Skip to comments.Moody’s Threatens To Downgrade U.S. Credit Rating Amid “Meaningful Fiscal Deterioration”
Posted on 02/09/2018 9:03:44 AM PST by SeekAndFind
From Tyler Durden: Back in 2011, Standard & Poors’ shocked the world, and the Obama administration, when it dared to downgrade the US from its vaunted AAA rating, something that had never happened before (and led to the resignation of S&P’s CEO and a dramatic crackdown on the rating agency led by Tim Geithner).
Nearly seven years later, with the US on the verge of another government shutdown and debt ceiling breach (with the agreement reached only after the midnight hour, literally) this time it is Warren Buffett’s own rating agency, Moody’s, which on Friday morning warned Trump that he too should prepare for a downgrade form the one rater that kept quiet in 2011. The reason: Trump’s – and the Republicans and Democrats – aggressive fiscal policies which will sink the US even deeper into debt insolvency, while widening the budget deficit, resulting in “meaningful fiscal deterioration.”
In short: a US downgrade due to Trumponomics is inevitable. And incidentally, with today’s 2-year debt ceiling extension, it means that once total US debt resets at end of day – unburdened by the debt ceiling – it will be at or just shy of $21 trillion.
We expect if not a full downgrade, then certainly a revision in the outlook from Stable to Negative in the coming months.
The stable credit profile of the United States (Aaa stable) is likely to face downward pressure in the long-term, due to meaningful fiscal deterioration amid increasing levels of national debt and a widening federal budget deficit. However, the US economy is very strong, wealthy, dynamic and well diversified, and its role in the global financial system is unmatched. These factors help compensate for the impending fiscal weakness, Moody’s Investors Service says in a new report.
Moody’s has already indicated that rising entitlement costs and rising interest rates will cause the US’s fiscal position to further erode over the next decade, absent measures to reduce those costs or to raise additional revenues. The recently-agreed tax reform will exacerbate and bring forward those pressures.
Moody’s current baseline forecast is that the sovereign balance sheet will continue to weaken over the coming decade. Absent corrective fiscal measures, the US’s Aaa rating will rely increasingly on its unparalleled economic base and the central role it plays in the global financial system.
The US economy’s dynamism, competitiveness, rich resource endowment, high income levels and relatively supportive demographic trends underpin its economic strength. While evidence of declining growth potential, coupled with emerging aversion to open trade and foreign labor during a period of rising global competition, suggest that this level of relative strength could erode over time, we expect the US’ broad economic strength to support its credit profile for the foreseeable future.
Moreover, the role of the US dollar in global financial markets and the depth and liquidity of the US treasury market remove all but the most extreme government liquidity and balance of payment risks. They insulate the US from external shocks and shifts in financing conditions in a way not seen with other sovereigns.
Moody’s research subscribers can access this report, “Preeminent financial, economic position offsets weakening government finances”, at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1108357
The SPDR S&P 500 ETF Trust (SPY) was trading at $260.36 per share on Friday morning, up $2.73 (+1.06%). Year-to-date, SPY has declined -2.44%.
SPY currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 143 ETFs in the Large Cap Blend ETFs category.
The deep staters are EVERYWHERE.
Golly, under Obama we were AAA — then Trump comes in and WHAM! Junk bonds! [/CNN]
Buffet is the very definition of a Crony Capitalist
RE: Golly, under Obama we were AAA then Trump comes in and WHAM! Junk bonds!
Actually on August 2011, S&P DOWNGRADED US debt for the first time in history from AAA to AA+.
The issue should not be who is President, but ARE THE DOWNGRADES reasonable.
/src on/The risk of US default is zero because the Federal Reserve can run the printing presses so debt holders are paid. Of course that might mean the money is worthless but yo were paid./src off/
Easily corrected by means testing:
Keep the tax rates the same (credit side) but only pay one person $20 a year (debit side).
Moody’s could have done this at any time in the last decade but were afraid of Obamka and his peoplekind.
Last I checked Berkshire Hathaway (Warren Buffhole) still had a 26% controlling share of Moody’s and were calling its shots.
Moody’s did this when Obama occupied the Oval Office, and the media DID NOT GIVE A DAMN.
Carter did that. 13.5% inflation was the result.
RE: Moodys did this when Obama occupied the Oval Office, and the media DID NOT GIVE A DAMN.
I believe it was the other giant ratings agency, S&P who did this under Obama. See here:
...a US downgrade due to Trumponomics is inevitable...
Absolutely. Inevitable when liberals have a hand in a downgrade for political purposes.
Not to worry. Wait just a little until the result of lower taxes and the rebuilding of our sovereign state together with the return of our middle income people kicks in.
The S&P downgrade of 2011 was idiocy, and the Obama administration was right to crack down on them. S&P rates creditworthiness on the basis of default potential, and there’s no way in hell the U.S. government should have been considered a default risk.
Buffet is the very definition of a Crony Capitalist
Or the very definition of a Crooked Democrat.
I remember people standing in line to sell their family silverware under Carter.
Yep - even as the economy itself starts rolling like it never did under Obama...blame the Fed for this cheap shot....but it too will straighten out as much as something that nobody really knows about as far as what “tweaks” it these days - else we wouldn’t have 26 stories coming out of 20 pundits’ mouths...
Buffet is an oligarch.
Actually he is both
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