Mark Brown and Nathalie Boschat at WSJ:
Two leading rating firms have cautioned the U.S. on its credit rating, expressing concern over a deteriorating fiscal situation that they say needs correction.
The warnings issued Thursday echoed prior statements by the companies, however, and financial markets largely ignored them. Treasury yields, which move in the opposite direction as prices, were lower in late-morning trade and the cost of insuring U.S. debt against the risk of default, already below that of Germany, the euro-zone benchmark, barely budged.
“My traders are shrugging it off as stuff we’ve heard before,” said Tom Di Galoma, head of interest-rate trading at Guggenheim Partners in New York.
Moody’s Investors Service said in a report that the U.S. will need to reverse an upward trajectory in the debt ratios to support its triple-A rating.
“We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the U.S., the likelihood of a negative outlook over the next two years will increase,” said Sarah Carlson, senior analyst at Moody’
Kevin D. Williamson at National Review:
If you think the 2008 financial crisis was bad, ask yourself this: Who is big enough to bail out the United States? Answer: Nobody.
Note to Washington: If you thought the Tea Party looked like an angry mob, wait until you see what happens when Social Security checks start bouncing.
I am pretty sure these folks will lower the U.S. debt rating the day after bond and currency markets go nuts in, as the econ guys say, “a non-linear event.” That’s right, a Black Swan, baby. Instead of a gradual repricing of U.S. debt, there’s a sudden and seemingly unpredictable break. Of course, a lack of action by Washington makes such a happening completely predictable. One interesting bit is the remark by Sirou on the jobless nature of the recovery. Not only is high unemployment costly, but it is a sign of a lack of vigor in the economy. Slow growth will only make it that much harder to escape the debt trap.
This makes the imperative to seriously cut spending all the more urgent. We cannot run deficits that amount to a third of our budget any longer, and we can’t afford to tax our way up to the spending level at which we currently operate. We have to start cutting large amounts from pretty much all phases of federal government, and especially need structural reforms in entitlements to genuinely reduce spending rather than just slow the rate of increases. And that has to happen now.
Even a drop from AAA to AA would mean hundreds of billions of dollars a year in additional interest expenses, which is one budget expense that we cannot cut.
As of Tuesday, the National Debt is $14,019,559,567,587.86. We are long past the time when we should have been dealing with this.
Around The Sphere 