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Wednesday
Dec152010

Moody's Threatens To Cut US AAA Rating on Tax Package

Very little mention of this story in the financial press, but this is how sovereign bond routs begin.  We already borrow 43 cents of every Federal dollar to make our bloated budget, and apparently Congress thinks that's not enough.  They're aiming for 50 cents this time, suckers.

And Moody's thankfully, is throwing up a roadblock, though Congress won't see it of course, until it's far too late.

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Source - Reuters

Moody's warned Monday that it could move a step closer to cutting the U.S. AAA rating if President Obama's tax and unemployment benefit package becomes law.  The plan agreed to by President Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years, the ratings agency said.

A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.  For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasuries, which currently rank as among the world's safest investments.

  • "From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.

After Obama announced his plan, Treasury prices fell sharply in volatile trade last week and yields have hit a six-month high, in part due to concerns over the effect the package will have on government debt levels.

  • If the bill becomes law, it will "adversely affect the federal government budget deficit and debt level," Moody's said.

In a market obsessed with the euro sovereign debt crisis, the Moody's note reminded foreign exchange investors about their worries of growing U.S. debt and was a factor pressuring the dollar on Monday.

A negative outlook would indicate that the rating may be more likely to be cut from the top Aaa rating over the following 12 to 18 months. The United States currently has a stable outlook, indicating a rating change is not anticipated over this time frame.

  • Moody's estimates the cost of the funding the proposed tax bill, along with unemployment benefits and other policy measures, may be between $700 and $900 billion, which will raise the ratio of government debt to GDP to 72 to 73 percent, depending on the effects on nominal economic growth.

"This is a very high ratio compared with both history and other highly rated sovereigns," Moody's said.

Continue reading...

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Links from this morning...

BofA looks to sell toxic mortgages worth $1 billion

http://www.reuters.com/article/idUSTRE6BC19320101213

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Fed seen staying with $600 billion bond buy plan

WASHINGTON (MarketWatch) — The Federal Reserve’s formal policy meeting Tuesday is expected to be a quiet affair as the central bank battens down the hatches to protect its innovative and controversial bond-buying program from a swirling political storm.

http://www.marketwatch.com/story/fed-seen-staying-with-600-billion-bond-buy-plan-2010-12-11

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NEW YORK (MarketWatch) — Treasury prices fell further Tuesday, pushing 10-year yields to the highest in six months, after a pair of reports showed U.S. retail sales and wholesale prices last month were stronger than economists had anticipated.

http://www.marketwatch.com/story/treasurys-fall-after-retail-sales-ppi-report-2010-12-14

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Reader Comments (12)

BofA looks to sell toxic mortgages worth $1 billion: report

http://www.reuters.com/article/idUSTRE6BC19320101213
Dec 14, 2010 at 12:15 PM | Registered CommenterDailyBail
Fed seen staying with $600 billion bond buy plan

WASHINGTON (MarketWatch) — The Federal Reserve’s formal policy meeting Tuesday is expected to be a quiet affair as the central bank battens down the hatches to protect its innovative and controversial bond-buying program from a swirling political storm.

http://www.marketwatch.com/story/fed-seen-staying-with-600-billion-bond-buy-plan-2010-12-11
Dec 14, 2010 at 12:17 PM | Registered CommenterDailyBail
NEW YORK (MarketWatch) — Treasury prices fell further Tuesday, pushing 10-year yields to the highest in six months, after a pair of reports showed U.S. retail sales and wholesale prices last month were stronger than economists had anticipated.

http://www.marketwatch.com/story/treasurys-fall-after-retail-sales-ppi-report-2010-12-14
Dec 14, 2010 at 12:17 PM | Registered CommenterDailyBail
Copyright Extortionist Righthaven Sues Drudge: Backed by CFR, Rockefeller, and Monsanto

http://www.activistpost.com/2010/12/copyright-extortionist-righthaven-sues.html
Dec 14, 2010 at 12:24 PM | Registered CommenterDailyBail
Welcome to the United States of Foreclosures – California lists 99,000 foreclosures for sale on the MLS but 372,000 homes are active in the foreclosure process. A startling look at SoCal and $500,000+ foreclosures on a map.

http://www.doctorhousingbubble.com/welcome-to-the-united-states-of-foreclosures-california-half-million-dollar-foreclosures-reo-socal-maps/
Dec 15, 2010 at 12:26 AM | Registered CommenterDailyBail
Hawaii is not legally a state!

http://whatreallyhappened.com/WRHARTICLES/HAWAII/hawaii.php

very interesting history...
Dec 15, 2010 at 12:27 AM | Registered CommenterDailyBail
Tea Party Patriots compares tax deal to TARP, warns of ‘House cleaning’

http://www.americanindependent.com/161367/tea-party-patriots-compares-tax-deal-to-tarp-warns-of-house-cleaning
Dec 15, 2010 at 12:52 AM | Registered CommenterDailyBail
Say NO to the Obama Tax Compromise!

http://www.notaxcompromise.com/
Dec 15, 2010 at 12:53 AM | Registered CommenterDailyBail
Hugh Hewitt

Kill 'the Deal'

Some in the GOP are arguing that they will have time to make up for this sin or for what is at best a hand badly played. But as Mark Meckler of TeaPartyPatriots.org said on my radio show yesterday, the voters never forgot or forgave TARP, and unlike TARP, there is no financial crisis driving the rush to vote for this deal.

http://townhall.com/columnists/HughHewitt/2010/12/09/kill_the_deal/page/full/
Dec 15, 2010 at 12:53 AM | Registered CommenterDailyBail
And the solution is justj staring us all in the face. Let the law as it is currently written stand and let taxes go up 4.5% for the rich in 3 weeks. It's that simple. No kicking the problem down the road another 2 years. Just obey the law and quit re-writing it to justify the abuse of power. Not only does this give the government a chance to undig it's ever-deepening deficit hole, but it's also the most painless solution compaired to the austerity beating that now appears on our horizon. I'd filibuster the crap out of this awful betrayal by Obummer.
Dec 15, 2010 at 2:24 PM | Unregistered CommenterDavol
well said davol...i agree completely...
Dec 15, 2010 at 3:28 PM | Registered CommenterDailyBail

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