Ratings firm downgrades U.S. credit
U.S. Federal Reserve chief Ben Bernanke on Sept. 13, 2012, announced a third round of bond purchases by the central bank, dubbed QE3, aimed at boosting the U.S. economy. / Jewel Samad/AFP/GettyImages
(CBS/AP) NEW YORK - Credit rating agency Egan-Jones is downgrading its rating on U.S. debt to AA- from AA, citing Federal Reserve plans to try to stimulate the economy.
The firm said the Fed's plans to buy mortgage bonds will likely hurt the economy more than help it. Egan-Jones said the plan will reduce the value of the dollar and raise the price of oil and other commodities, hurting businesses and consumers.
"Up, up and away -- the Fed's QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the U.S. economy and, by extension, credit quality," Egan-Jones said in a report Friday, alluding to a third round of quantitative easing announced by the central bank Thursday. "Issuing additional currency and depressing interest rates via the purchasing of [mortgage-backed securities] does little to raise the real GDP of the U.S., but does reduce the value of the dollar... and in turn increases the cost of commodities (see the recent rise in the prices of energy, gold and other commodities)."
Egan-Jones said that, since 2006, U.S. debt as a ratio of GDP had grown to 104 percent, from 66 percent. By comparison, Spain's debt-to-GDP ratio of 68.5 percent, the firm added.
Watch: Fed action -- What does it mean for you?
A closer look at how the Fed's QE3 program works
Mark Thoma: Here's the Fed's reasoning behind the move
It is the second downgrade of the U.S. by the firm, a much smaller but well-known competitor to the big three rating agencies: Moody's Investors Service (MCO), Fitch Ratings and Standard & Poor's. In April, Egan-Jones downgraded the U.S. to AA from AA+. The company stripped the U.S. of a top AAA rating in July 2011.
On Thursday, the Fed said it would buy $40 billion of mortgage bonds a month to help the economic recovery.
See CBS News correspondent Rebecca Jarvis discuss the possible impact of the Fed's latest effort to stimulate the U.S. economy.
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THE POINT OF NO RETURN WAS PROBABLY REACHED AS FAR BACK AS '75. ALL THAT GOVERNMENTS HAVE BEEN DOING SINCE IS STAVING OFF THE INEVITABLE COLLAPSE, WHILST MAKING THE SITUATION SO MUCH WORSE BY MAKING THE DEBT MOUNTAIN SO MUCH MORE IMPOSSIBLE TO PAY BACK (If that's possible.) MEANWHILE THEY'RE ENCOURAGING EVEN MORE FINANCIAL SPECULATION THAT IS THE ROOT CAUSE OF THE PROBLEM AS IT CREATES EVER MORE INEQUALITY. SAY'S LAW.
REAL GROWTH IS NOW IMPOSSIBLE!!! I SIT ON MY BUTT 8 HRS A DAY TRYING TO GET THIS MESSAGE ACROSS BUT NOBODY IS LISTENING. ANYBODY EVER HEARD OF KENNETH GALBRAITH? EH! BEFORE THAT GREAT MAN DIED HE SAID THE MBO'S WERE EVEN MORE INSANE THAN ANY OF THE LUNATIC SCHEMES COOKED UP THAT HELPED CAUSE THE '29 CRASH. WHAT WOULD HE RECKON ABOUT TODAY'S DERIVATIVE MARKET AND HIGH FREQUENCY TRADING . HE'D SPIN IN HIS GRAVE.
Victor Hugo said, "There is nothing more powerful than an idea who's time has come." Well apparently it ain't come yet, by the almost ZERO response to my bleating. So given that all the time I spend on line is belting my health and wallet I'm gonna bugger off for now and wait until the market begins to head south in free fall. I've just installed Skype, so any media outlet that is interested can EMAIL ME at noddyblacksheep@hotmail.co.uk and provided they pick up the tab, I'll go on radio or tele and tell the nation how to fix the problem, if global communications haven't broken down by then and I'm still alive. Meanwhile I'm going underground to get ready for what looks to be inevitable, THE FINANCIAL APOCALYPSE.
Elijah 'Doom and Gloom' Cassandra.
He (or she) who hath ears to hear let him or her bloodywell hear!!!
Milton bloody Friedman, Chicago school of Economics, darling of the Chicago Futures Market, let 'er rip capitalism, throw away ALL regulation, push down wages, abolish tariffs, get rid of SRD's, LGS's all that lunatic regulation that Roosevelt began in 1933 to stop the US economy collapsing with the danger of 25% unemployment triggering civil war. Then dump all that silly crap introduced at Bretton-Woods. We are MUCH more sophisticated now. Let the 'invisible hand of the market' be FREEE. In Aussie we have done the same thing only we lead the world in ideological commitment to ZERO tariffs as manufacturer after manufacturer goes bust.
Never mind. Once we get over to the other side of the river everything will be fine. Trouble is, nobody has ever got there as the bloody river is full of piranha and crocodiles. Now we have the Dutch disease full on, gas and coal, boring holes digging huge pits, thereby buggering manufacturing even further and NOW commodity prices are collapsing and we are in very deep doo doo. What sort of psychosis is this. Lunatics run this world and it's almost a repeat of the lead up to the great Depression. The difference this time is that it wont be depression it'll be hyperinflation.
INTEREST RATES 1929 and 2008.
After the crash in '29 interest rates were raised out of fear of hyperinflation. A lot of economists have criticised this, saying that the following deflation (depression) was unnecessary and counterproductive. However, Kenneth Galbraith said it was A VERY WISE MOVE AS IT SQUEEZED THE PUS OUT OF SPECULATION, and convinced everybody that they had to do a days real work for a change instead of sweating over a red hot stock exchange. Pump priming didn't start till much later '34-'36 after several very necessary years of depression had convinced the masses of that vital lesson. It also established a more equitable base to start from. Investment HAD to go into the REAL economy as there was no scope for speculation. It was and still is a dirty word, unearned income.
Not so in 2008. Interest rates were lowered and pump priming began immediately and speculation went into hyperdrive, eg high speed trading now. Now instead of deflation we are gonna get that hyperinflation that everyone was afraid of in '29. Galbraith also said THE CRASH MUST BE ALLOWED MUST BE ALLOWED TO GO AHEAD BECAUSE IF YOU KEEP PROPPING THE ECONOMY UP (STARTING JULY 1 1975) YOU GET TO A POINT OF NO RETURN. NOW!!!
DEREGULATION.
Deregulation begins 1920, unions start getting busted after the Boston coppers strike in 1922, (Bolshie conspiracy) wages begin to get pushed down to compete in trade war with Japan. Tariffs were lowered in both countries but not in Europe as it was so badly damage by WW1. (1941 trade war becomes hot war between Nippon and Yankee Doodle Doo.)
THE PIVOTAL YEAR 1926.
In 1926 inventories begin to pile up in manufacturers' warehouses because of fall in wages and unemployment begins to climb.In 1926 the British Chancellor of the Exchequer went to the US to beg it to lower interest pates to stimulate consumer demand in the US, thereby sucking in British exports. Britain had been unable to get unemployment under 10% between the Wars and was concerned about civil war. Interest rates were lowered accordingly, but instead of stimulating consumer demand it simply provided cheaper finance for speculation and all manner of lunatic schemer were created for Mum and Dad investors.
So the BULL RUN on NYSE begins in 1926, as money that would have gone into new plant and equipment, ie REAL GROWTH now pours into speculation, DESPITE the fact that manufacturing is slowing and unemployment is rising. 24 th October 1929, Black Tuesday, reverse leverage on steroids. Sound familiar??? Anything learned?? Yes, we are much better at buggering things today.
IT WAS LOWERING WAGES, BEGINNING 1922, THAT LED TO THE CRASH OF '29 AS IT REDUCED DEMAND, UNBALANCING SAY'S LAW.
DEPRESSION. Unable to sell goods, manufactures force down wages to reduce costs and thus reduce their prices. However, the drop in wages reduces demand even further, more wage reductions ad infinitum. Now that is really sane isn't it? Never mind soon there be no wages, no demand, no nothing when the lights go out.
http://www.tumblr.com/blog/daytura
QE 3, REAL DESPERATION STAKES. (Upgraded)
Sounds to me a lot like the aftermath of WW1 in Germany, desperate to keep it's economy from collapsing blew out it's money supply. But with the high unemployment rate law and order broke down triggering shortages of food, fuel etc. and hyperinflation. Hence, German govt. reluctance to agree with the ECB pumping funds directly in to banks on the brink and experiencing bad runs, online too, thus hidden from view. Nobody better than Germany knows the danger of blowing out the money supply like this, but has already gone past the point of no return and now has no other option. I'd say that the FED IS ALSO VERY CONCERNED ABOUT SOCIAL STABILITY IN THE US AS THERE SEEMS TO BE A LOT OF PENT UP ANGST. (RAGE?)
Leaving aside the ECB buying bonds from banks as a cash injection with which they can make loans, or SPECULATE with, it is acting like a giant SRD (statutory reserve deposit), which was created to prop up a failing bank to stop the 'contagion spreading' eg US banks 1933 when thousand went bust. The SRD was a percentage of deposits, so its implementation to stem a run on a bank was not inflationary as the LGS (liquid to government security) ratio could be raises to to control any increase the money supply. To repeat, THE SRD WAS A PERCENTAGE OF MONEY ALREADY DEPOSITED. The ECB deposit is not. It comes directly from the printing presses. SRD and LGS was abolished as part of DEREGULATION. BRILLIANT!!!!
Whilst banks can obviously limit loans, overdrafts etc. they have NO OPTION OTHER THAN PAY OUT PEOPLE RIPPING THEIR MONEY OUT OF THE BANK to calm the contagion. Now NO CONTROL OVER THE MONEY SUPPLY as the money is UNDER THE MATTRESS. It flows from the printing presses through the ECB and local banks to the mattress, then bypasses the mattress. So if looting breaks out and there are shortages of essentials that money then pours out into the economy and feeds inflation which gets out of control. More inflation more violence as increasing bankruptcies create more unemployment. All that can be done then is crank up the printing presses and pray.
FUEL
Now fuel. The anti US violence spreading through out the Middle East is pushing up the oil price already. What if there are attacks on oil installations as well as tanker traffic out of the Persian Gulf. Add disruptions to transport within the US as it's unrest spreads. Now shortages of the most basic of all commodities, fuel, feeds the fires of runaway inflation and transport of food.
THERE IS NOW NO LENDER OF LAST RESORT. It was the US which bailed out Germany in 1923 by floating a new German currency, the Rentinmark, backed by Fort Knox gold. Obviously that's now out. So now all the props and controls are gone, interest rate lowering, SRD, LGS, gold standard, deposit percentage on HP and Mortgages. THIS IS WHAT FRIEDMANISM HAS GIVEN THE WORLD. It is time to get back to Galbraith QUICK. For a lot more on the subject, my blog.
http://www.tumblr.com/blog/daytura
You have elected a President who has now caused two credit downgrades in 3.5 years. We never once had a credit downgrade EVER in American history.
When you see bread for $10 a loaf and realize your food stamps don't go so far, thank yourself for voting for THE worst president in the history of the United States.
Congress needs to get off it's @ss and do it's job.
Unbelievable gridlock. We need to throw the obstructionists out on their ears.
Those people made their bed and they don't even have the guts to own up to it. They are pathetic and selfish and they need to go.
The republican party was taken over by Whig ideology when Lincoln's assassination was covered up by Stanton in order to keep America from having a 2 front war on the north an English invasion, and from the south an emboldened confederacy.
Booth escaped to England and lived into the 20th century in India.
We have been misled.
As a result, eventually the Federal Reserve was formed by them also by tricking President Wilson who apologized to the people of America.
They then started world domination by banking. The depression, the recessions, all caused by their hands.
Today the World Bank and multinational corporations by fascist means run the economy of America and the world.