Conservatives have been railing against Bernake’s proposed stimulus plan since he announced it with those exact accusation, so I don’t find that all surprising that the U.S. would suffer a credit downgrade because of it. Now even though it’s not one of the “Big Three” it’s still a big deal. Unfortunately, I fear this will likely have a minimal effect going forward, as far too many people are simply uninformed voters and don’t pay attention to stuff like this.
My second thought is that the credit downgrade of the U.S. had nothing to do with how much they borrowed or Q.E. It had everything to do with Washington’s inability to come up with a long term plan to manage their debt, and the blame mostly went to Republicans.
My last thought is that inflation is good for borrowers. The dollar being cheaper means it is easier for the U.S. to pay back its obligations. There’s no reason to think Q.E. would cause the US to default on its debt.
"The SEC warned Egan-Jones in October 2011 of a possible enforcement action.[6] On April 24, 2012, the SEC charged Sean Egan with numerous offenses including: making false and misleading statements in the firm’s application to become a Nationally Recognized Rating Agency, violations of conflicts-of-interest and record keeping, and falsely stating that he was unaware if his paid clients were long or short specific securities that Egan-Jones rated. The Securities and Exchange Commission issued charges against the company, and its founder, Sean Egan, for “material misrepresentations and omissions in the company’s July 2008 application to register as a Nationally Recognized Statistical Rating Organization (NRSRO) for issuers of asset-backed securities (ABS) and government securities” as well as “material misrepresentations in other submissions furnished to the SEC and violations of record-keeping and conflict-of-interest provisions governing NRSROs.”
The Fed can’t just create money, or print it, as people figuratively refer to it. In order to impact the money supply it has to get that money into the economy somehow.
The primary way it does this is through open market operations, where it purchases government bonds or sells them to create or destroy money.
But this is normal activity the Fed conducts to raise or lower the federal funds rate or increase or decease the money supply.
Quantitative easing is done in a situation like our current one where short term interest rates are already effectively 0. The Fed can’t stimulate the economy by lowering short term rates if they are already 0, so it buys longer term bonds to reduce those rates and calls it quantitative easing.
One of the firms the Securities and Exchange Commission recognizes as a rating organization. In other words, not a nobody, though not as big as the “Big Three”.
I’m not all that sure what this has to do with my post, to be quite honest.
This is false and has been rehashed time and time again. It’s as if people only see what they want to see, read what they want to read and hear what they want to hear. So, again, one more time (the actual quote):
Again, a combination of no new revenues and the refusal to rein in entitlement costs. But who cares about facts? Not liberals, of course. It’s all the Republicans fault, or how that narrative goes.
Well, it’s been said that liberals don’t understand economics…
A weaker dollar is great for exporters, banks and the stock market (the past few days is a good example of the latter), but bad for everyone else as it causes the price of commodities to rise. Furthermore, a weaker dollar doesn’t mean it’s easier for the U.S. to pay back it’s obligations, since a decrease in credit rating means that the U.S. will have to pay higher interest rates on its debt.
Edit: Oh, I see. By QE you mean qualitative easement (sheesh, you should have just typed it out). You simply can’t pump $40B dollar into the economy on an indefinite basis until the economy recovers. Something has to absorb that. Inflation during a down economic period is probably not the best course of action.
Looking at Wikipedia, Moody’s, S&P, and Fitch combined have about 95% of the credit rating market. Egan-Jones and five other firms split the remaining 5%. I guess there’s room for one to be a hard money crank.
The FED uses open market operations control the money supply.
To inject money into the economy, The Federal Reserve Board’s Federal Open Markets Committee (FOMC) buys treasury securities- mostly T-bills- in the open market. So, former owners of treasuries now have cash that they eventually deposit in banks that do what they do.
To take money out of the economy, the Fed does the opposite. It sells treasuries in the open market. This absorbs cash from the economy by replacing the cash with governement securities.
I forget, which party offered a deal that included new revenues and entitlement cuts, and which party refused to consider any deal that included new revenues?
The Dems have gone more than half-way. The Republicans aren’t willing to consider a tax increase when we have historically very low taxes.
Only someone with no understanding of the issue or an utter partisan can see the Dem’s proposal of twice as many cuts as increases as the Dems being obstructionist.
When S&P threatened to downgrade (and later did downgrade) US Treasury debt, everyone was crying that the sky was going to fall and interest rates on treasuries were going to skyrocket, etc. But history showed us that interest rates actually went down.
Now, when Acme Anvil Company issues bonds, people who might consider buying them say “Who the [heck] is Acme Anvil and how safe are their bonds?” They turn to the ratings agencies who have compiled reports with a lot of not-readily-available information in them and study them together with the agencies’ ratings evaluation.
But when the US Treasury issues a bond, is there a money manager anywhere in the world who wonders “What the [heck] is this US Treasury thing and how credit-worthy are they?”
The ratings agencies have no inside information on the financial status of the US government and no unique insight that hasn’t been hashed over a million times before in the financial or popular press. Anything they put out has already been priced into the market long before they issue their report and no one is going to study their report to make a decision on whether to purchase a Treasury security.
Egan-Jones is going to get a little publicity for their relatively unknown company and the markets will grind on like they did before.
IMO, OMG is right (though for the wrong reason). Q.E. (and I’m surprised a Doper posting on financial news is unfamiliar with the abbreviation) is a poor substitute for fiscal stimulus, but job-creating stimulus is not possible today due to the GOP’s “Make sure Obama fails” strategy.
Q.E. can be viewed as replacing long-term government debt with a form of fiat money. That long-term interest rates have not risen can be viewed as something of a mystery, but is due in part to simple supply-demand associated with Q.E. itself: Q.E. buying represents huge “demand” for long bonds. I suspect there is some smart money betting long-term interest rates will rise; can Dopers who follow financial markets comment on that?
I think rating agencies consider risk of inflation as well as default when rating sovereign bonds.
Historically, the number of misstatements on the planet has never been higher than it is today.
