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Thread: Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few Weeks

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    Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few Weeks

    well.... that would be.... bad....


    Monster Prediction From BofA: Another US Debt Downgrade Is Coming In Just A Few Weeks

    ...We expect a moderate slowdown in the beginning of next year, as two small policy shocks—another debt downgrade and fiscal tightening—hit the economy. The “not-so-super” Deficit Commission is very unlikely to come up with a credible deficit-reduction plan. The committee is more divided than the overall Congress. Since the fall-back plan is sharp cuts in discretionary spending, the whole point of the Committee is to put taxes and entitlements on the table. However, all the Republican members have signed the Norquist “no taxes” pledge and with taxes off the table it is hard to imagine the liberal Democrats on the Committee agreeing to significant entitlement cuts. The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes...
    worth noting - it's not BofA the company saying this officially - it's their analyst. Still - possibility? Discuss .

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    Re: Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few W

    It's possible. Maybe it'll cause people to sell off their investments in U.S. companies and run to the security of U.S. government investments again.

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    Re: Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few W

    If US government investments were so secure, why are they about to be downgraded again?

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    Re: Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few W

    Quote Originally Posted by Reg View Post
    If US government investments were so secure, why are they about to be downgraded again?
    Exactly...

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    Re: Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few W

    Quote Originally Posted by Reg View Post
    If US government investments were so secure, why are they about to be downgraded again?
    Surprisingly, that's actually a good question in a round about way--as in what does it really mean for the US to be downgraded in an environment where our bonds are still the go-to safe have for so many.
    It may just be a statement about the state of the global economy.
    I may be wrong.

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    Re: Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few W

    US government investments are not investments in the US economy, but an investment in the US government. If I buy a bond, I'm not buying into this crap economy, I'm buying into the idea that at no point do I think the US government is going to crumble and as a result default on those bonds. In other words, investment in bonds has staying power...it's long term.

    Here's a question...who are the biggest buyers of US government bonds? Answer...China, Brazil, and oil producing countries in the mid east. And, for all the marbles, what doe these countries, more or less, have in common?
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    Re: Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few W

    I suspect the debt markets will react exactly the same way they reacted to the first downgrade: by totally ignoring it. Why are credit agencies even in the business of evaluating sovereign debt for large economies like the United States? For one thing they have a horrendous track record, and for another thing they aren't even necessary. Treasury bonds trade on the largest open market in the world, and the risk of the debt is already priced into the bonds. The credit agencies - if they must exist at all - should stick to pricing corporate bonds for Acme Underwater Basketweavers and other entities with relatively low volume.
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    Re: Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few W

    I think if some downgrade occurs it will be one of the other agencies following S&P's lead, which probably means both remaining agencies will end up taking away our AAA rating. That would actually be more impactful since typically one agency's decision is not enough to prompt any action.
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    Re: Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few W

    Maybe this will help Congress get off their asses and raise taxes, close loopholes, cut spending, and balance the budget.

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    Re: Monster Prediction from BofA: Another US Debt Downgrade Is Coming In Just A Few W

    Quote Originally Posted by cpwill View Post
    well.... that would be.... bad
    Questionable.

    The chances that the Super Committee would actually produce a viable plan was low to nonexistent in the first place. Especially after the candidates were named to the Committee that essentially ensured that it would fail. So the failure to produce a decent bill in the first place upon which the first downgrade was issued seems to have already included this likely failure. However, in absence of a plan coming out of the Super Committee, the automatic cuts are scheduled to occur anyways, therefore rendering at least some fiscal austerity. The ratings agencies have likely already accounted for the impact of the automatic cuts.

    If anything, the markets have already priced in the inevitable failure of the super committee and automatic cuts so any downgrade is just going to be nominal at best as the market has already accounted for the certainties.
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