Moody’s sounded an alarm with another warning on the US Debt situation. Before we could organize our thoughts and let you know our opinion, S&P (pdf report) also jumped on board, noting a 50% chance of a US Debt rating decrease.
Warning Shot
As we had first mentioned in our Taps Post in Mid April, the credit agencies (S&P, Moody’s and Fitch) after receiving a black eye on miss rating the terrible packaged Mortgage products over the last recessionary cycle, are being bold and more conservative in their comments. We think caution is good, as investing is risky and pointing out possible quicksand is much better than refraining.
We think it is very likely the debt ceiling will be raised and some type of agreement will occur.
The stakes are just too high in our opinion to allow this debt issue to become insurmountable. The agreement may come in the final hour, on the final day, we hope not, but with the various political agendas at issue, it is possible. Our wish is for a longer term positively trending agreement, which unfortunately does not seem likely at this time, but we will take what we can get.
Is it possible the US will receive a downgrade!
At this point it appears a downgrade is in the cards and may occur just to save face of the rating agencies even if the debt ceiling is raised, which is the root cause of the credit rating agencies issues.
What are the effects of a downgrade?
Our belief is not much today. Interest rates may gyrate a bit, and there would be much ammunition for the talking heads and most importantly our international trading partners. Longer term we believe a downgrade may be a good thing, serving as a wake up call. Only time will tell.
Have a Good Day!
JK
Moody’s Credit Agency Jumps on Board and Downgrades 10 Banks along with “Keep an Eye Out” for More ….
Just Friday we mentioned Fitch Credit Agency Played Eye Spy and downgraded the USA credit worthiness by a very small amount from AAA to AA+…. the Eye Spy was due in part to the very large government spending acceleration number that showed up in the overzealous GDP print ….
Not to be outdone, a fellow credit agency, Moody’s chimed in as well
Moody’s Downgrades 10 Banks – Keep an eye on Others
As reported here by Reuters, Moody’s jumped into the pool and downgraded a slew of banks as well as put many on watch….
As mentioned in our post on the Fitch Downgrade, the US interest rates moved up after the ratings increase…. it would be expected all banks involved to see their standards tighten as well as their borrowing costs rise as well….
Why is this important you may ask?
This second rating decrease, by Moody’s will in effect help the FOMC in their pursuit of slowing the economy. Banks will broadly tighten lending standards!!
Have a Great “Moody’s Jumps into the Pool Downgrade” Day!
John A. Kvale CFA, CFP
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Posted in Debt - Debt Management, Economy, Education, Investing/Financial Planning, Market Comments
Tagged Debt Downgrade, Fitch, Moody's, Rating Downgrades