posted on Sep, 14 2012 @ 06:01 PM
Maybe the feds idea of QE to infinity to keep the markets happy
was not the best plan.
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-".
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+
But dont worry at least the dow jones went up today which is far more important
to the fed and its cheerleaders.
edit on 14/9/2012 by skuly because: typo