Ready For The Downgrade?

Well here it comes, although they didn’t say that up front…. or did they?

New York, August 02, 2011 — Moody’s Investors Service has confirmed the Aaa government bond rating of the United States following the raising of the statutory debt limit on August 2. The rating outlook is now negative.

OK, so you affirmed the rating.  But that we already knew.  The problem is here:

In assigning a negative outlook to the rating, Moody’s indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year;

What Congress did is not enough and the coming year is important, which means that waiting until after the election to make the difficult choices will not work.

(2) further fiscal consolidation measures are not adopted in 2013;

You know those promises Congress?  You better keep them (and we know you won’t.)

(3) the economic outlook deteriorates significantly;

We’re screwed. This is a foregone conclusion.  I wish it wasn’t, but it is.

or (4) there is an appreciable rise in the US government’s funding costs over and above what is currently expected.

We’ll probably get away with this, if for no other reason than The Fed will get involved (again.)

That’s 3 for 4 – the wrong way.

Buckle up.

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