Credit Rating Agency Downgrades US Debt

[Ad Orientem]

(Reuters) - Egan-Jones Ratings downgraded the credit level of the United States as Washington has struggled to reduce the federal debt burden, which is projected to surpass the size of the country's economy.

The independent rating firm, which issued the downgrade late Thursday, said its senior debt rating on the United States is now AA, its third highest rating, down one notch from AA-plus.

It also maintained a negative watch on the world's biggest economy as the federal debt load could rise to $16.7 trillion at the end of 2012. U.S. gross domestic product, in the meantime, could grow to $15.7 trillion, assuming it would grow at a rate of 2.5 percent, the firm said.

The firm downgraded the United States for second time in less than nine months "because of the lack of any tangible progress on addressing the problems and the continued rise in debt to GDP," said Sean Egan, co-founder of firm, in an e-mail statement.

Read the rest here.

[melveyr]

Yields are down nicely today.

Bond markets response to Egan-Jones:

What I find fascinating is that the big money knows that reports like this are total BS. You can see their opinions expressed through the ultra-low bond yields. Perhaps the big money likes to just stay quiet, but I think a public re-education about the nature of debts and deficits is 40 years overdue. Warren Mosler is trying, but more wealthy people need to step up to the plate and explain to the public the system we are operating under.

EDIT: On second thought, if the public knew the government was not revenue constrained the lower classes would be far more resistant to social services cuts. Maybe the rich are correct to stay quiet and buy their nominally risk free bonds. 

[moda0306]

Bond markets response to Egan-Jones:

Pure gold. 

What is the scope of these ratings?  Simply default risk?  Or do they try to factor in inflation risk?  If the latter, why don't they do that for all bonds to compare apples to apples?

I feel so smart when I see these things... and a little scared to boot.  These are the guys moving the big pieces of our economy.

[smurff]

(Reuters) - Egan-Jones Ratings downgraded the credit level of the United States as Washington ...

Egan who?

When Standard and Poor did this last year, years after the biggest financial crisis since the Great Depression, it was laughable then as one of those "closing the barn door after the horses ran off" situations.  The Egan Jones ratings company is a bit late to the downgrades party.

[Ad Orientem]

(Reuters) - Egan-Jones Ratings downgraded the credit level of the United States as Washington ...

Egan who?

When Standard and Poor did this last year, years after the biggest financial crisis since the Great Depression, it was laughable then as one of those "closing the barn door after the horses ran off" situations.  The Egan Jones ratings company is a bit late to the downgrades party.

Actually Egan is ahead.  They had already downgraded the US before S&P.  This is a further downgrade to AA.

[Gumby]

One reason people may be so misinformed about the true nature of debt and deficits is because some people want the public to be confused (to have you invest your money in certain assets, or to vote a certain way, or support certain tax policies, etc.)

2. Once you have an idea, what is your edge?
"We want to find out what the misunderstanding is. Sometimes it’s a conspiracy to misinform people. Wall Street has this agenda. We like to identify something in which the public has been misinformed. How do you know you’re right? That’s what the work is. We find out what everyone thinks, and then what we think, and then we test it. What we need to know to convince ourselves that we understand it." — David Einhorn
Source: http://www.marketfolly.com/2012/03/davi ... -from.html

The bond market knows that a credit rating downgrade of US debt means nothing. And yet, some people still do everything they can to rile people up about it.