i’ve been eyeing churchill for years.
there is mumbling of the canadian dollar taking over for the us dollar.
Well, the US has had a good run. I guess ideals like freedom and liberty will get sold to help pay off the debt, but for now, I’ll buy us a round to remember the good old days to.
The US has been selling those cheap, for decades now. They don’t pay for much anymore.
Well, cheers anyway. Up yours.
Yes, let’s escape a government debt crisis by moving to… Spain??
I’m kinda curious how that would work, assuming the series of highly unlikely events that bring it about. Would countries throughout the Americas and elsewhere peg their currencies to the Canadian dollar before other, more likely candidates like the Euro, British Pound or Swiss Franc?
Coremelt is wrong, the volume of US debt is something like double that of ALL OTHERS combined. A long list of AAA issuers doesn’t tell you much, volumes tell you something.
As for what happens, God alone knows, but everything I read says we will enter a global financial crisis worthy of the 1930s.
Great work, USA, great work. Blowing yourself up for no bloody good reason. Brilliant.
And human, the Spanish have a debt crisis and 20%+ unemployment.
BTW, this columnists, formerly of the Economist, provides a reasonably cogent summary of what may happen, including an analysis of the Agencies - so far only 1 of 3 are ready to pull the trigger on downgrade. Her hostility to national health care aside, very American, it seems a reasonable and clear headed summary.
Oddly, there’s one ‘Agency’ ,or rather player, I don’t see mentioned.
Who is the biggest owner of US debt again?
Foreign central banks, but they are a player, not a rating agency. What they do is anyone’s guess.
You could invest in those countries’ bonds but, before you do that, who will buy US bonds you already own so that you can redirect cash?
In case US gets downgraded to below Investment Grade, the first thing that would happen is the market will halt in about a week.
If you thought credit crunch was bad, think what would happen if most liquid asset in last 50 years becomes not so liquid.
Wall Street knows it is all kabuki theater, the only ones who don’t are the Tea Partiers, and they could be the ones who end up putting an end to the economic party in America. I blame Fox News and right wing radio, to be honest … they have created a cozy, insular little news environment where the dupes can hear just what they want to hear, which is why they elected the Tea Party crazies. They’ll be hurt financially like everyone else if the economy goes “kablooey!” but you can be sure that in their little world, it will all be Obama’s fault.
Normal reaction to impending economic down-trend is to sell stocks and junk bonds, and buy AAA bonds, especially T-bills. With this seeming illogical here, the money stays put. Microsoft, Exxon and JNJ corporate bonds were also AAA-rated last I looked, but I doubt many investors seriously view them as safer than Treasuries.
Some estimate U.S. will pay 0.6% more on its debt when downgraded to AA, or, in round figures, $100 billion extra per year in interest. This is money that could have been put to work better, but that hardly bothers the more fanatical Republicans. Any wasteful spending helps Starve the Beast and, anyway, the $100 billion doesn’t disappear, but finds its way to T-bill owners. Higher interest rates overall will be bad for employment, but not bad at all for cash-rich investors.
Well, the Chinese are aready getting $273 billion a year in trade. Call the extra $100 billion a sales tax.
That all seems to make sense.
Interestingly, junk bonds haven’t been hit much at all. Another thing that tells me the market isn’t all that concerned is the CBOE Volatility Index (VIX) isn’t trading at crazy levels. There is less volatility being priced into stock options now than there was during the Japanese nuclear scare. During the peak of the 2008 panic the VIX was almost 400% higher than it is currently.
Yep, see here:
“In October “The Independent” reported that China, Russia, Brazil, Japan, and a number of Gulf States were planning to stop settling oil transactions in US dollar by 2018. The dollar should be replaced by a basket of currencies including the Chinese yuan, the Japanese yen, the Russian rouble, the euro, gold, and other commodities. The political implications of such a decision would be enormous.”
I’m guessing a collapse in the dollar value caused by a debt default or an investment rating downgrade would accelerate those plans a little.
Also of note in that article:
“The Chinese rating agency Dagong Global Credit has recently downgraded the rating of the United States to AA.”
Well, it would just be too dangerous and boring to move into any nearby woods, and establish a survivalist camp. I don’t have the supplies, and I don’t have the time nor money to acquire them. Be wary when it starts to get all Mad Max over here. Crazy-ass biker gangs looking for women, gasoline, and anything else their plundering hearts desire.
BZZZZZZZ WRONG!
The biggest owner of U.S. debt is…Americans. By far. In fact, if you take ALL foreign debt from all countries and combine it together, Americans, by themselves, still own more than TWICE that amount.
Misleading. From Wikipedia:
In other words, to a rather good approximation, ⅓ of the debt is owed to foreigners, ⅓ of the debt is owed to other U.S. government accounts (e.g. SocSec Trust Fund) and ⅓ of the debt is owed to domestic investors.
Rating agencies are in a pickle. The entire rating system is based upon there has to be a AAA sovereign rating with a debt market big enough that goes out far enough (US treasuries are the biggest market globally with maturities of up to 100 years). If the US downgrades to triple A- or even AA, then all US corporate bonds that are now AAA will downgrade by the same amount. Then you have to ask if other countries should be AAA if the US isn’t?
IMHO the rating agencies will put the US on some kind of “super” credit watch no matter what happens next week.
Misleading? The assertion was that China was the biggest owner of U.S. debt, and that’s not even close to being true.
By your own numbers, ALL foreigners combined (not just China) own 32% of the total U.S. debt, with the other 68% being owned by Americans.
In what way is what I said misleading, particularly when compared to saying that China is the biggest owner of U.S. debt? “Misleading” is an understatement for the assertion I was countering.