Thursday, July 28, 2011

I'm afraid its a downgrade

There's no more wishes in the well
No more dreams to sell
No time in the hourglass
There's no more lies for you to tell
Your heaven is your hell
Your future dying in the past
-Evergreen by Echo & The Bunnymen

I borrowed the format from Mind & Market since I felt the lyrics were a perfect fit for our current economic situation.

Recently, the top three nationally recognized credit rating agencies have been threatening to lower the United States' credit rating if there is even a temporary delay in interest payments due to the debt ceiling not being raised on time. But there are actually ten of these credit rating agencies recognized by the securities and exchange commission. On July 16, one of these agencies, Egan-Jones, actually downgraded the U.S. from a AAA to a AA+ rating.

Here is an interview on CNBC where they announced the downgrade

It is not surprising that Egan-Jones would be the first NRSRO to make a move. Unlike most of the other nationally recognized rating agencies which are paid by issuers (the companies they are supposed to rate) they are paid by investors (those that need unbiased information). As a result, they were able to foresee problems with Enron and companies involved in the credit crisis that the other major rating agencies missed. Its important to note that Egan-Jones decided to downgrade the U.S. because of structural problems and the country's rising debt-to-GDP rather than a delay in raising the debt ceiling.

Higher interest rates here we come.

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