Credit rating warning to u.s.

[Danzig]

http://www.nytimes.com/2010/03/16/bu...er=rss&emc=rss


Credit Agency Warns U.S. and Others of Risk to Top Rating
By DAVID JOLLY
Published: March 15, 2010


PARIS — The United States, Germany and other major economies have moved “substantially” closer to losing their top-notch credit ratings and can not depend solely on economic growth to save them, a report warned on Monday.

The ratings of the Aaa governments — which also include Britain, France, Spain and the Nordic countries — are currently “stable,” Moody’s Investor Service wrote in the report. But, it added, “their ‘distance-to-downgrade’ has in all cases substantially diminished.”



In the United States, the Obama administration estimates that the deficit will rise to 10.6 percent of gross domestic product in the current fiscal year, the highest since 1946, and federal debt will reach 64 percent of G.D.P. Government expenditures are expected to rise to a postwar high of 25.4 percent of G.D.P.

[joeydb]

That didn't take long...

http://www.olsenblog.com/2010/02/gei...in-of-titanic/

U.S. will never lose Aaa rating – is Geithner the captain of the Titanic?The sovereign debt crisis that started with Iceland last year has now spread to Greece, Spain and Portugal. Other countries with large deficits are on the firing line as well, the US is one of them with a deficit of 12 percent of GDP, the same as Greece. Treasury Secretary Timothy F. Geithner tried to shore up confidence in an ABC News interview by claiming that the US would never lose its Aaa rating. A number of commentators have picked up on this news and have ridiculed Geithner saying no way; the US will lose its Aaa rating.

It is no trifle matter, if a country has a government budget deficit of 12 percent; this is even more perilous when interest rates are at an absolute low as they are today and there is the danger that interest rates snap up dramatically increasing the cost of servicing debt and the size of the public deficit. There are also the private house holds, which make up for 70% of GDP with their consumption, who are heavily indebted. So rising interest rates will also depress private consumption. If worst comes to worst, we have a culmination of negative factors: shrinking GDP due to reduced government spending and lower consumer spending, contraction of leverage and falling asset prices in response to bankruptcies and lower economic activity.

I regularly question friends and other people with extensive market expertise. They agree that sooner or later the U.S. will hit the equivalent of an iceberg, just as the Titanic did, which will tip the precarious balance of the US economy. Such an event is just a matter of time, we do not know, when or how it will unfold, but it will definitely happen. Judging by earlier crisis, the onset will be rapid and there will be little forewarning. Given the inevitability of events, we have to ask ourselves, how do we as individuals and political leaders in particular need to react.

Should the captain in the hope of better times to come delude his people, even though he knows better? A manager or political leader is worth his mettle, if he has the courage to live up to his responsibility and warn the people of the inevitable. Yes, as soon as political leaders speak up and tell the truth, there will be a shock wave, there will be selling in the markets and an initial wave of uncertainty. The payoff of the initial stress will be trust in the leadership, which will be invaluable, when the going gets really hard. Geithner’s “keep smiling” strategy can keep things going in the short-term but will ultimately result in complete public disillusionment and weaken the government, when we face the next Six Sigma event.