FedUpUSA

Archive for August 5th, 2011

For the first time in our country’s history, our debt is rated less than risk-free.   There are now 17 countries that have a BETTER credit rating than the United States of America.

United States of America Long-Term Rating Lowered To ‘AA+’ On Political Risks And Rising Debt Burden; Outlook Negative

We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.

We have also removed both the short- and long-term ratings from CreditWatch negative.

The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.

More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.

The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Stopping just shy of calling Congress and this Administration a buch of weak-kneed, whinging babies, they state their rationale:

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Are you listening Washington?!!  You guys have screwed around, argued, bickered and played partisan politics while the proverbial Rome has been BURNING!  You were warned by the ratings agencies and by your own constituents…..repeatedly.  Yet what you came up with was nothing but a bunch of smoke and mirrors.  Did you REALLY think anyone would fall for the sham that you called the ‘great compromise that would save us’?!!   YOUR ‘DEAL’ CUT NOTHING FROM THE MASSIVE DEBT OVERHANG!

If you weren’t listening then Congress and Obama, listen NOW:  as we stated here repeatedly YOU HAVE DONE NOTHING BUT LIE TO THE AMERICAN PEOPLE so that you could line your own pockets, increase your own power and dole out money to your preferred supporters.  YOU OWN THIS.  YOU have refused from the beginning to prosecute those who have committed the financial fraud that has pillaged the entire globe.  Instead you took money from hardworking people and bailed out those very criminal institutions!

Then you have the audacity to state you are willing to further raise our taxes and renig on promises made to the American people you can no longer afford to keep because you spent the money on your pet pork projects and your precious ‘favored industries’.  And then you LIE about cutting the spending!  Do you think Americans don’t understand our entire government has become a kleptocracy?!

What happens now?

Unfortunately, we will ALL pay for YOUR refusal to make the responsible, hard choices, instead continuing to funnel money to insolvent banking institutions, the very same ones that committed massive fraud with their weapons of financial mass destruction.  Time has run out now.  The market will force you to do what The People could not.

Here it comes…..

From twitter….

My understanding is that Larry later (on the air) said these were “rumors”, although there is no later tweet I can find on the subject (there’s only one in his timeline after this, and it has nothing to do with banks.)

Let’s make sure we understand what’s at stake here: If this is true then the ECB and Italy had better put a stop to it right now.  Like before Europe opens.  This means that if the “rumor” is false the banking authorities need to get on the air right now and refute it with hard facts, not platitudes and denials.

If there is a deposit run on Italian banks that is not immediately stemmed it will result in a severe and probably intractable liquidity crisis that will (1) shut down lending in Italy and (2) result in one or more of the involved banks blowing up as it goes under regulatory capital minimums – or worse, simply runs out of liquid funds period.

The Euro zone has no meaningful way to deal with this.  Forbidding transfers out will simply make the panic worse in that it will confirm that the bank(s) involved can’t cover withdrawals.  Doing nothing is unacceptable as well.  And if these institutions blow up, we’re going to get a replay of Creditanstalt and all of its knock-on effects, right here, right now.

I do not normally reprint rumors at all, as they tend to be very destructive, but this is a special case because the risks, if the rumor is correct, are exceedingly high.  I’m sure you thought the 500 point loss on the DOW today was horrifying, never mind the 60 handles on the S&P 500 that came off and the 105 (!) on the Nadaq 100.

Here’s a hint: Those are small numbers if a major bank in Italy blows up in an uncontained fashion.

I have no idea if this is real or not.  But we’ve seen, according to Bloomberg, $2 trillion come off stock market valuations in the last ten days.

Ham-handed “interventions” have made the situation worse instead of better.  We’re now sitting in an extreme oversold condition that unfortunately leave us with a binary outcome: Either a rip-your-face-off rally is imminent, or we’re looking at an all-on collapse.  One policy mistake at this juncture, or even failure to provide a (reasonable and believable) answer to these sorts of rumors could trigger the collapse option.

If you have open positions tonight please be extremely careful.  As this goes out Asia in the toilet with several indices down more than 4% and the rest anywhere from around 2-3% negative.  CNBC tried to call this all “reactionary” to the selloff in Europe and the US today, but I’m not sold on that explanation and you shouldn’t be either.

My personal confidence level in the leadership of all the nations involved, including the United States, is zero.  None of them have told the truth to their people since this crisis began in 2007.  Our Congress and President lied repeatedly over the debt issues, not just in the latest debate but going back to 2007 and before, all the way through Dick Cheney’s “deficits don’t matter” line.  Yes they do matter, although it is frequently true that the harm is not instantly apparent.

This much I do know – Europe’s problems are no longer confined to the periphery and the “PIIGS”; the CAC was down nearly 4% today and the DAX 3.5%, with the FTSE off 3.4%.  This is now a pan-European problem and whatever is going to be done, if anything, it had better be put in place now or the market will continue to sell down price until exhaustion is reached which could easily be 10, 20 or even 30% lower from here, and that decline could literally come “all at once.”

Note: This may have been responsible for the huge dump in the US market into the close.  The timing is approximately correct to have caused it.  That just makes the situation worse; if it was a malicious rumor passed around with the hope of it getting wide dissemination, well, it did.  On the other hand if it’s true…..