Thursday, July 14, 2011

The USA AAA under review (taking 7,000 municipalities with it) while Bernanke talks more stimulus!

Breaking News 8:04 PM 7/14/2011: S&P warns that there is a 50/50 chance of a U.S. sovereign debt ratings downgrade!

The USA AAA is under review at Moody's based on the debt ceiling crisis!

Although many economic experts will tell you that the payment of the debt service of the US government would not be affected even if the debt limit is not raised, Moody's took the step of placing the USA AAA under review for possible downgrade.

The irony of course is that the ratings service becomes proactive on credit situations when it may not be necessary and totally reactive when its oversight or action was, or is, desperately needed!

Said Moody's:

"... Moody’s Investors Service put the U.S., rated Aaa since 1917, under review for a credit-rating downgrade for the first time since 1995 on concern the government’s $14.3 trillion debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low. The rating would likely be reduced to the Aa range and there is no assurance that Moody’s would return its top rating even if a default is quickly cured..." (Bloomberg)

USA AAA and the fallout for municipal bond issuers

Due to the monetary link between many municipalities and the federal government, a potential downgrade to the USA AAA could result in a chain reaction for these same municipal bond issuers.

As a result in the order of 7,000 municipal bond issuers were placed under review at Moody's.

Ben Bernanke and the potential for additional stimulus

Alert from the Ivory Tower: If at first you don't succeed at stimulating economic growth and creating jobs with trillions, keep throwing more money at the problem in an attempt that will potentially cripple the country financially for the next generation.

See if you can find any problems with the following statement while trying to control your incredulity (and anger) at the incompetence and ignorance of our Fed Chairman Ben Bernanke. Just in case I highlighted the part in red:

"Federal Reserve Chairman Ben S. Bernanke told Congress the central bank is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling.

“The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support,” Bernanke said in prepared testimony before the House Financial Services Committee in Washington today. “The Federal Reserve remains prepared to respond should economic developments indicate that an adjustment of monetary policy would be appropriate...” (Bloomberg)

Story lines courtesy of Mish.

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  1. I heard that the United States risks losing its triple-A credit rating if it does not boost the debt ceiling and defaults on national responsibilities. Even the average Joe will feel the pinch if the credit rating suffers for sure. Now the residents might not even have the opportunity to use personal loans ever again if this ripple happens

  2. The Republican impasse on this issue has me furious! I stand to lose more cash advance in this fiasco than I possibly was going to be taxed in any deal the President offered. If the US defaults, it will be a finacial disaster in the market for small investors like myself. The Republicans are playing games, posturing to their minority political base and it will definitely come back to haunt them in November (unless the Dems do something just as stupid which they probably will too). I don't know if I will vote the GOP anymore. They come off as spoiled crybabies...the very same thing I used to say about Liberals. I can not tell the difference anymore...they both stink!