It's Starting- German Rating Agency Feri Downgrades US Government Bonds: AAA to AA

[stockholmer]

The first Western downgrade of US government bonds is a fact. The German credit rating agency Feri lowered its rating on US debt by a full notch, from AAA to AA. The avalanche may very soon be coming, adding $100's and $100's of billions per year in new debt service cost to the budget deficit.

http://www.scribd.com/doc/57438211/Feri-Downgrades-US-Gov-Debt-AAA-to-AA

Here's the english translation:

Homburg, 8 June 2011 - The Bad Homburg Feri EuroRating & Research AG downgraded the first credit rating agency's credit rating for the United States from AAA to AA. Feri analysts justify the downgrade by the continuing deterioration of the creditworthiness of the country due to high public debt, inadequate fiscal measures, and weaker growth prospects.

"The U.S. government has fought the effects of the financial market crisis primarily by an increase in government debt. We do not see that there is sufficient attention being paid to other measures, "said Dr. Tobias Schmidt, CEO of Feri Rating & Research AG. "Our rating system shows a deterioration in economic health, so the downgrading of the credit ratings of U.S. is warranted."

For the third consecutive year the deficit of the United States is in double digit percentages relative to gross domestic product (GDP). "Deficits of such magnitude are not a sustainable fiscal policy. We would reconsider the rating when the U.S. government creates a long-term sustainable budget," said Schmidt.

Feri Rating is listed on the Federal Financial Supervisory Authority (BaFin) as an EU credit rating agency approved and created with more than 20 years experience in sovereign ratings. Every month, the Feri analysts evaluate sovereign credit ratings from the perspective of a foreign investor based on the ability and willingness of countries to repay their debts. The credit ratings have eleven possible gradations between "AAA" (best credit) and "Default".

[Hardrada]

1. But we have Mr Hope & Audacity in the White House. Have they no respect?

[Poll_Blind]

2. This is the first actual downgrade as far as I know: The wheels are coming off the tracks

This shit needs to stop right now, and we stop it right now by raising the debt ceiling.

Look, what's the use of a representative government if they destroy the country?

PB

[JackRiddler]

9. The Chinese ratings agency already did it a day or two earlier.

[Poll_Blind]

11. Link? I'm specifically talking not about a thread but an actual downgrade.

There have been a number of threats but I'm interested in seeing an actual downgrade which has already gone through. Much thanks if you can find it!

PB

[JackRiddler]

15. From AFP: "China ratings house says US defaulting"

http://ca.news.yahoo.com/china-ratings-house-says-us-defaulting-report-054309883.html

You may be right, in the sense that they said this, but didn't downgrade the debt recently. If you read the article, it appears they already assigned a less-than AAA rating to US notes from whenever they started operations.

[Igel]

18. Except that the two instances mentioned so far *aren't* because of the debt ceiling.

One instance was because the dollar's been allowed to weaken more than China thinks prudent.

The second is because there's *too much* debt coupled with low growth and no way to stop the trillion-dollar deficits. Some DUers were screaming bloody murder when the deficit was $300 billion, more screamed bloody murder at $500 billion. At $1.4 trillion, some are still screaming, but a lot of the voices have found their inner spendthrift. We can say, "Ah, recessions and low growth rates justify deficits," but in '01 and '02 we had recession, as well as in '08 (with leading indicators in '07) but that didn't matter; we can say that low growth rates matter, but screaming about only creating 200k or 300k jobs a month has been replaced by a warm glow at 150k jobs/month.

Increasing the debt ceiling will allow quick and easy *additional* debt. If we have too much debt now and the rating agency lowers us from AAA to AA, what will an addition $3 trillion in debt do? Make them party in the streets?

The problem with no controls on future growth of the debt is this: Every debt reduction program makes all the serious cuts in 2 years. In 2006, the cuts were in 2008; in 2008, they were in 2010; in 2010, they were in 2012. In 201, they're in 2013. Now is never the right time to stop spending money; present needs and wants always trump, in the public mind, future risks.

But the threat is real: Right now the interest rate on new debt is near zero. The longer it goes, the lower the debt payment. Let's crank it up to 5%, 6%, 7% and watch us go from $300 billion/year in interest payments to, oh, having it be the largest non-entitlement expense in the budget.

Kalimera! (May as well start learning a bit of Greek now, since that's looking more and more like our future.)

[n2doc]

3. We shall see if this has any effect on interest rates

I would bet not. The Bond vigilantes remain fictional.
Let's look back in 2 weeks and see where rates are on the 10 year bond.

[stockholmer]

6. ask Greece, Ireland, Spain, Portugal, etc, if the 'bond vigilantes' are 'fictional'

The only thing propping up the US is the fact that the dollar is still the world's reserve currency. This is enforced via 'gunboat empiric diplomacy' but this $1.2 trillion + per year cost is also bankrupting the nation. The moment that an alternative to the US treasury market (the biggest financial market in the world, capable of $2 to $3 trillion per day in transactional liquidity) arises, the dollar, the US economy, and what is left of the American standard of living will be eviscerated.

[girl gone mad]

10. Which of the countries you listed owes the debts in its own sovereign currency?

[stockholmer]

14. so you are saying the US Federal Reserve (dollars are Federal Reserve Notes) is your Sovereign?

If this is what you re saying, then I would agree. The Fed is using the 'primary dealer' strawman to circumvent the legal prohibition preventing it from directly buying US treasuries. Also the POMO programme is further direct market/monetary intervention, and will also end in tears.

To answer your question, the countries I listed have the vast majority of their debt denominated in Euros, so it is up to the ECB if thy will try to hyper-inflate their way out, which I do not, at the end of the day, think they will. This will lead to sovereign defaults, and a restart of their economies after they exit the Euro.

The US will, in the long term, go the inflationary/debasement route, which will have massive negative-feedback loop implications.
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Here are some excellent articles on another, shorter term option (which, IMHO is futile in the end) 'financial repression' (which many believe the US will take to deal with the spiraling debt).

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/6/4_Jim_Rickards.html (great audio interview with Jim Rickards)

http://www.bloomberg.com/news/2011-05-16/pimco-sees-financial-repression-in-u-s-amid-deteriorating-debt-dynamics-.html

http://www.financialsense.com/contributors/daniel-amerman/financial-repression-a-sheep-shearing-instruction-manual

Financial Repression" is currently a hot buzzword in the global economic community, and its effects are even worse than it sounds. Like other recent economic buzzwords such as "monetary sterilization" and "quantitative easing", the average person will never understand the meaning, if they hear the phrase at all. That is too bad, because governments around the world deliberately and methodically stripping wealth (and therefore security and retirement lifestyle) from hundreds of millions of people is the quite explicit objective of Financial Repression.

As published in a recent working paper on the IMF website, http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf
Financial Repression is what the US and the rest of the advanced economies used to pay down enormous government debts the last time around, with a reduction in the government debt to GDP ratio of roughly 70% between 1945 and 1980. Financial Repression offers a third way out - as it allows governments to pay down huge debt burdens without either 1) default or 2) hyperinflation. If you are a senior government official of a nation that has a huge "sovereign debt" problem – like the United States and almost all of Europe, and you want to stay in power - this proven method is a topic of keen interest.



------------------------------------------------------------------------------------------------

here is an article on Greece

http://www.necessaryandsufficient.net/2010/05/a-greek-tragedy-sovereign-debt-and-liquidity-issues/

To understand the current sovereign debt problems in Europe one has to understand the monetary policy options available to the government of a sovereign state. Basically, there are several options available to manage national debt:

1.Print More Money
2.Devalue the Currency
3.Raise Taxes
4.Raise More Money
5.Default
Let's run through each of these options and consider how it applies to the current Greek situation, and perhaps soon to Spain and Portugal.

Print More Money

The majority of Greece's public debt is denominated in Euros - the "local" currency - which means that it could simply print more money to pay off its large debts (you can't do this if your debt is denominated in foreign currencies). Printing more of the local currency does have consequences - it causes inflation which effectively reduces the nominal value of all other debt denominated in the local currency.

However there is a problem here. Although technically and legally a sovereign state, the Greek government doesn't have all the fiscal options usually available to an independent nation. Because it uses the Euro, and that is a shared currency with other nations, it cannot simply print more money because that's controlled by the monetary union of the euro zone. This restriction is in place to prevent other member nations from suffering currency devaluations should a member nation decide to print more of the shared currency (Euros).

Problem one.

Devalue the Currency
A government can devalue its local currency to make the domestic currency cheaper relative to other currencies. There are two implications of a devaluation. First, devaluation makes the country's exports relatively less expensive for foreigners. Second, the devaluation makes foreign products relatively more expensive for domestic consumers, thus discouraging imports. This may help to increase the country's exports and decrease imports, and may therefore help to reduce the current account deficit.

However, for the same reasons stated above - the usage of a shared currency - Greece is unable to devalue its "local" currency because its not in control of the Euro.

Problem two!!

Cut Public Spending and Raise Taxes
To increase its revenue intake the Government can raise taxes in an effort to help pay down the public debt. This is politically unpopular and thus most governments are reluctant to consider it, unless backed into a corner. Greece is doing this, but due to the magnitude of public debt it's going to find it quite difficult to raise enough money fast enough using just this option. It's been reported that Greece owes 300 billion euros which represents a public deficit of 14% of the GDP.

Problem three!!! Now into the "options of last resort"...

Raise More Money
Despite having debt problems, in order to service debts falling due Greece needs to raise more money through issuance of Government Bonds however this is a short-term solution at best. Its been reported that Greece needs to raise some 30+ billion Euros just to meets its obligations for the next 12 months. Taking on new debt obviously doesn't solve the problem of indebtedness long term, and flooding the market with sovereign bonds at a time when many investors think a default is likely causes investors to demand higher yields which makes debt raising a very expensive option.

Problem four!!!!

Default on its Debt
Defaulting on its debt would cause Greece's sovereign credit rating to decrease causing it have to pay more for future borrowings, and industry also suffers. But because Greece is a member nation of the Euro zone any default on its behalf also affects other euro-nations like Germany, Spain, Portugal, and Italy.

A default is likely unless a sufficient large bailout package from the IMF and/or other Euro-nations gets put in place along with other measures. The 3-year 110 million euro package currently on offer courtesy of the IMF is a good start!

Conclusion
Moral of the story... if you let your debt get out of control you are in for a lengthy period of financial hardship to recover. Indeed, that is what Greece currently faces, and its citizens will have little respect for the politicians responsible for monetary policy for letting such an unpleasant situation happen in the first place.

[n2doc]

13. yeah yeah yeah. That boogyman won't hunt.

Real data, not fictitious boogymen. The reason those countries are screwed is that they went for the idiotic "austerity" measures and their economys are in the tank. Look at iceland for an example of what happens when you say fuck you to the banksters and bond vigilantes. They have lower interest rates than any of those countries you mention.

Again, check back in 2 weeks. or 2 months. See what rates are.

[stockholmer]

19. to be blunt, you are so fundamentally wrong on basic economics that it takes my breath away

For starters read my previous reply to another poster in this thread: http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=439&topic_id=1278472&mesg_id=1279019

Now, as for your post:

Number 1, you are conflating debt generation with the bankster's so-called tyrannical 'solution' of 'austerity regimes'. The debts were accrued long before the meme of austerity entered the common lexicon of the economic sphere (outside of the brutal IMF schemes in the 3rd world, which was ignored by the smug denizens of the West, especially in the US). These debts arouse from the usual sui generis, too much spending, not enough revenue, aided, abetted and exacerbated by phony bookkeeping from the likes of scoundrels such as Goldman Sachs, etc.

Number 2 (as I discussed in my reply referenced above), the only 2 things holding up the US dollar is its global reserve currency status, maintained via a nation-bankrupting empiric gunboat diplomacy 'enforcement regime', and the US treasury market, the biggest 'trading pit' in the world, with liquidity absorption capability of $2 to 3 trillion per day. Once this market supremacy goes 'pete tong', goodbye dollar, goodbye US hegemony and standard of living, hello WW3.

All this being said, I do COMPLETELY agree that the Icelandic resistance model is absolutely the way to go to smash the systemic controllers repression model, but Iceland had several things going for it that the EU and especially the USA do not:

1 - Iceland (with only 320,000 people) has fishing rights to over 1% of the world's stock, produces more energy per capita than any other nation on earth and has a long history of self-preservation and resistance. They can move on much more easily than most nations without outside financial intervention.

2 - The private banks debts were allowed to fail, for the most part, not socialised, the opposite of what has been done in the US and the EU. The total value of the rejected IceSave deal was $5 billion, or less than the USA government spends in 12 HOURS.

Conclusion: check back with me in 20 months or so(after the 2012 elections and all that artifice of propaganda and prop-up), not 2 months.

Let me know how the US econ modeling (ie. false, hedonically manipulated inflation reporting, false national debt reporting via off-balance sheet accounting parlour tricks, etc) and the bond yield/price ratio curves are going, for the following reasons:

The US is still the behemoth of global finance, and the fall will be crushingly, grindingly fought-out, but due to this very fact, it will be irreversible as well.

The US collapse was started long ago, but for all the incrementalism in the process of the strip-mining of its wealth, the losses of liberty via the command and control grid of a track/trace/database police state, the process is in an accelerating, self-reinforcing loop. This 'technetronic control' (to steal Zbigniew Brzezinski's phrase) will be used on the citizens to collect these chattel-slave socialised debts whilst private profits are kept in private hands.

Sooner or later (within 3 to 7 years by my best dead-reckoning), a tipping point will reached at meta-systemic levels of economic breakdown, and a waterfall of inertia will suck it down, down, down into an abyss of civilisational deprivation and decay. Eventually all empires fall, and he who ignores history is indeed doomed to repeat it.

[n2doc]

20. Keep gasping.

I've been through the inflation scares of the 70's and the current one, the bubbles of the 80's, 90's and 00's. The gold I bought in the 70's and early 80's has only recently begun to show a profit. Fortunately I never listened to those who told me everything was going to collapse into a postwar german inflation extravaganza. Data :

http://finance.yahoo.com/q/bc?s=%5ETNX&t=5y&l=on&z=l&q=l&c=

When that chart starts zooming up like the rates on those euro countries , then I'll start to worry. The folks buying these are far more savvy than either of us.

[stockholmer]

21. ALL credibility lost-> "gold I bought in 70's & early 80's has only recently begun to show a profit"

Your statement is just patently untrue.

Even If you were ONLY buying into the teeth of the manic parabolic gold bubble of January/February 1980, you would have been in the black since 2007, if you were buying in 1977, 1978, and the first half of 1979 you were ALWAYS in the black, and if buying in 1982 to 1985 (and almost all of the rest of the 1980's), you were in the black from 2005 onwards. If you had been buying from the end of 1997 up until 2005, you would have seen huge profits of over 300 to 600 percent already, just in gold. Silver is even more dramatic in its rate of return, even with the very recent pullback from $47/$49 an ounce to $35/$$37 an ounce.

Gold has increased by double digits as a percentage gained for the last 10 years in a row. Can you say the same of the NASDAQ? The Dow? The S&P? The US dollar? US Treasuries? The average US IRA? LOL! How about your paycheck? How about the value of the average American house? Not so funny, now, eh?


I have been long gold AND silver since 1998 and 1999 (in physically-held, allocated non-bank secure vault accounts), when the US trashed the Glass–Steagall Act and legalized derivatives under the Clinton/Rubin/Greenspan troika. I have an average gain of over well over 300%, whilst the Dow is utterly stagnant from the tech bubble crash of early 2001 till now. In fact, it is off greatly, due to inflation, and many were crushed in the stock crash of 2008-2009, and pulled out, locking in huge losses that they could have somewhat recovered in the QE 1 and QE 2 fueled bubble that is now unraveling. Check back with me in 3 or 4 years when those 300% figures are closing in on 1000% profits.

In 1970, the average US car cost $3900 and it took 114 ounces of gold to buy. In 2011, that same car is around $29,000 yet takes less than 19 ounces of gold to buy. Hello dollar debasement!

Plus, my friend, when the Fed fund rate peaked under Volcker in the middle of 1981 at 20%, the US national debt was only 1 trillion, today it is 14 times that (soon to 16 times that) , and even a move of the Fed's Fund Rate (it is now and has near zero% since the 2008 crisis) up to only 5% or 6% (hardly the 20%+ that the PIIGS are paying) would mean well over a trillion in debt service payments over just ONE year. If/when the funds rate does double digits, say hi to $1.5 to 2 trillion a YEAR in debt service payments alone.

If you are holding long term US treasuries, you will be the one gasping soon, unfortunately. Bill Gross of PIMCO ( director biggest bond fund in the world) pulled completely out of ALL US debt over a month and a half ago. I suggest you do the same.

[NCarolinawoman]

4. But we can still cough up all that (soon to be worthless) money for un-ending WARS.

Talk about the STUPID! :dunce: :dunce: :dunce: :dunce: :dunce:

No common sense, courage, or wisdom to be found anywhere :mad:

[Ramulux]

5. Good

I hope the rest of the world abandons us. We deserve it.

[ej510]

7. This country may not be salvageable.

This country is Fubar.

[mfcorey1]

8. Thanks a lot, dumb A***** Republicans. nt

[Corruption Winz]

12. Maybe this means that we should try to put in place better plans....

You know... tax the rich... keep some jobs in America... Stupid, tree-hugging, commie ideas.

[Initech]

16. That's what 10 years of tax cuts for the wealthy gets you. Thanks a lot, fuckers.

[indepat]

17. Anyone who thinks the pubs are not trying to destroy America have not been watching what they have

been doing or just don't understand or care. :patriot: