Well, I can’t say that it’s a surprise, but I wonder if this is the start of hyperinflation of the dollar…
http://www.cbsnews.com/stories/2011/08/05/ap/business/main20088965.shtml
Hooray! S&P gives a nod to empirical reality! When the rate at which money is devalued exceeds the interest rate, it should really be “junk,” but this is at least a step in the right (honest) direction.
I think this is great - and LONG overdue.
BTW, I can’t wait to see the spot price on gold Monday!
Seems like a great time to buy gold and silver online. APMEX is still quoting the close prices.
And I’m already on it…
Amazing…I was about to start this thread but someone beat me to it! Anyhow, what do you guys think? When will the foreigners liquidate their treasuries?
- Ross
Rating agencies are still strying to rebuild their image after 2008 when Freddy Mac and Fanny Mae were AAA rated and with a solid outlook and went burst almost overnight. People lost confidency in them and that confidence hasn’t returned. Greek bonds weren’t downgraded to “junk” status until very recently: that too has left many wondering if rating agencies are capable to really doing their job (ie providing investors with a useful service) or are just there to prop up bankrupt governments and shaky corporations with good political ties.
Rating agencies right now are in a mad scramble to rebuild that confidence they lost by downgrading bonds. Will it be enough to save face? No. It’s too little and too late. “Emerging” economies, the ones where capitals reside nowadays, are catching on to this. China has Dagong which is already becoming a force to be reckoned with. How long it will be before India or Brazil will have their own independent rating agencies? Western rating agencies are seen by Chinese and other investors as little more than another cog in the mechanism which propped up a bankrupt system for far too long. There’s legitimate demand for more honest rating agencies. It won’t be long before the markets will provide.
Of course there’s a problem: markets and economies are now more volatile than ever. As Marc Faber said time and time again all that liquidity has wrought havoc and brought on a volatility the likes of which have never been seen before. The market is full of what Jeffrey Tucker calls “mispriced resources”: is crude oil price determined by demand and supply or is it the product of easy-money fueled speculation? The answer is “we don’t know”. Are all those corporations posting record profits in face of shrinking sales really solid and productive or are they just “cheating legally”? The answer is “we don’t know”. Rating agencies like S&P cannot help investors anymore. Not only did they fail in the past, and spectacularly so, but their rating methods seem geared more towards lulling investors into a false sense of security than providing them with a detailed outlook about a certain financial product. The time of optimism at all costs is over. Investors now want serious answers: and if London and New York won’t provide it, Shanghai or New Delhi will.
None of this makes any sense. American debt, as a percentage of GDP, is far lower than that of Germany, the United Kingdom, and France, and yet they keep their triple-A rating, while the U.S. gets downgraded. Furthermore, S&P said that America may have avoided this downgrade if they raised the debt ceiling in a timely fashion. But how does raising the debt ceiling, i.e., incurring more debt, reassure S&P that America is taking care of its fiscal issues?
Also, doesn’t this mean that banks and other financial institutions are no longer allowed to carry American government debt (there are regulations in place that prevent such institutions from holding assets that are rated below AAA)? If so, then I fail to see how the dollar can possibly maintain its status as the world reserve currency.
Should it make any sense? Remember, these are the same people who gave AAA ratings to many MBS.
Any predictions on how the market will react on Monday?
Of course, predicting what the market will do in the short term is speculation in every sense of the word. Still, based on the shakey confidence in the dollar and the recent ratings change, one might expect that the price of commodities (in dollars, and in absolute) will increase due to increased demand and due to the devaluation of dollars. Also, one could speculate that the markets will drop sharply on Monday (the folks at the major trading companies probably already know this based on standing buy vs sell orders). It’s funny to me how easy it is for traders to frontrun the market… and then people wonder how they become so fabulously wealthy…
TBT was up about 5% on the rumor on Friday, so I figure that, on the news, it will go more higher on Monday than it did on Friday. Gold and silver will shoot up. However, the PPT might jump in.
How (do you think) do they front-run the market, exactly?
“Federal Reserve Versus Private Sector Control of Government Spending”
If the US does not curtail its debt, the value of its currency will go down, the move should increase the value of US currency, for the following reasons.
The Federal Reserve has the purpose of keeping government spending and politicians in check through interest rates, because heaven forbid that politicians, who lack any requirement for an economics degree or market competency, be allowed to exercise unsound monetary policy by indiscriminately printing and devaluing currency, without fiscal oversight and accountability from free enterprise institutions that have the wherewithal and purpose of actually generating revenue to support government!!
There is one step further that should have been enacted long ago, which is to separate the credit rating for the private sector from the credit rating of government, which means that interest rates on lending to the private sector should be lower than interest rates provisioned for government.
The government has been given preferred borrower status by lending institutions who pervasively and endlessly seek to find victims for usury; and no victim is more convenient than the public through government spending.
The Federal Reserve represents the national banking system, which is the principle antagonist and opportunist that is seeking the public as a victim for usury.
Establishing a firm hand for the Federal Reserve against government spending on behalf of the private sector has not ever been a a feature that could be controlled by the public, rather it has been a self serving and convenient nepotism between government and the banking system.
S&P should lower the US credit rating; whether corrupt or inept, the Federal Reserve does not have the decency to do it!!!
Here is what Peter Schiff thinks will happen on Monday.
I’d imagine that any large brokerage house could fairly reliably predict the direction of the market at the beginning of the following day (or week) based on the orders placed after COB. This only works in the very short term… but that’s all you really need to make a truckload of money.
So assume that after COB Friday they learn with a fair amount of certainity that the market is going to open down on Monday. How exactly (step by step) do they (or anyone else having the same information) make money out that?
** One Weigh Ticket **
Thanks for the video link Aristophanes.
Peter Schiff asserts that corporations cannot have a higher credit rating than the US government, because of devalued currency, and further asserts that corporations should not receive better interest rates than the US government.
Schiff’s two assertions are exactly traditional suppositions contributing to failure!
Corporations should absolutely receive better interest rates than the federal government and it should be established law!
As the private sector pays the bills of government, why is the private sector inhibited from fluidity with an increased burden of higher interest rates than than is government?
The private sector credit rating needs to be dissociated from the government credit rating, because private sector holdings represent real property that staves off loss of value due to inflation, while government does not hold real assets and lacks credibility in its ability to pay its debts.
Ignore this post… for some reason I can edit it but I can’t delete it..
Schiff’s point was that it wasn’t the credit of the private sector per se, but the fact that the private sector does it’s dealings in US Federal Reserve notes which are “Backed By the Full Faith and Credit of the United States Government.” The “Full Faith and Credit of United States Government” was just downgraded. It’s not the entity that was downgraded, it’s the currency.