Small Surprise: US/UK Credit Rating in Danger

C-101

Old School Conservative
Apr 10, 2009
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U.S., U.K. Move Closer to Losing Rating, Moody?s Says (Update1) - Bloomberg.com

March 15 (Bloomberg) -- The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.

Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”

The pound fell against the dollar and the euro for the first time in three days, depreciating 0.8 percent to $1.5090, while the dollar index snapped a four-day drop, adding 0.3 percent to 90.075.

The U.S. government will spend about 7 percent of its revenue servicing debt in 2010 and almost 11 percent in 2013, according to the baseline scenario of moderate economic recovery, fiscal adjustments in line with government plans and a gradual increase in interest rates, Moody’s said.

Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA, Moody’s said.

U.K. Debt Service

The U.K. is likely to spend 7 percent of revenue servicing debt this year and 9 percent in 2013, rising to almost 12 percent under the adverse scenario, Moody’s said.

Financing costs above 10 percent put countries outside of the AAA category into a so-called debt reversibility band, the size of which depends on the ability and willingness of nations to reduce their debt burden by raising taxes or reducing spending. The U.S. has a 4 percentage-point band, while the U.K. has a 3 percentage-point band.

“Those economies have been caught in a crisis while they are highly leveraged,” Cailleteau said, referring to the level of private and public debt as a percentage of gross domestic product. “They have to make the required adjustment to stabilize markets without choking off growth.”

The U.S. would be the “most affected” under the adverse scenario, as the only country that would face a downgrade, Cailleteau said. The company’s baseline scenario assumes that all current AAA sovereigns will keep their ratings over the next three years, he said.

I hope they downgrade the credit rating. The government needs a serious reality check on their endless spending.

If lenders lose faith in the US government, so be it.
 
Yeah according to Moody's. the same outfit that rated junk mortgage insrruments as low risk and pretty much caused this recession.
 
Yeah according to Moody's. the same outfit that rated junk mortgage insrruments as low risk and pretty much caused this recession.

You read my mind. :clap2:

Not that they were the only ones who caused it, but they had as much of a hand in it as anybody else. Wonder who they're in the tank for this time?
 
Yeah according to Moody's. the same outfit that rated junk mortgage insrruments as low risk and pretty much caused this recession.

I guess the US Government doesn't pay Moody's as well as AIG or Goldman Sachs
 
Yeah according to Moody's. the same outfit that rated junk mortgage insrruments as low risk and pretty much caused this recession.
Which should, in fact, be an even greater cause for concern if even Moody's is admitting that the US is in trouble.
 
The interest on the federal debt is going to increase rapidly.

Fasten your seat belts, it's going to be a bumpy downhill slide.
 
People who dont understand interest, pay it.

People who do understand interest, collect it.

We are a society of people who don't understand interest. and it will be our masters. We will be enslaved to it. and there is nothing the sane can do to stop the problem.
 
Indeed. Debt is slavery - and in the case of the U.S., one which is enslaving people who have not yet been born and have no say in the matter. And all for the great cause of enabling politicians and their cronies to siphon money away from taxpayers.
 
Yeah according to Moody's. the same outfit that rated junk mortgage insrruments as low risk and pretty much caused this recession.

if you have 15 triple a bonds together with 3 junk bonds what do you rate the overall risk?
 
Yeah according to Moody's. the same outfit that rated junk mortgage insrruments as low risk and pretty much caused this recession.

if you have 15 triple a bonds together with 3 junk bonds what do you rate the overall risk?

The issue is that Moodys had no precedent or history to make their low risk ratings on. The packages had just been invented and should have been rated high risk until empirical evidence proved otherwise.

they just made up crap to keep those paying to have their finiancial instruments rated happy.
 
U.S., U.K. Move Closer to Losing Rating, Moody?s Says (Update1) - Bloomberg.com

March 15 (Bloomberg) -- The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.

Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”

The pound fell against the dollar and the euro for the first time in three days, depreciating 0.8 percent to $1.5090, while the dollar index snapped a four-day drop, adding 0.3 percent to 90.075.

The U.S. government will spend about 7 percent of its revenue servicing debt in 2010 and almost 11 percent in 2013, according to the baseline scenario of moderate economic recovery, fiscal adjustments in line with government plans and a gradual increase in interest rates, Moody’s said.

Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA, Moody’s said.

U.K. Debt Service

The U.K. is likely to spend 7 percent of revenue servicing debt this year and 9 percent in 2013, rising to almost 12 percent under the adverse scenario, Moody’s said.

Financing costs above 10 percent put countries outside of the AAA category into a so-called debt reversibility band, the size of which depends on the ability and willingness of nations to reduce their debt burden by raising taxes or reducing spending. The U.S. has a 4 percentage-point band, while the U.K. has a 3 percentage-point band.

“Those economies have been caught in a crisis while they are highly leveraged,” Cailleteau said, referring to the level of private and public debt as a percentage of gross domestic product. “They have to make the required adjustment to stabilize markets without choking off growth.”

The U.S. would be the “most affected” under the adverse scenario, as the only country that would face a downgrade, Cailleteau said. The company’s baseline scenario assumes that all current AAA sovereigns will keep their ratings over the next three years, he said.

I hope they downgrade the credit rating. The government needs a serious reality check on their endless spending.

If lenders lose faith in the US government, so be it.


Relax, this is all part of the transformation of America that the Hussein promised us. It would appear he is finally coming through on one campaign promise.
 
Yeah according to Moody's. the same outfit that rated junk mortgage insrruments as low risk and pretty much caused this recession.

if you have 15 triple a bonds together with 3 junk bonds what do you rate the overall risk?

The issue is that Moodys had no precedent or history to make their low risk ratings on. The packages had just been invented and should have been rated high risk until empirical evidence proved otherwise.

they just made up crap to keep those paying to have their finiancial instruments rated happy.

even if they hadn't rated groups of bonds before, the idea that you stack up many perfect ones with a few bad ones still seems like a safe bet to people since the risk of the entire bond is minimal. I don't know their formula, but it seems like part of their rating should be market demand and movement of hte instruments which would have been extremely high among hedge funds and places doing similar investments.
 
if you have 15 triple a bonds together with 3 junk bonds what do you rate the overall risk?

The issue is that Moodys had no precedent or history to make their low risk ratings on. The packages had just been invented and should have been rated high risk until empirical evidence proved otherwise.

they just made up crap to keep those paying to have their finiancial instruments rated happy.

even if they hadn't rated groups of bonds before, the idea that you stack up many perfect ones with a few bad ones still seems like a safe bet to people since the risk of the entire bond is minimal. I don't know their formula, but it seems like part of their rating should be market demand and movement of hte instruments which would have been extremely high among hedge funds and places doing similar investments.

there are no perfect ones. All "investments" carry some degree of risk.
Even govt guaranteed ones are getting that way.
 
UK credit rating viewed as safe
BBC
Monday, March 15, 2010


The credit ratings of major AAA governments, including the US and the UK, are well positioned, says Moody's Investors Services.

Moody's released a report on the financial position of major AAA rated governments.

This includes the four largest - Germany, France, the UK and the US - as well as smaller ones, including Spain.

The report will reassure the bond markets about the ability of the US and the UK to make future debt payments.

A key finding is that the AAA ratings of the UK and the US are secure because of the capability of their respective governments to reverse recent deficits.

BBC News - UK credit rating viewed as safe

Different take.
 
Don't trust Moody's or any of the other ratings agencies. They have missed the biggest disasters of the past decade.

So has Washington.

We are on a one way path to suicide unless we change things soon.
 
Don't trust Moody's or any of the other ratings agencies. They have missed the biggest disasters of the past decade.

I'm not. I just found it amusing that 2 news agencies (Bloomberg and BBC) could have such different leads on the same story on the same day.
 

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