Wednesday, July 13, 2011

Downgrade of U.S. Credit Rating? Headed Toward A Crisis Much Like The Euro-Debt Crisis? Which Will Be Swallowed Up Next By The Euro-Debt Crisis?

Moody's warns it may downgrade US credit rating
WASHINGTON (AP) — Moody's Investors Service on Wednesday threatened to lower the United States' credit rating, saying there is a small but rising risk that the government will default on its debt.
The credit rating agency said it will review the U.S. government's triple-A bond rating because the White House and Congress are running out of time to raise America's $14.3 trillion borrowing limit and avoid a default.
The government reached its borrowing limit in May. Treasury says the government will default on its debt if the limit is not raised by Aug. 2.
A downgrade would raise interest rates on U.S. treasury bonds, increasing the interest paid by U.S. taxpayers. It would also push up rates for mortgages, car loans and other debts, which are linked to Treasury rates.
Moody's had warned in June that it would take this step if President Barack Obama and Republican lawmakers failed to make progress on an agreement by mid-July. The other credit ratings agencies, Standard & Poor's and Fitch, have said they may make similar moves.
Some Republican lawmakers have expressed skepticism that failing to raise the limit would have a major impact.But Moody's provided a stark assessment: "An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments."
In short, that means the U.S. would lose its top rating, the agency said. Because a default would likely be short-lived, Moody's said it would likely downgrade U.S. debt to double-A. That is the second-highest of nine rankings under Moody's system.
And Moody's warned that the U.S. wouldn't regain its triple-A rating right away if lawmakers raised the borrowing limit after a short-lived default. The agency said it would leave the rating unchanged for the "near term," although it didn't say how long that would be.
Moody's has never given the U.S. government anything lower than its top rating since it began evaluating the country's debt in 1917.
Moody's acknowledged that fights over the borrowing limit have been contentious before. But it said bond interest and principal have always been paid on time.
The nation would likely retain its triple-A rating if the limit is raised before a default. But Moody's said it could assign a negative outlook on U.S. debt if lawmakers and the president fail to make major progress on a long-term plan to reduce the federal deficit.
Jeffrey A. Goldstein, a Treasury Department official, said the announcement is a "timely reminder of the need for Congress to move quickly ... and agree upon a substantial deficit reduction package."
But talks between the Obama administration and Republican leaders in Congress are at a standstill. Republicans are insisting on deep spending cuts as a condition of voting to raise the limit. Democrats want to include tax increases to help close the budget gap, a move Republicans adamantly oppose.
Obama and Republican lawmakers met for a fourth straight day Wednesday. Obama has said the daily meetings will continue until a deal is reached.
The stalemate prompted the top Republican in the Senate to propose giving Obama sweeping new powers to increase the limit to avoid default. Other Republicans criticized the idea.
"We need to get hit over the head to do the right thing," said Maya MacGuineas, president of the Committee for a Responsible Budget, a bipartisan group of experts and former members of Congress that study budget policy issues. "It's terrible it's gotten this far but it's necessary," she added, referring to Moody's review.
Robert Bixby, executive director of the Concord Coalition, which advocates for deficit reduction, said the warnings from the ratings agencies reflect concerns about U.S. politics, rather than its ability to handle large debts.
"Right now we've got these dysfunctional debt limit talks," Bixby said. "It's not surprising that an agency like Moody's would weigh in and say, 'Hey guys, this is the real world.'"

The Euro-Debt Crisis: Greece, Portugal, Spain. The Debts are Unpayable. Once the Lending Stops the Bottom Falls Out.

We hope all of our appearances on Greek TV, radio and in the press have helped the educational process and to allow the Greeks to identify who the real culprits are, and what to do about it. It has just been over a year since this tragedy became reality, but we reported on Greece and Italy ten years ago. They both bent the rules to enter the euro zone.  We knew then that Goldman Sachs and JPMorgan Chase were assisting them by creating credit default swaps. There were a few European journalist who reported on the issue, but the elitists control the media and few noticed that Greece and Italy were beyond bogus. The events of the past year remind us of the onslaught of the credit crisis, which unfortunately is still with us. What finally brought about trouble for Greece and other euro zone countries was the zero interest rate policy of the Fed and slightly higher rates by the EC. These policies encouraged speculation and caused problems that would have never happened otherwise. In addition, the stimulus measures by both banks were embarked upon to save the financial sectors and in that process promote speculation by the people who caused thee problems in the first place. That began with QE1 and stimulus 1, which we now recognize as our inflation drivers. Wait until QE2 and stimulus 2 appear next year. It will be very shocking.

Just to show you what a loser lower rates are just look at economic progress. There has been no recovery under either QE1 or QE2. Even 4.60% 30-year fixed rate mortgages have not encouraged people to buy homes. They are either broke or they don’t know whether they will be employed five-months or even one year from now, so how can they buy a house? Consumer spending is falling along with wages. The small gains you see are for the most part the result of higher inflation.

Growth moved from the fourth quarter of 2010 of 3.1% to 1.8% in the first quarter of 2011. We had forecast 2% to 2-1/2% growth for 2011. That is little to show for a minimum of $1.8 trillion spent in QE2 and stimulus 2. Without that we probably would have been at a minus 2%. Just think about that. Trillions of dollars spent with little results. Obviously such programs do not work very well. You would have thought the Fed would have found a better way after two such failures. They know what the solution is, but they won‘t put it into motion and that is to purge the system and face deflationary depression. That will happen whether they like it or not, but in the meantime the flipside is 10% inflation headed to 14% by yearend and another greater wave next year, and another in 2013. Unimpressive results is not the word for it. It has been a disaster and the Fed keeps right on doing it. As a result of the discounting of QE3 we wonder what the stock market has in store for us? We would think that a correction would be in the future. If that is so could that negatively affect the economy? Of course it could. All the good news coming, further stimulus by the Fed, will have been discounted. What does the Fed do for an encore? Create more money and credit – probably? Does that mean hyperinflation, of course it does. If the Fed stops the game is over. We are also seeing fewer results from additional stimulus. It is called the law of diminishing returns. In the meantime the dollar goes ever lower versus other currencies, but more importantly versus gold and silver.

If you can believe it, even though the Fed has provided financial flows and assisting speculative flows so Wall Street, banking and hedge funds can glean mega-profits, it still has not provided enough liquidity for additional GDP growth. The small and medium sized businesses have been shut out. The latter participants do not play those games, it is the propriety trading desks, hedge funds and the remainder of the leveraged speculating community that takes advantage of the excess liquidity and the Bernanke put of keeping bonds and stocks up artificially. The Fed and the others are sustaining this process. There are negatives for the Fed and their friends, higher commodity and gold and silver prices. The Fed and banks temporarily took care of that and haven’t quite finished their latest short-term foray in that sector. There are still fears as well regarding Greek debt fears and their CDS, Credit Default Swaps, and those of other euro zone members. They could still blow up in everyone’s faces in a partial if not total default, which is very likely. Banks are on the wrong side of this trade as well as the bond trade, not only with Greece, but with five other nations as well.

In the final analysis papering over the problem never works. The problems also reemerge with new additional problems. The combination of excessive speculation and liquidity and too big to fail is going to end badly, as it always has. De-leveraging will eventually rear its ugly head.

As we said, Greece and others could cause extensive bond and CDS problems and that is not only being reflected in a lower euro, but in higher Greek bond yields of 16-3/8% in their 10-year notes and 24-3/4% in two-year yields, and Portugal, Ireland and Spain are not far behind. The socialists just lost the latest election in Spain in a big way showing the public is fed up with the lies of government and the bankers. The euro is attempting to break $1.40 to the downside as a result of those election results and the Greek impasse. It is obvious that Greece cannot service its debt and reduce its deficit and the other deficient nations are in the same boat. The CDS marketplace would be severely disrupted if there were a sovereign debt default. That fear, of contagion, could be seen in higher rates in Spain, some .30%, the highest upward move this year. Greece, Ireland and Portugal have problems that can never be resolved and Spain, Italy and Belgium are not far behind.

Spain is implementing austerity, but that means like in recent weeks millions have demonstrated in 72 Spanish cities. The 17 autonomous regions have doubled their debt in the last 2-1/2 years. The socialists just did not know when to stop, now they are out of office. Spain is going down. There is no way they can sustain. That should bring the CDS situation front and center. It will also increase unemployment for those 18 to 35 to 40% or more. It is not surprising that half of the protestors were in that age group.

Greek PM George Papandreou, who secretly promised Europe’s elitists bankers that he would sell-off and or pledge Greek state assets, wants to sell stakes in Hellenic Telecommunications, Public Power Corp., Postbank, the ports of Piraeus and Thessaloniki and their local water company. All supposedly worth $70 billion. The bankers, of course, say they are worth far less. They want to buy them for 10% to 20% of what they are worth – so what else is new. The Cabinet went along with the giveaway, as expected, and without a whimper. The EU is demanding all the assets be sold off immediately, so the bankers can buy them as cheaply as possible. The threat by the bankers is if you do not sell and sell fast for a pittance, then we won’t fund loans of $42 billion over the next 2-1/2 to 3 years. If not funded it would be “re-profiled” another new euphemism for default and debt restructuring, or perhaps debt extension.

Will euro debt crisis swallow Italy next? EC fears Rome will follow Athens, Dublin and Lisbon

Last updated at 8:14 AM on 11th July 2011
Fears were growing last night that Italy was about to become the next country to join the euro debt crisis.
European Council president Herman Van Rompuy has called an emergency meeting for today over worries Rome will follow Athens, Dublin and Lisbon and need help to avoid defaulting on its national debt.
However, if Italy – the eurozone’s third largest economy – went the way of Greece, Ireland and Portugal it could have huge repercussions.
Crisis: European Council president Herman Van Rompuy (pictured) has called emergency talks to help save Italy's ailing economy
Crisis: European Council president Herman Van Rompuy (pictured) has called emergency talks to help save Italy's ailing economy
Italy has an estimated national debt of around £1.1trillion, which equates to 103.7 per cent of its GDP.
That compares to Greece’s national debt of £220billion – around 158 per cent of its GDP – and the UK’s debts of £650billion or 47.2 per cent of GDP.
Only last week cuts of almost £40billion were announced by Rome as part of an austerity package.
It came after Italy’s credit rating was downgraded last month and on Friday the country’s stock market plunged more than 3 per cent amid a huge sell-off of bank shares and other government assets.
Sources said that another reason behind the meeting in Brussels was the suggestion that Italian president Silvio Berlusconi was thinking of sacking finance minister Giulio Tremonti, who is seen by many as a safe pair of hands but who has clashed with his boss.
Former Italian prime minister Romano Prodi blamed the current crisis in Italy on the ruling centre right coalition. He said: ‘The weakness of the economy is due to internal political factors within the government. We need stability.’
shrinking economy.jpg
Other opposition MPs even suggested that Italy – with its debt – should pull out of the eurozone altogether. Marco Rizzo said: ‘Reality tells us this is the best thing to do.’
In the most recent International Monetary Fund projections, Italy’s headline debt will reach 120 per cent of national output this year, and then decline only slightly to 118 per cent by the end of 2016.
The size of the debt means it is unlikely the EU or the IMF could provide a rescue package for its creditors and would instead have to offer loans or guarantees which would once again mean other countries, including Britain, chipping in.
Chaos: Greece has seen huge civil unrest because of its 28 billion-euro bailout, which could be repeated in Italy
Chaos: Greece has seen huge civil unrest because of its 28 billion-euro bailout, which could be repeated in Italy
British taxpayers have already contributed £12.5billion in aid to Greece, Ireland and Portugal.
The majority of Italy’s government debt is held by the country’s banks and they have managed to weather the crisis better than their European counterparts.
Italians themselves have little faith in the country’s financial institutions with the majority holding no credit cards and much of the economy driven by cash transactions.
According to the UK Trade and Investment website, British exports to Italy in 2008 were valued at more than £9billion and imports from Italy were over £13billion.
Today’s meeting will also be attended by European Central Bank president Jean-Claude Trichet. Others expected there are Jean-Claude Juncker, chairman of the region’s finance ministers, and Olli Rehn, the economic and monetary affairs commissioner.

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Jeffrey said...

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Natasha Call said...

Thank you Jeffrey! I appreciate the compliment and hope that you have truly enjoyed the reading of what you find here. Sometimes it is original work. Sometimes I post clips from articles with commentary. Sometimes I am an aggregater for certain topics. In any case, thanks again for the awesome compliment!