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 - 15:31 | 2796582 HelluvaEngineer
HelluvaEngineer's picture

I bet the Silver Bears video set them off.

Fri, 09/14/2012 - 15:34 | 2796609 Sam Clemons
Sam Clemons's picture

Is there a new one?

 

Fri, 09/14/2012 - 15:25 | 2796532 LawsofPhysics
LawsofPhysics's picture

Paging the bond vigilantes, where the fuck are you guys?

Fri, 09/14/2012 - 15:28 | 2796571 MachoMan
MachoMan's picture

Busy squeeling like pigs listening to ben play the banjo

Fri, 09/14/2012 - 16:24 | 2796857 Bay of Pigs
Bay of Pigs's picture

OINK!

The bond vigilantes left years ago...

Fri, 09/14/2012 - 15:30 | 2796576 Schmuck Raker
Schmuck Raker's picture

LOL - Silly LoPhys, bond vigilantes are the "smart money", they don't own US sovereign debt.

Fri, 09/14/2012 - 15:33 | 2796599 malikai
malikai's picture

At some point, "don't fight the fed" will become "get the fuck out of dodge".

Fri, 09/14/2012 - 15:41 | 2796647 Rylie
Rylie's picture

I got that silver coin

Fri, 09/14/2012 - 15:39 | 2796639 Vincent Vega
Vincent Vega's picture

Long bond off 3 points....some vigilanties out there. It will be interesting to see what next week brings.

Fri, 09/14/2012 - 17:00 | 2796981 viahj
viahj's picture

China is weighing it's options on it's USD holdings.

Fri, 09/14/2012 - 16:50 | 2796961 odatruf
odatruf's picture

Ironic that someday we'll be grateful to the bastards for the day they came in to wreck the day and saved it, isn't it?

Fri, 09/14/2012 - 15:25 | 2796533 not fat not stupid
not fat not stupid's picture

My hero.

Fri, 09/14/2012 - 15:26 | 2796539 FischerBlack
FischerBlack's picture

We might get a red close today. That would be weird and stuff.

Fri, 09/14/2012 - 16:23 | 2796801 Threeggg
Threeggg's picture

How can we close red when they have a printing press and a face-cord stacked at every trading console ?

We will never close RED again !

QE4ever !!

Fri, 09/14/2012 - 15:25 | 2796541 fuu
fuu's picture

\EJ/

Fri, 09/14/2012 - 15:25 | 2796544 LULZBank
LULZBank's picture

Downgrade?

Daddy will be so unhappy?

Fri, 09/14/2012 - 15:40 | 2796645 giovanni_f
giovanni_f's picture

Daddy will punish them

Fri, 09/14/2012 - 15:54 | 2796725 LMAOLORI
Fri, 09/14/2012 - 15:28 | 2796545 Vincent Vega
Vincent Vega's picture

Sean is gonna keep fucking around with these ratings and accidentally shoot himself in the back of the head 3 or 4 times.

Fri, 09/14/2012 - 15:56 | 2796733 LMAOLORI
LMAOLORI's picture

 

 

OMG good one some of you really crack me up that's why I use ROFLMAO

Fri, 09/14/2012 - 16:09 | 2796796 Tijuana Donkey Show
Tijuana Donkey Show's picture

Heart attack! He didn't believe in Obamacare, and looked what happened, BAM, heart attack. 

Fri, 09/14/2012 - 15:26 | 2796547 Aquiloaster
Aquiloaster's picture

Inflation everywhere--including grade inflation.

Fri, 09/14/2012 - 15:26 | 2796549 j0nx
j0nx's picture

Egan who?

Fri, 09/14/2012 - 15:38 | 2796622 LouisDega
LouisDega's picture

Egan Lou Who. Thats Who

Fri, 09/14/2012 - 15:26 | 2796550 Yen Cross
Yen Cross's picture

 Sweet!   ( A SMALL NOT SO - OBSCURE- RATINGS AGENCY) Sets' precedent!

Fri, 09/14/2012 - 15:26 | 2796552 Fecklesslackey
Fecklesslackey's picture

Who cares ... market (SP) +5

Fri, 09/14/2012 - 15:33 | 2796600 HelluvaEngineer
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Don't spoil the coke & underage hookers party in the Hamptons

Fri, 09/14/2012 - 15:42 | 2796653 Fecklesslackey
Fecklesslackey's picture

I didn't know Egan Jones was in that business. But independent hooker rating service might gain some traction

Fri, 09/14/2012 - 15:26 | 2796558 ar01
ar01's picture

Surely the SEC can find more paperwork to file charges against them, right?

Fri, 09/14/2012 - 15:26 | 2796559 dwdollar
dwdollar's picture

Where is Egan Jones located? The Navy needs to send some ships there.

Fri, 09/14/2012 - 20:09 | 2797587 jerry_theking_lawler
jerry_theking_lawler's picture

the Us Navy or Russian....better not ask a democrat....

Fri, 09/14/2012 - 15:27 | 2796560 Banksters
Banksters's picture

The us has infinity money, greenspit said so. Too bad the unfed has the gold.

Fri, 09/14/2012 - 15:28 | 2796568 youngman
youngman's picture

He nails it in one paragraph....

Fri, 09/14/2012 - 15:32 | 2796585 LULZBank
LULZBank's picture

Marc Faber did it in one line...

Fri, 09/14/2012 - 15:44 | 2796665 disabledvet
disabledvet's picture

I do it in one word: "hahahahahaha." what else can I do? "we're all stand up comedians now." oh, look! an idiot paying his bills! did you hear the one about the bank robber? When the teller pulled out the gun and handed him the note "your money or your life" he said "I have to think about that now."

Fri, 09/14/2012 - 15:30 | 2796578 Sphinx_www
Sphinx_www's picture

Egan is a leading indicator. It wont be a decade before the rest catch up.

Fri, 09/14/2012 - 15:30 | 2796579 alfred b.
alfred b.'s picture

 

    ....wonder if moody's and/or s&p will "keep up with the Jones's"

 

Fri, 09/14/2012 - 15:30 | 2796580 ziggy59
ziggy59's picture

On a long enough timeline the credit of the U.S. goes to F

Fri, 09/14/2012 - 15:31 | 2796583 Jlmadyson
Jlmadyson's picture

Timmy G: "No risk of credit rating downgrade."

How about the risk after a couple of downgrades Timmy?

Timmy G gonna get ya.

Fri, 09/14/2012 - 15:32 | 2796587 uno
uno's picture

music to bernake, wants US dollar down fast

Fri, 09/14/2012 - 15:32 | 2796588 pendragon
pendragon's picture

bitch slap from the regulators in 5,4,3,2,1.....

Fri, 09/14/2012 - 15:32 | 2796590 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Although US debt should be considered junk, I will say downgrading them because the Fed prints is not logical.  The Fed is a private for profit bank that has no government ties to the US.

Now downgrading the Fed, that would be something!

Fri, 09/14/2012 - 15:36 | 2796616 giovanni_f
giovanni_f's picture

Why not taking the direttissima from AA -> DDD?

Fri, 09/14/2012 - 15:37 | 2796621 ziggy59
ziggy59's picture

Why not? Because we're not batteries or tits.

Fri, 09/14/2012 - 15:37 | 2796618 Ying-Yang
Ying-Yang's picture

Now eliminating the Fed, that would be something!

fixed it for ya

Fri, 09/14/2012 - 15:37 | 2796624 q99x2
q99x2's picture

Arrest Bernanke for financial terrorism.

Fri, 09/14/2012 - 15:38 | 2796628 lolmao500
lolmao500's picture

Time for SP, Moody and Fitch to man up and do it too.

Fri, 09/14/2012 - 15:46 | 2796673 Dr. Engali
Dr. Engali's picture

Yeah right. The U.S wll go down like AIG.....AAA rated.

Fri, 09/14/2012 - 15:38 | 2796630 WhiteNight123129
WhiteNight123129's picture

THis ~I am completly nuts~ strategy is to force GOOG AAPL MSFT ORCL to spend the 1.6% of GDP they hoard in cash and waste it, Corporate Keynesianism.

Fri, 09/14/2012 - 15:38 | 2796631 monopoly
monopoly's picture

Wow, they got a pair, don't they. Where is this honesty coming from. Not used to it.

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