/14/2012 - 16:46 | 2796941 mayavision2012
mayavision2012's picture

My neighbor, who is probably one of the most mild mannered people I know, just came to my door after watching the financial events over the past few days.  Said he's pulling out all his stocks (which is alot).  He started yelling "This country is in financial flames and I won't rest until we see Bernake, Geithner, Bush et al, ALL OF THEM PUBLICALLY HANGED.

When people like my neighbor lose their cool like this, I know a rumbling revolution is nearer and nearer the surface.

Fri, 09/14/2012 - 16:50 | 2796962 Jlmadyson
Jlmadyson's picture

You should have said:

Don't worry we just got downgraded again!

Fri, 09/14/2012 - 16:59 | 2796977 LULZBank
LULZBank's picture


"This country is in financial flames and I won't rest until we see Bernake, Geithner, Bush et al, ALL OF THEM PUBLICALLY HANGED.

But why Bush?

Fri, 09/14/2012 - 17:14 | 2797037 mayavision2012
mayavision2012's picture

why Bush et al? Oh, just a little thing like committing war crimes on behalf of global bankster/corporate pillagers.


Fri, 09/14/2012 - 17:58 | 2797188 Roubinesque
Roubinesque's picture

I think we should start with Bush. He killed our surpluses, started two wars, completely neglected basic fiduciary responsibility and ran for the hills when it all blew up. He left the U.S. worse in every conceivable way!

Fri, 09/14/2012 - 20:53 | 2797697 Nimby
Nimby's picture

I hate to break it to you, but there were never any surpluses.

Fri, 09/14/2012 - 19:18 | 2797445 lakecity55
lakecity55's picture

Because, if 'W' is under pressure, Barry (the pussy) will quickly crack and tell us where the rest of them are hiding.

Fri, 09/14/2012 - 17:02 | 2796987 Van Halen
Van Halen's picture

There are 300 million of us and about 1000 of them. If we ever start marching, they won't be able to run fast or far enough.

Sat, 09/15/2012 - 11:58 | 2798586 LULZBank
LULZBank's picture

Sorry.. I only march with my own race, religion and political group as only we are truly pure and before we get to "them" we will have to argue and fight with the rest of you.

Fri, 09/14/2012 - 18:56 | 2797373 Money 4 Nothing
Money 4 Nothing's picture

Nice neighborhood.. How many 911 calls go out?

Fri, 09/14/2012 - 16:57 | 2796973 Translator
Translator's picture

Egan Jones had better lawyer up, because the Dept. of Just Us, is bound to start an investigation......

Fri, 09/14/2012 - 17:08 | 2797011 silverserfer
silverserfer's picture

doest matter, FED can print what it wants and China is pegged to USD till the end. The world is along for the ride weather they like it or not. bitchez.

Fri, 09/14/2012 - 17:18 | 2797047 shovelhead
shovelhead's picture

Egan Jones involved in tragic runaway Choomwagon accident.

News at 11.

Fri, 09/14/2012 - 17:37 | 2797115 Ungaro
Ungaro's picture

Eagan Jones are optimists.

Fri, 09/14/2012 - 20:53 | 2797698 X86BSD
X86BSD's picture

So can someone explain exactly when does one of these credit downgrades start to sky rocket the payments for the US Gov on all its outstanding debt? What rating will make their interest rate on their debt shoot up? Because so far I am not seeing a single negative to FedGOV of any credit downgrade. Can someone enlighten me?

Fri, 09/14/2012 - 23:49 | 2798007 Van Halen
Van Halen's picture

Clever of Egan Jones to sneak this downgrade in on a Friday afternoon in order to save Obama's sorry ass from yet MORE bad news.

Sat, 09/15/2012 - 05:11 | 2798196 falak pema
falak pema's picture

AN interesting analysis of Euro zone evolution from Naked CApitalism :

They sound technical and minor when projected against the great scheme of Europe’s extraordinarily rich history. Will there be conditionality attached to the ECB’s bond purchases? Will the bonds that it purchases be treated on a pari passu basis in relation to bonds held by private institutions? Will the ECB supervise all banks or just the ‘systemic’ ones? These are questions that ought to be of no genuine interest to anyone other than those with a morbid interest in public finance. And yet, these questions (and the manner in which they are answered) will probably prove as important for the future of Europe as the Treaties of Westphalia, of Versailles, of Rome even. For these are the issues that will determine whether Europe holds together or succumbs to the vicious centrifugal forces that were unleashed by the events of 2008.

Sat, 09/15/2012 - 07:05 | 2798240 Catullus
Catullus's picture

They should have downgraded the entire bond complex under this logic

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