Rebel Traders – Analysis Without The Hype

Moody’s is going to fire a shot across the bow of the USS Obama administration on Monday. The warning shot will state that even the current budget plan that the Obama administration has laid out may still not be enough to save the the AAA rating of the United States.

[…] unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialize, there would at some point be downward pressure on the triple A rating of the federal government.” […]

[…] Pierre Cailleteau, head of sovereign ratings at Moody’s, said: “The size of debt makes the US vulnerable to an interest rate shock . . . but the level of fiscal ambition is not one that secures for sure the [triple A] rating.”

Moody’s worries that the government will struggle to get political agreement either to raise tax revenues significantly from their current low of 14.8 per cent of national income, or to cut federal spending far from its high of 25.4 per cent of national income.

The report follows concerns recently expressed about the US public finances from the other large rating agencies. Standard & Poor’s warned last week the triple A status of the US was at risk unless the country adopted a credible medium-term plan to rein in fiscal spending. Fitch Ratings issued a critical report on the US in January.[…] (The full article can be found at the FT)

Now all three of the ratings agencies have put the United States on notice. Either cut spending by significant amounts, or raise taxes significantly. Which way do you think the administration will go?

Marc Faber has blunt words for Tim Geithner and the United States. If the nation was a corporation, the credit rating would be junk.

National debt limit to be raised to $14.3 trillion. Today the Senate proposed allowing the federal government to borrow an additional $1.9 trillion to keep the lights on in Washington. The $1.9 trillion increase would be a new record.

The unpopular legislation is needed to allow the federal government to issue bonds to fund programs and prevent a first-time default on obligations. It promises to be a challenging debate for Democrats, who, as the party in power, hold the responsibility for passing the legislation. […]

[…] The measure came to the floor under rules requiring 60 votes to pass. That’s an unprecedented step that could mean that every Democrat, no matter how politically endangered, may have to vote for it next week before Brown takes office and Democrats lose their 60-vote majority.[…]

[…] A White House policy statement said the increase "is critically important to make sure that financing of federal government operations can continue without interruption and that the creditworthiness of the United States is not called into question." […] (AP)

The White House statement says it is critically important to safeguard the creditworthiness of the United States. What idiot in Washington came up with that press statement? If the United States wants to safeguard the creditworthiness they need to be reducing the debt, not increase it.

Everyday that passes I am even more amazed at just how stupid Washington thinks the American people are.

Breaking -

S&P LOWERS GREEK SOVEREIGN RATINGS ONE NOTCH TO BBB+ FROM A-;  OUTLOOK IS NEGATIVE

The downgrade reflects S&P’s opinion that the measures the Greek authorities have recently announced to reduce the high fiscal deficit are unlikely, on their own, to lead to a sustainable reduction in the public debt burden. Moreover, S&P believes that the government’s efforts to reform the public finances face domestic obstacles that would likely require sustained efforts over a number of years to overcome.

S&P expects double-digit general government deficits as a percentage of GDP this year and next to raise Greece’s government debt burden sharply, to 126% of GDP in 2010 and around 138% of GDP in 2012. In S&P’s view, the increasing debt-service burden narrows the scope for debt stabilization, particularly against the background of what it expect will be a significantly weaker near-term economic growth environment.

The CreditWatch placement reflects S&P’s view that the ratings could be further lowered if the government is unable to gain sufficient political support to implement a credible medium-term fiscal consolidation program. [...]

[...] If political considerations and social pressures hamper progress in establishing a framework for containing the debt burden, we could lower the ratings further. On the other hand, if over the next three to four months Greece successfully implements a plan that includes deficit-reducing measures or other economic reforms that could lead to a sustained improvement in the debt trajectory, the ratings could be affirmed.

As the United States continues to spend money it does not have it requires that the federal debt ceiling to be raised once again. But raising the federal debt limits is something that never goes over well with the public. With elections in 2010 what does Congress do if they don’t want to raise the debt ceiling at a time when they will be running for re-election? They do it now and do it in a big way so they don’t have to do it during the elections.

Shhhhhh, come here (whispering) – they hope you will forget all about this when they ask for your votes next year.

In a bold but risky year-end strategy, Democrats are preparing to raise the federal debt ceiling by as much as $1.8 trillion before New Year’s rather than have to face the issue again prior to the 2010 elections.

“We’ve incurred this debt. We have to pay our bills,” House Majority Leader Steny Hoyer told POLITICO Wednesday. And the Maryland Democrat confirmed that the anticipated increase could be as high as $1.8 trillion — nearly twice what had been assumed in last spring’s budget resolution for the 2010 fiscal year.

The leadership is betting that it’s better for the party to take its lumps now rather than risk further votes over the coming year. But the enormity of the number could create its own dynamic, much as another debt ceiling fight in 1985 gave rise to the Gramm-Rudman deficit reduction act mandating across-the-board spending cuts nearly 25 years ago.[...]

[...]Last spring, the Democratic-backed budget proposed to raise this to about $13 trillion, but given the current pace of borrowing, no one now expects that will be sufficient to get through 2010.[...] Source: Politico

A debt ceiling of nearly $14 Trillion bucks. And what did President Obama say yesterday? “We will spend our way out of this recession”. Fiscal responsibility? Not in Washington anymore, and people wonder why it is that the risk of the United States losing the prized AAA sovereign rating is hanging over the nation.

This evening Fitch Ratings issued a statement that the AAA sovereign rating of the United Kingdom is the most at risk to lose that sovereign rating. Fitch also stated that Japan is being watch carefully and Fitch is concerned about Japan issuance of JGB which would prompt a rating review.

The United States rating will come under additional pressure if “US fiscal position does not stabilize”

RT note: You hear that Geithner and Bernanke? You just got a shot across the bow. Get the deficit under control or go down with the ship.

Breaking News…

Moody’s cuts Ireland’s sovereign rating by one notch to Aa1 from Aaa; Outlook Negative

Rationale behind the downgrade stems from three key drivers of our credit analysis regarding debt: affordability, finance-ability and reversibility — which for Ireland are weakened as compared to Aaa peers.

Negative outlook reflects the risk of a further gradual deterioration in terms both of debt affordability — the share of government revenues used for interest payments — and finance-ability — the cost at which Ireland can raise further debt.

Moreover, Ireland’’s ability to reverse the negative debt dynamics in a non-supportive global environment will be tested. Debt dynamics will remain unfavourable for several years, and, in Moody’’s opinion, downside risks outweigh upside risks in the near to medium term. The pronounced weakness in the economic activity has been translating into a severe deterioration of Ireland’’s public finances, and the country is set to emerge from the current economic crisis with a considerably higher debt burden for the foreseeable future (Source: Moody’s)