01/14/11 Baltimore, Maryland – Hmmn… There must have been change in the Matrix. We experienced a major deja vu this morning.
It began when we read this headline from The Wall Street Journal: “S&P, Moody’s Warn on US Credit Rating.”
“We have become increasingly clear,” the Journal quotes a Moody’s statement “about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the US, the likelihood of a negative outlook over the next two years will increase.”
Translation: If the boneheads in Washington can’t figure out how to raise revenue or cut spending, or both, Moody’s is going to write a strongly worded letter.
Ooooh, scary. And yet…it sounds so…familiar.
Just for the heck of it, we spent three minutes with Google and turned up news articles with Moody’s alone issuing warnings on these dates…
What accounts for the six-month dry spell in the second half of last year? We admit we do not know. But a better question might be when do they actually grow a pair and pull the trigger on a downgrade?
Who are we kidding? This is the same bunch who just a few short years ago slapped AAA ratings on mortgage-backed securities worth little more than premium toilet paper.
“Before I go to sleep at night,” John Whitehead, the octogenarian former chairman of Goldman Sachs said during the depths of the Panic of 2008, “I wonder if tomorrow is the day Moody’s and S&P will announce a downgrade of US government bonds.”
Sleep easy, Mr. Whitehead. That’ll only happen after the default is complete.
Addison Wiggin
for The Daily Reckoning
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
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The US is the biggest fish in the pond, in many ways and at least at the moment. I think whoever is calling the shots is waiting to make sure we are hooked so bad that we can’t get away no matter what kind of fight we put up, then they’ll start reeling us in. Once they downgrade our rating, and in other ways generate a crisis too big for America to handle, we will be bankrupt and at their mercy. How does the US then settle the debt with all these bankers and foreign owners of debt? By deeding over to them Yosemite National Park? The Statue of Liberty? A carrier battlegroup?
There is a saying, “It takes a lifetime to build credibility and one bad decison to lose it.” And the rating agencies lost it all down the subprime toilet in 2008. Just ignore whatever they have to say. A garden rock would give investors better advice.
Here’s a rather interesting look at the interest on the federal debt and how it is projected to consume between 4 and 9 percent of all revenue:
http://viableopposition.blogspot.com/2011/01/interesting-look-at-interest-on-us-debt.html
“Sleep easy, Mr. Whitehead. That’ll only happen after the default is complete.”
So true….and to think, we have a higher credit rating than Japan and China, yet we OWE THEM trillions. There’s no credibility left in the U.S. financial systems – currently, it’s simply laughable and you shrug with resignation – some day, it might be tragic.