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S&P downgrade is a joke

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August 06, 2011 – Comments (4) | RELATED TICKERS: C , RAP.DL

This is an agency that gave subprime mortgage crap triple A status.  What now, because they downgrade people will no longer buy US bonds?  US bonds are in no jeopardy of defaulting for one simple reason, it is called the printing press. Personally I think it remarkable that anyone even cares what these rating agencies think. 

4 Comments – Post Your Own

#1) On August 06, 2011 at 4:22 AM, miscaxg (< 20) wrote:

People will care NOT because of the "funny" downgrade by  "honorable" agency, but precisely because of that printing press.  S&P action is simply a catalyst and small stone that may start an avalanche.

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#2) On August 06, 2011 at 9:50 AM, davejh23 (< 20) wrote:

I would never buy US bonds for one simple reason, it's called the printing press.  Intentional dollar devaluation is the same as default.  I'd consider TIPS if the gov't reported inflation accurately, but they don't. 

People like to point out that US debt to GDP is nowhere near as bad as Japan, etc..., but including unfunded liabilities, US debt/GDP is near 1,000%...and we still have an investment grade rating?

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#3) On August 06, 2011 at 12:11 PM, dwot (45.04) wrote:

I think it is bigger then just buying US bonds.  I have been taking a closer look at the market and it keeps leading me back to my concerns about US debt and the relative strength of the US dollar and what happens because of that debt.  For anyone outside the US investing in a US company has the regular broker costs, but it also has currency conversion costs, and currency risk costs.  I think this just increases those concerns for potential buyers that are not American.  In the past foreign investors had confidence in the US dollar and that policy protected the US dollar.  I am not so sure of that anymore.

I think how currency devalues is different for the people of that currency then for foreigners.  Goods and services produced in your own country have a huge buffer for price increases, but imports and vacations become very expensive, so, life goes on but with different purchasing choices because of how costs change relative to each other.  Foreigners don't have that choice, their buying power is slaughtered. 

When Canada was struggling with its national debt problem it cost as much as $1.62 Canadian to buy $1 US.   At the beginning of the recognition of the Canadian debt problem it was about $1.25 to buy a US dollar.  When Canada started to deal with its debt problem the relative debt was not as high as the current US debt.

It simply leaves me thinking the currency is going to weaken further over the next 5-10 years and of course to what degree will depend on policy. 

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#4) On August 06, 2011 at 4:26 PM, awallejr (75.49) wrote:

Well except that is where the money still is going, into T Bills, even in the face of the whole debt ceiling debate.  I know some are concerned with it turning into another bubble, and the yields are pretty anemic, but people really aren't worried that they won't get paid.  Plus with the boomers hitting retirement it is a natural thing to shift out of certain asset classes and move them into a higher percentage of bonds. Binve has a tremendous thread on the whole debt/spending issue.

As for the weakening of the currency, I am for a weak US dollar but not a crashing US dollar.  It is the only way to get our goods exported unfortunately.  The US simply can't compete with China and the other low wage countries for basic manufacturing.  We can with precision goods and technology, but we may eventually lose there with China's trying to reverse engineer everything.

The US is struggling to juggle several concerns, while Europe has its own set of issues.  It really goes back to the fiscal and monetary policies dating from 1999 with the repeal of much of Glass-Steagall.  We haven't gotten passed the mess that caused. 

This downgrade might impact certain institutions whose investment bylaws mandate them to only invest in AAA paper, which ironcially thanks to these same rating agencies cost them probably billions if not more.  So now these agencies want to stick to them  again?  The US bonds are getting paid.  As for the dollar that is another concern.

Thanks for the replies.

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