Home Morning Commentary Morning Commentary – USA is a Credit Risk?

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I remember it like it was yesterday – the day that Standard & Poor’s downgraded the debt of the USA.  On August 6th, 2011, the Washington Post reported: “Lowering the nation’s rating to one notch below AAA, the credit rating company said ‘political brinkmanship’ in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.”

It was shocking.  It had NEVER happened before.  It was going to inject a LOT of volatility into the market, which every traded loves.

Fast forward to January 10th, 2018, and it may happen again as Bloomberg reported:  U.S. TAX CUTS SEEN AS CREDIT NEGATIVE FOR SOVEREIGN BY MOODY’S.  Discussing the new tax law, Moody’s said the following – “Any boost to economic growth from the new US tax law will be modest and depend on how businesses and individuals deploy tax savings; growth unlikely to offset negative impact on government deficits.” Additionally, the contribution of tax cuts to aggregate growth will be modest, around one-tenth of a percentage point of GDP.

This sure seems like bad news, right?  One of the pristine global ratings firms does not like the implications of the tax cut.  Hmmm, isn’t this one of the ratings firms that gladly went along with A+ ratings for CDOs, CLOs, CDO-squared..etc garbage equities that brought the world to its knees in 2008?  

Yes…yes it is.

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