What a Deal! Markets Crash and US Downgraded to AA+
“I think Treasurys are perceived still as a safe haven because everybody knows the U.S. has an endless ability to print money. The interest will be paid,” he said. “The trouble is that governments can default in two ways. Either they just stop paying the interest and there is a debt restructuring, like Argentina went through; or they just pay the interest and the principle eventually, in a worthless currency. That’s the way the U.S. will likely do it.”
I’m taking the advice of a certain Toledo cop and investing “in precious metals – lead, gun powder and brass.”
When comparing the U.S. to sovereigns with ‘AAA’ long-term ratings that we view as relevant peers–Canada, France, Germany, and the U.K.–we also observe, based on our base case scenarios for each, that the trajectory of the U.S.’s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.
Worse than France or the UK. That’s just embarrassing.
Now the White House says we shouldn’t have been downgraded, but frankly, that is a load of bull.
This week America must wait nervously to find out whether the deal will be enough to save its credit rating. The rating agencies recently laid out two important vulnerabilities that might lead them to mark it down. Given the deal does little to address either, the agencies are likely to make good on their threat to downgrade.