Junk Status?

Gee, with all the “Yay, America” celebrations going in the ME (oh, wait) and Olympians getting WH tours (was that a pair of dice that just fell out of Obama’s pocket?) hardly anyone noticed that yet again, America’s credit rating got downgraded, who said this president is not historic?

Fearing the negative repercussions of the Federal Reserve’s latest easy-money program, ratings firm Egan-Jones once again slashed the U.S.’s credit rating on Friday.
The latest downgrade brings the firm’s rating on the world’s largest economy down to “AA-,” which is three notches below the coveted “AAA” threshold.
Egan-Jones said it believes the Fed’s third round of quantitative easing, which sent stock prices surging on Thursday, “will hurt the U.S. economy and, by extension, credit quality.”
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The Egan-Jones downgrade comes just days after Moody’s (MCO: 43.82, +0.07, +0.16%) warned it too would downgrade the U.S. if Congress failed to reach a compromise to avoid the so-called fiscal cliff.

Zimbabwe, here we come.

What is that old insanity definition? Now we have QE3. Was anything learned from QE1 and QE2? Temporary fixes are only temporary and really do more harm then good because the core problems are never ever addressed.

Milton Friedman pegged it when he said that the time lags in monetary policy are long, both prior easings took about 4 quarters to kick in. But the familiar patterns also kick in, inflation, which drives the fed slow the growth of money supply, and we are back to where we started.

These credit downgrades are a warning, the fiscal cliff is fast approaching, if we don’t quit tinkering around the edges and pass some real lasting fiscal reform (reform btw that we have talked about ad nauseum right here) then our currency, our ability to borrow, and our economy will be relegated to third world status.

If there is any good news in all this, it is a great time to buy a house.

Comments are closed.

  1. Hal_10000

    The arguments on QE are dizzying. I’m really at the point of just hoping that someone knows what they’re doing. The Fed has committed to keeping inflation in check but … well, as you note, there’s a reason we keep the inflation monster locked in a cage. You let him out a little bit and the next thing you know, all your livestock is gone.

    Even more fun: Moody’s is threatening a downgrade over the fiscal cliff.

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  2. Seattle Outcast

    The arguments on QE are dizzying. I’m really at the point of just hoping that someone knows what they’re doing.

    As long as they keep doing this and thinking it will do anything helpful, then the answer is “no fucking clue at all”

    Bernanke is either a deluded fool to actually believe in this sort of Keynesian BS, or an active participant in Obama’s “fundamental restructuring of America” into a socialist shithole.

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  3. Poosh

    Inflation is a cure, if you have been distorting the market. But inflation caused by “printing money” is actually just distorting the market more.

    BUY GOLD.

    Putin is doing it. And he’s not an idiot. Unlike all our leaders, it seems.

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