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From Egan Jones, who downgraded the US for the first time ever last July, two weeks ahead of S&P:
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+
SAN FRANCISCO (MarketWatch) -- Egan-Jones Ratings Co. said Friday it downgraded its U.S. sovereign rating to AA- from AA on concerns that the Fed's new round of quantitative easing, or QE3, will hurt the U.S. economy. The ratings agency said the Fed's plan of buying $40 billion in mortgage-backed securities a month and keeping interest rates near zero does little to raise GDP, reduces the value of the dollar, and raises the price of commodities.
Downgraded again on QE3. Thanks Obozo and his Fed Chief (playing politics - looking to keep his job).
Talk 'bout INFLATION when the poop eventually hits the fan - it'll make Jimmy Carter's 1970s double-digit inflation look like a walk in Georgia peanut field.
Boob, this will help investors and banks much more than the average citizen. Oh sure, there will be some strengthening for a short while. Then the slowdown comes back and inflation will roar from off in what looked like the horizon, but is much closer than it appears.
What'd you think inflation ratcheting up to 7, 8, 10% will do for the middle class?
Quote:
Originally Posted by florida.bob
QE3 is awful, I was hoping for a sustained recession.
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