US Credit Downgraded
Well dear readers, it finally happened. Someone at Standard & Poor's woke up on Friday and realized that the US debt, at 100% of GDP is going to result in repayment problems.
This amuses us as we have been pointing out the debt and deficit issues, and sovereign debt downgrade trajectory the US has been on since this blog began back in 2009.
We can expect the usual jawboning out of Washington that things aren't so bad, and they are working together to resolve the debt situation having just raised the debt ceiling; blah blah blah.
The more interesting question that now arises, is whether the Bernank can initiate his QE3 plan or not. We expect that there will be considerably more political resistance to "money printing" now that the credit rating has dropped. However, do not underestimate the power and influence of Wall Street to pump up the stock market through another round of QE. It is our view that we underestimate the influence of the wealthy on the so called neutral position of Federal Reserve Chairman.
In the meantime, we are preparing to take advantage of an oversold market and anticipate a nice bounce before another drop to 1140 on the S&P.
Standard & Poor’s downgraded the long-term rating of the US government and federal agencies from AAA to AA+. In response the US Federal Reserve has said: “For risk-based capital purposes, the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not change. The treatment of Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities under other federal banking agency regulations, including, for example, the Federal Reserve Board’s Regulation W, will also be unaffected.”
The US Federal Reserve’s FOMC meets next week on the 9th of August to review monetary policy settings. The FOMC last held the fed funds rate unchanged at 0 to 0.25 percent, and announced that it would finish the $600 billion asset purchase program or “Quantitative Easing II” when it met in June. Standard & Poor’s noted in its release: “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics”.
Well dear readers, it finally happened. Someone at Standard & Poor's woke up on Friday and realized that the US debt, at 100% of GDP is going to result in repayment problems.
This amuses us as we have been pointing out the debt and deficit issues, and sovereign debt downgrade trajectory the US has been on since this blog began back in 2009.
We can expect the usual jawboning out of Washington that things aren't so bad, and they are working together to resolve the debt situation having just raised the debt ceiling; blah blah blah.
The more interesting question that now arises, is whether the Bernank can initiate his QE3 plan or not. We expect that there will be considerably more political resistance to "money printing" now that the credit rating has dropped. However, do not underestimate the power and influence of Wall Street to pump up the stock market through another round of QE. It is our view that we underestimate the influence of the wealthy on the so called neutral position of Federal Reserve Chairman.
In the meantime, we are preparing to take advantage of an oversold market and anticipate a nice bounce before another drop to 1140 on the S&P.
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