Posted on 08/01/2011 9:19:40 AM PDT by SeekAndFind
“The storm has passed!”
“Disaster has been averted!”
Don’t you feel better? Of the various flavors of Armageddon being pitched over the last month or more, one of the most dire was the threat that the Big Three credit ratings agencies would downgrade our super-duper triple A status unless we got our fiscal house in order. Investors would be jittery and demand a better deal prior to purchasing any of America’s shabby paper.
So with the latest version of the new, new deal nearly inked, we’ve at least dodged that bullet, right? Not so fast, says the CEO of PIMCO.
One of the most prominent global investors says that a potential budget deal in Washington will only bring short-term relief, and it won’t remove the threat of a U.S. debt downgrade by credit rating agencies.
“I think this compromise will lead to an increase in the debt ceiling, and therefore avoid default,” said Mohamed El-Erian, CEO of PIMCO, a global investment firm and one of the world’s largest bond investors said today on ABC’s “This Week With Christiane Amanpour.” “But this relief will be short.”
“We have one rating agency out there that said it would downgrade unless certain things happen, and these things are not happening fast enough,” El-Erian said of the budget framework being negotiated.
“If the U.S. loses that AAA status, it will be much more difficult for the U.S. to restore growth, so it’s unambiguously bad,” El-Erian added.
The problem was never a question of default vs. no default. First, we were never going to fail to pay the interest on our debts. We simply wouldn’t have paid a bunch of other bills. But clearly that wasn’t the real underlying fear of either investors or creditors. What they were waiting to see was if we were on a path toward long term fiscal stability or if they would have to sit through this same waiting game from now on every time we ran out of cash.
Even if the currently proposed deal goes through, the “problem” for the world market doesn’t go away forever. It just gets to sit on the bench for a year or two. It’s not just the red or black numbers on the balance sheet, but the glide path that we are on. Are we heading toward a more fiscally stable future, or just heading toward the cliff at a more leisurely pace?
Obviously PIMCO’s CEO seems to be leaning toward the latter. Video of the interview follows, with apologies for including Christiane Amanpour when you may still be enjoying your morning coffee.
Kabuki theater in full swing.
Simply raising the Debt Ceiling will not present a down grade of our bond rating. The problem here is our out of control spending habits, not the Debt Ceiling.
Funny how NOW after weeks of demagoguery and hysteria, the Junk Media is finally finding out what Conservatives have been screaming at them for months.
Simply raising the Debt Ceiling will not present a down grade of our bond rating. The problem here is our out of control spending habits, not the Debt Ceiling.
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Amen! you are exactly correct Sir !
and Moody’s and Standard and Poors have been admitted this for weeks.
they suggested a MINIMUM of 4 trillion in cuts, to avoid the downgrade.
http://www.freerepublic.com/focus/f-news/2756453/posts
Moody’s: Neither debt plan protects the nation’s AAA rating
No, they're not one of the so-called "Big Three", but so what.
I’ve read that as much as 30% is skimmed off the top of the highway trust fund before a dime is spent on anything transportation related. Then the remaining 70% goes to hundreds of other “transportation related” programs including things like bike paths and failing public transportation systems.
The EPA gives grants to groups like the American Lung association and inner city ecology training programs. Those grant takers are now running ads to protect the EPA.
We live in one seriously insane nation.
The U.S. just needs to go on and declare bankruptcy, i.e., default on the debt.
It’s going to happen sooner or later.
We’ve already been downgraded by Egan-Jones.
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realistically, to be honest, we should be downgraded.
certainly we are not the same credit risk now,
as when we were a creditor nation.
or even as in 1971, when the entire national debt was 0.4 trillion, instead of the current 14+.
(yes, all this has happened in just 40 years. because of the “Great Society” “War on Poverty”, no SSN housing, unrestricted illegal immigration, etc.)
the problem, is the death spiral, like in Greece.
when you are downgraded, it increases the cost of the debt.
that is why we needed to make at least 4 trillion in cuts
NOW,
instead of waiting for 2013.
because even if we get the WH in 2013, we will already be in the death spiral, since our rating will be downgraded in the next 2 years, our debt will increase to 17 trillion, etc.
that is what Bachmann, Mark Levine, Rush, and others were trying to say.
Some chick on Fox last night was saying that it is almost certain that we will lose our AAA rating. I get that, but she also said that it would affect all Americans in the form of higher interest rates, higher mortgages, etc. How is that possible? Why would my personal credit card interest rate go up because of the government’s rating. Is she stupid or right? Anyone know?
A downgrade would mean that lending to the United States is no longer considered as safe and the U.S. would pay higher interest payments. Since the government would now have to pay a higher interest rate, it would charge banks a higher interest rate for the money it loans them. The banks would pass that on to consumers in the form of a higher rate on loans like mortgages and credit cards.
Credit card rates are already up. As for the rest I don’t know.
My guess is that rates could go up, everything is predicated on the Fed and it’s prime lending rate. So if overall borrowing costs for the Government go up then yes that probably will effect all forms of interest rates.
CBO Scores “Bipartisan” Plan At Half Of S&P Required Savings; Just 2% Before 2012 Elections
http://www.freerepublic.com/focus/f-news/2757006/posts
“It was only a week ago that S&P said anything under $4 trillion in deficit cuts would be an automatic downgrade for the US. “
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