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U.S. Credit Rating Downgraded – Again (Get Used To It)

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Posted by GONV (Grizzled Old Nam Vet)   Sep 14th, 2012 13:39 MST

Ok folks – you are seeing the financial system starting to come apart right before your eyes.

If you havn’t started yet –

You better get prepared !!!

taken from The Blaze


U.S. Credit Rating Downgraded Again, QE3 Cited as Cause

Ratings agency firm Egan-Jones on Friday released a statement announcing its decision to downgrade of the U.S.’s credit rating to “AA-“ from ”AA.”

The firm’s reason? The agency claims the Federal Reserve’s decision to go through with a third round of quantitative easing (or QE3) will “hurt the economy,” drive down the value of the dollar, raise commodity prices, and do nothing to spur GDP, MarketWatch reports.

Here’s the statement [h/t Zero Hedge]:

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+

Not familiar with Egan-Jones? You may recall they were the firm that downgraded the U.S. last July before the S&P did.

“Regardless of who does the downgrade, you have to pay attention—maybe they’re not as well known, but Egan Jones has been ahead of the pack for a while,” Joe Saluzzi, co-manager of trading at Themis Trading told CNBC.

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