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US Credit Again Downgraded

Posted by Steve Markowitz on April 7, 2012

Yesterday, Egan Jones, a respected credit rating agency, downgraded US credit another notch from AA+ to AA.  Last July, the same firm downgraded US credit from AAA to AA+, just before Standard & Poor’s followed suit.

While the mainstream media is yet to give much press to this downgrade, it is significant.  In making the downgrade, Egan Jones said: “Without some structural changes soon, restoring credit quality will become increasingly difficult.”  Egan Jones referred to the United States debt to GDP ratio that now is approximately 100% and predicted to grow to over 112% by 2014.  The concern is that without changing the trajectory of the debt, the bond markets will get spooked significantly increasing America’s cost of borrowing, creating a negative feedback spiral as is currently occurring in some European countries.

Some of the Left will point to the current low yields on Treasuries as an indicator that America does not have a debt problem.  The theory goes that since there are buyers for US Treasuries at such low rates, that there must not be a problem.  That might have some validity if it wasn’t for the fact that over 60% of the Treasuries are currently being purchased by the Federal Reserve.  That certainly sounds like alchemy, if not a Ponzi scheme.

It wasn’t too long ago that countries like Greece and Portugal were able to sell sovereign bonds at very low interest rates..  However, when the markets decided that their debt was excessive, the yields skyrocketed almost overnight.  The United States is not immune from this possibility.

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2 Responses to “US Credit Again Downgraded”

  1. Dennis Ensminger said

    We taxpaying Americans are so immune to the smoke and mirrors, we hardly realize we’re being held at gunpoint by our elected officials. Half of Capital Hill should be given orange jump suits, mud flaps, and hard custodial time with an over amorous cell mate named Bubba…I’m actually starting to experience pity for Bernie Madoff…

  2. John Nelson said

    I do not know Dennis Ensminger, but he most certainly has “hit the nail on the head of the problem”! TOTAL STUPIDITY and a could not care less about you (the people) because we here in DC won’t (they hope) be effected!!

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