Moody's May Cut US Aaa Rating on Tax Package

[Winehole23]

Moody's May Cut US Rating on Tax Package


Published: Monday, 13 Dec 2010 | 10:34 AM ET





Moody's warned Monday that it could move a step closer to cutting the U.S. Aaa rating if President Obama's tax and unemployment benefit package becomes law.



http://media.cnbc.com/j/CNBC/Sections/News_And_Analysis/__Story_Inserts/graphics/__COMPANY_IMAGES/M/moodys_logo.standard.jpgMoody's estimates the tax bill could cost up to $900 billion.

The plan agreed to by President Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years, the ratings agency said.
A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.



For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasuries, which currently rank as among the world's safest investments.



"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.



After Obama announced his plan, Treasury prices fell sharply in volatile trade last week and yields have hit a six-month high, in part due to concerns over the effect the package will have on government debt levels.
If the bill becomes law, it will "adversely affect the federal government budget deficit and debt level," Moody's said.



On Monday, the Democratic-led U.S. Congress moved toward grudging approval of President Obama's deal with Republicans to extend expiring tax cuts, even for the wealthiest Americans, Last week, Moody's and Fitch Ratings both expressed concerns about the U.S.'s rating longer term, with Moody's fearing the impact if the tax cuts become permanent.



In a market obsessed with the euro sovereign debt crisis, the Moody's note reminded foreign exchange investors about their worries of growing U.S. debt and was a factor pressuring the dollar on Monday.



The cost of insuring U.S. government debt in the credit default swap market was little changed on Monday at around 41 basis points, or $41,000 per year to insure $10 million in debt for five years, according to Markit Intraday.



Negative Impact

A negative outlook would indicate that the rating may be more likely to be cut from the top Aaa rating over the following 12 to 18 months. The United States currently has a stable outlook, indicating a rating change is not anticipated over this time frame.



Moody's estimates the cost of the funding the proposed tax bill, along with unemployment benefits and other policy measures, may be between $700 and $900 billion, which will raise the ratio of government debt to GDP to 72 to 73 percent, depending on the effects on nominal economic growth.
This means that the government's debt relative to revenues will decline much more slowly over the coming two years, to just under 400 percent from 420 percent at the end of fiscal year 2010.



"This is a very high ratio compared with both history and other highly rated sovereigns," Moody's said.
http://www.cnbc.com/id/40641123

[boutons_deux]

The ratings agencies HAVE NO CREDIBILITY because they were exposed as in the pocket of the securities/bonds issuers and of Wall St, and knowingly, fradulently rated good what was actually toxic shit.

[boutons_deux]

Postcrisis, a Struggle Over Mortgage Bond Ratings

Two weeks ago, Standard & Poor’s put out a news release warning that it was poised to lower its ratings on almost 1,200 complex mortgage securities.

So what? Isn’t that dog-bites-man at this point?

Well, two-thirds of these mortgage bonds were rated only last year, long after the financial crisis. And S.&P. was supposed to have taken the distress of the housing crash and credit crisis into account when it assessed them. But in December, the ratings agency acknowledged that it had made methodological mistakes, including not understanding who would get interest payments when.

As everyone knows by now, the credit ratings agencies played an enormous role in creating the conditions that led to the financial crisis. Their willingness to slap triple-A ratings on all manner of Wall Street-engineered mortgage rot was enormously lucrative for the raters, but a disaster for the global economy.
Unfortunately, as the episode in December shows, the credit ratings agencies are still struggling to get it right.

http://dealbook.nytimes.com/2011/01/05/after-financial-crisis-a-struggle-over-rating-mortgage-bonds/?partner=rss&emc=rss

[MannyIsGod]

The ratings agencies HAVE NO CREDIBILITY because they were exposed as in the pocket of the securities/bonds issuers and of Wall St, and knowingly, fradulently rated good what was actually toxic shit.

Yeah, how many of those securities that were filled with utter crap were AAA rated? Fuck Moody's, lower our rating.

[Winehole23]

So extending the Bush tax cuts and adding another $1T to the deficit are cool with the boutons?

[MannyIsGod]

I don't think that is his point. He's ranting about how worthless the rating agencies are, and he's right. Support for the tax package is neither here nor there.

[Winehole23]

The ratings agencies still matter whether you find them credible or not. The US losing its Aaa rating would have real consequences, even if Moody's is FOS.

[admiralsnackbar]

Kill the wars or drop the bill. Regardless of what Moody's says, we can't continually be daring foreign countries to drop the dollar as the de facto world currency.

[MannyIsGod]

Kill the wars or drop the bill. Regardless of what Moody's says, we can't continually be daring foreign countries to drop the dollar as the de facto world currency.

Why?

[MannyIsGod]

The ratings agencies still matter whether you find them credible or not. The US losing its Aaa rating would have real consequences, even if Moody's is FOS.

Such as?

[Winehole23]

US Treasuries less desirable, cost of obtaining/carrying debt goes up.

[Winehole23]

With the possible downstream wreckage alluded to by AS.

[ElNono]

US Treasuries less desirable, cost of obtaining/carrying debt goes up.

Might not be a bad thing, don't you think?

[Winehole23]

Would seem to be appropriate feedback.

[MannyIsGod]

Might not be a bad thing, don't you think?

:tu

Although I don't think its very likely to happen. Year after year after year this type of scare tactic is used.

[EVAY]

The ratings agencies still matter whether you find them credible or not. The US losing its Aaa rating would have real consequences, even if Moody's is FOS.

This.

[EVAY]

It is undeniably true that the Rating Agencies share a large portion of the blame for the financial crisis for failing to understand/adequately address the horrendous risks associated with so many of the financial products that were toxic. The fact that Standard and Poors and Moody's fees are paid by the folks whose products they rate has made them suspect for a very long time.

However, lots and lots of buy-side entities are forbidden by their charters to purchase any financial product that has a rating from the agencies of less than Aaa. Thus, the reality is that it could harm all of us enormously if they do this.

[EVAY]

Thing is, they probably won't do it for political reasons.

[boutons_deux]

"made them suspect"

the entire financial industry is corrupt, not "suspect", until proven otherwise.

Ayn Rand Paul: "There's no need for financial regulation".

[Winehole23]

Thing is, they probably won't do it for political reasons.This.

Like Manny said, the threat seems to be getting routine. I seem to recall very similar noises were made last year.

[Winehole23]

http://www.moodys.com/research/Moodys-Updates-on-Rating-Implications-of-US-Debt-Limit-Long?lang=en&cy=global&docid=PR_220066

[coyotes_geek]

Might not be a bad thing, don't you think?

If it happened then a good chunk of whatever spending cuts / tax increases congress does somehow manage to agree to will just get eaten up by debt service as opposed to going towards defecit reduction.

Getting downgraded might not be the end of the world, but it's definitely more bad than good.

[MannyIsGod]

I think you are right, CG.

[boutons_deux]

Raising the debt ceiling is not to increase the Repug LIE of "runaway" spending, but simply to print the cash to service the interest on debt, 40%+ of which is held by wealthy Americans.

[RandomGuy]

http://www.moodys.com/research/Moodys-Updates-on-Rating-Implications-of-US-Debt-Limit-Long?lang=en&cy=global&docid=PR_220066

Looks like someone at Moody's grew a pair of solid brass balls.

The Teatards looking to use every ounce of leverage that they think they have, has made them reach for the Red Button That Everyone Knows Is Too Horrible To Press.

Flirting with the apocolyptic threat of US debt downgrade to squeeze another .0001% out of government spending is unnecessary, and irresponsible.

Raise the limit and get it over with, then talk like adults.

[boutons_deux]

Obama And Boehner Pledge Neither Will Blink On Taxes In Debt Ceiling Talks

http://www.huffingtonpost.com/2011/06/03/john-boehner-president-ob_n_870905.html?view=print

[coyotes_geek]

Obama's track record in staring contests isn't very impressive.

[MannyIsGod]

Understatement of the year.

[boutons_deux]

Barry also promised a couple days ago Congressional Dems that dubya's tax cuts won't be extended again.

[coyotes_geek]

Moody's puts U.S. on notice (http://money.cnn.com/2011/07/13/news/economy/debt_ceiling_moodys/index.htm?iid=Lead)

[TDMVPDPOY]

you know whats wrong with moody and any credit rating consultant company is that the shit they release to the public is damaging to a company, in other words these clowns can just make up shit and put it on the market and speculate shit that doesnt describe the current activity. in other words the price of shares and shit, these guys can make it go or down with just a single word about a company, then what a company clearly shows it can still operate and meet its obligations, all these rating companys are speculating the foreseeable future base on 'what ifs' scenarios....

[coyotes_geek]

Not saying you're wrong, but in this specific instance the action certainly seems justified.

[TDMVPDPOY]

Not saying you're wrong, but in this specific instance the action certainly seems justified.

downgrading a companys rating cause they think they cant meet its obligations? so the market investors pull out and where is the funds for that company to continue to operate or used the funds in hand to meet its obligations or attract more investment?

speculating the company on 'going concern rule' when there are other scenarios the company can do which it hasnt decided yet that could keep it trading...


back to the tax package, how does moody know if the package wont work? when you speculate negative horseshit into the market and it spreads, wtf will give the package a try b4 coming to conclusions for the actual result, then something from moody basing it on budgeted results....

[Wild Cobra]

Not saying you're wrong, but in this specific instance the action certainly seems justified.
Not only that, I would say they are at fault on their mission. The rating should have been downgraded long ago, once there was any indication of possible default.

[boutons_deux]

Fuck Moody's and their threats. They're owned by Wall St.

[4>0rings]

Can we call them terrorists and bomb them?

[Winehole23]

Can we call them terrorists and bomb them?Hang tight. That day may not be very far away.

[coyotes_geek]

downgrading a companys rating cause they think they cant meet its obligations?

That's kind of the entire point behind ratings agencies.


so the market investors pull out and where is the funds for that company to continue to operate or used the funds in hand to meet its obligations or attract more investment?

They have to use higher interest rates to attract more investment. No different than how an average person with a bad credit score will have to pay a higher interest rate on a loan than someone with a good one.


speculating the company on 'going concern rule' when there are other scenarios the company can do which it hasnt decided yet that could keep it trading...

A company that has options as to how they can shore up their finances, but hasn't yet decided to do so is still an increased credit risk over a company who has decided to do so.


back to the tax package, how does moody know if the package wont work?

Right now, there is no package. Moody's is considering the downgrade based on an increased risk of a package not getting done.


when you speculate negative horseshit into the market and it spreads, wtf will give the package a try b4 coming to conclusions for the actual result, then something from moody basing it on budgeted results....

The ratings agencies tried the "give it a try before coming to conclusions" approach with mortgage backed securities. Didn't work out too well.

2008: "Why didn't you evil ratings agencies tell us there was risk here?"

2011: "How dare you evil ratings agencies suggest there's some risk here?"

[Agloco]

The ratings agencies HAVE NO CREDIBILITY because they were exposed as in the pocket of the securities/bonds issuers and of Wall St, and knowingly, fradulently rated good what was actually toxic shit.

This.

The same Moodys that blindly rated toxic securities derivitaves AAA until the golden parachutes gained enough altitude to be deployed.

[Agloco]

US Treasuries less desirable, cost of obtaining/carrying debt goes up.


Might not be a bad thing, don't you think?

Do you think that's going to stop or even slow down the US Govt from borrowing us into a deeper hole?

I don't see any consequences except for the middle-lower class laypeople who will eventualy foot the entire cost of this debacle in one form or another.

[boutons_deux]

US capitalists own about 40% of US debt.

Ain't no way they're gonna let their employees in Congress give them a haircut.

[Winehole23]

Do you think that's going to stop or even slow down the US Govt from borrowing us into a deeper hole? Doubt it.

I don't see any consequences except for the middle-lower class laypeople who will eventualy foot the entire cost of this debacle in one form or another.Doubtful the impact would be limited to middle/lower classes, but it would certainly suck.

[Winehole23]

butchered starsSwelling is a bitch, but yeah: don't tattoo the swelling!

[Winehole23]

Egan-Jones downgrades (http://www.bloomberg.com/news/2011-07-18/egan-jones-cuts-u-s-rating-to-aa-on-spending-cut-concern-1-.html) US rating.

[baseline bum]

Obama's track record in staring contests isn't very impressive.

:rollin

[DarkReign]

Am I the only one appalled by the fact that the largest economic powerhouse the world has ever seen is beholden not to its people, but banking institutions and their proxies?

Is it backwards day?

[Winehole23]

What's appalling isn't that wealth is self-serving/perpetuating, it's that it has captured our political process. Politicians side with special interests against the people.

[coyotes_geek]

Don't like the banks having so much say over your lives? Don't be in so much fucking debt.

The less debt you're in, the less of a shit you have to give about what the bank thinks.

Pretty simple really.

[ElNono]

Don't like the banks having so much say over your lives? Don't be in so much fucking debt.

The less debt you're in, the less of a shit you have to give about what the bank thinks.

Pretty simple really.

I don't owe much at all, yet I have to deal with TBTF banks. Either me or the generations ahead of me are going to have to deal with that $1T + interest bailout, and any other bailout that might be necessary in the future.

[coyotes_geek]

Meanwhile..... (http://finance.yahoo.com/news/SP-Moodys-execs-to-testify-rb-2217060976.html?x=0&sec=topStories&pos=7&asset=&ccode=)


Executives from rating agencies Standard & Poor's and Moody's Investors Service are scheduled to testify on Wednesday on attempts to reform the credit rating industry and the role it is playing in the U.S. debt ceiling debate.

[coyotes_geek]

Also... (http://finance.yahoo.com/news/US-likely-to-lose-top-rating-rb-1301824620.html?x=0&sec=topStories&pos=1&asset=&ccode=)


A small majority of economists -- 30 out of 53 -- surveyed over the past two days said the United States will lose its AAA credit rating from one of the three big ratings agencies -- Standard & Poor's, Moody's or Fitch.

[Winehole23]

http://www.ft.com/intl/cms/s/0/17dcd728-fc18-11e1-af33-00144feabdc0.html#axzz2661Iarbz

[leemajors]

http://www.ft.com/intl/cms/s/0/17dcd728-fc18-11e1-af33-00144feabdc0.html#axzz2661Iarbz

I think it's walled.

[coyotes_geek]

I think it's walled.

I had the same problem.

Saw a blurb somewhere about Moody's bringing up US downgrade again so I'm guessing it's about that.

[Winehole23]

sorry so tardy with a working link (http://www.bloomberg.com/news/2012-09-11/u-s-rating-may-be-cut-by-moody-s-if-debt-to-gdp-not-reduced-1-.html). hopefully that one works.

[boutons_deux]

We know the ratings agencies are essentially owned and operated by Wall St.

Wall St. wants to intimidate Dems into giving in to the Repugs (eg, NOT raise taxes above $250K, etc, etc) AND wants the business community scared into holding back the economy (not good for incumbent in election) in fear of the bogus "cliff".

And here's Boner scare-mongering the bogus "cliff" for the same reasons.

Boehner 'not confident' budget deal can be reached

As Moody's Investors Service threatened to downgrade the United States' top debt rating, House Speaker John A. Boehner said Tuesday he doubted Congress could reach a bipartisan budget deal to avoid that potentially dangerous outcome.

"I'm not confident at all," Boehner told reporters.

Boehner's office later clarified that the speaker had not yet learned of the Moody's outlook before commenting, and he released a statement saying the new report "underscores the point we have been making all year: the threat to American jobs comes not from action on our debt, but from inaction on our debt."

The sober assessment from the Republican leader brought swift rebuke from Democrats.

“With our nation inching closer to the 'fiscal cliff,' Speaker Boehner’s lack of determination to reach an agreement is due to his party’s intransigence and partisan obstructionism," said Rep. Nancy Pelosi of San Francisco, the minority leader.


http://mobile.chicagotribune.com/p.p?m=b&a=rp&id=2700134&postId=2700134&postUserId=54&sessionToken=&catId=7570&curAbsIndex=2&resultsUrl=DID%3D6%26DFCL%3D1000%26DSB%3Drank%2523 desc%26DBFQ%3DuserId%253A54%26DFC%3Dcat1%252Ccat2% 252Ccat3%26DL.w%3D%26DL.d%3D10%26DQ%3DsectionId%25 3A7570%26DPS%3D0%26DPL%3D3

Repugs: All Politics, All The Time (no matter the collateral damage)

[boutons_deux]

Moody's in a Mood

he rating agencies are at it again. Moody's Investors Services says it's likely to downgrade U.S. government bonds if Congress and the White House don't reach a budget deal before we go over the so-called "fiscal cliff" on January 2, when $1.2 trillion in spending cuts and tax increases automatically go into effect.

Apparently the credit rating agencies can't decide which is more dangerous to the U.S. economy - cutting the U.S. budget deficit too quickly, or not having a plan to cut it at all.

Last year's worry was the latter. In the midst of partisan wrangling over raising the nation's debt limit, Standard & Poor's downgraded U.S. debt - warning that Republicans and Democrats didn't have a credible plan to tame the deficit.

Now Moody's is worried about the opposite: The spending cuts and tax increases in the Budget Control Act that will automatically kick in at the start of 2013 - unless Congress decides on a better and presumably more gradual approach - are so draconian they'll push the economy into a recession.

The ratings agency schizophrenia is understandable. Everyone in Washington - and just about everywhere else - knows the budget deficit has to be dealt with. But anyone with half a brain (including Washington) also knows that when unemployment is high and economic growth still painfully slow, cutting the deficit too much now would make a bad situation even worse.

Remember, the real problem isn't the deficit per se. It's the deficit in proportion to the size of the economy. Cutting too much too soon will tip the economy into recession because it would reduce overall demand for goods and services when private demand falls way short of what's needed. And if the economy goes into recession and begins to shrink, the ratio of deficit to the economy gets worse. That's the austerity trap Europe has fallen into.

Even if the deficit continues to grow in proportion to the economy, we're safe as long as those who lend money to the U.S. aren't worried about being repaid and therefore don't demand high interest rates in return for their loans.

By this measure, the American economy appears safer than ever. Despite all the harrumphing from the credit-rating agencies, the United States has never been able to borrow money more cheaply than it can right now. That's because no matter how bad the deficit situation looks here, it's worse in places like Spain and Italy. And no matter how deadlocked Congress becomes, the U.S. is still the most stable and reliable system in which to put your savings.

The fiscal cliff is a real worry. And it's a worry precisely because the budget deficit isn't - at least not now. When unemployment is high and growth is anemic, we need as much fiscal stimulus as we can manage.

As long as the rest of the world is willing to lend us their savings so cheaply, we'd be wise to use it to rebuild our crumbling infrastructure and our schools and parks - and thereby put more Americans back to work - rather try to cut the deficit too much and too soon.

http://readersupportednews.org/opinion2/279-82/13435-moodys-in-a-mood

[mavs>spurs]

^Moody's is right..if we cut spending too fast and raise taxes it will throw the economy into a recession (and therefore lower output) by stifling the hell out of aggregate demand. Aggregate demand is simply a function of consumer spending (money after taxes to spend), government spending, and investment by the private sector into new buildings, machinery, etc. Raising taxes lowers the consumer portion of demand, and cutting spending lowers the government portion of the demand function.

Agg demand = CS + GS + I

And when you lower output, you're lowering incomes. Simplified, GDP = total income of every worker in an economy. So basically in short, recession = less incomes = less income taxes being paid in = less money to cover our recurring coupon payments on those government bonds.

What we need is to ever eliminate tax loopholes and cut spending..we're talking a little at a time. The solution isn't raising taxes on the average person because they pay enough..they don't have any more to give. But these 1 trillion + deficits per year are carrying us toward destruction at blazing speed..and Congress doesn't give a shit.

[Latarian Milton]

european countries are also implementing retrenchment policies as we speak imho. financial crisis periodically occurs in our economy and the world's economic structure is more or less reshaped every time, which's much needed, and the entrenchment policy has been proven the best strategy to cope with the economic difficulties imho. the economy is gonna recover so don't mind cutting spending & raising taxes in the short term

[mavs>spurs]

european countries are also implementing retrenchment policies as we speak imho. financial crisis periodically occurs in our economy and the world's economic structure is more or less reshaped every time, which's much needed, and the entrenchment policy has been proven the best strategy to cope with the economic difficulties imho. the economy is gonna recover so don't mind cutting spending & raising taxes in the short term

this is retarded and exactly what NOT to do. you have to do these things very gradually or you won't like the end result of going back to eating dog and maybe a little human having no electricity tbh. US can still grow plenty of food if your goal is to crash the system but you chinks might starve :lol

[boutons_deux]

"european countries are also implementing retrenchment policies as we speak imho"

your ihmo is flat wrong. UK, having cut badly, is proving what Krugman, Reich, etc have been saying all along. Pro-cyclical austerity is a disaster. counter-cyclical Keynesian govt spending is necessary to counter the instability of capitalism.

Gecko/Ryan want to implement austerity, guaranteed to make the economy worse, for longer, but of course only for the 99%, of which they are not part.