US DEBT Downgrade

Jeorg

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When the US debt was downgraded recently,
why did the Canadian dollar depreciate
relative to the US?
 
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Jeorg

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It was a serious question I had. An answer would be appreciated.
 

Wiseacre

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Not exactly sure why they downgraded the US credit rating when everyone knows the US wil pay it's debts. Those credit rating agencies do not have a particularly good record of accurate evaluations of companies and countries when it comes to solvency, they were the ones who rated a whole lot of CDOs that contained a bunch of bad mortgages. In essence, that downgrade was BS.

As to the canadian dollar, I'm not aware of any financial difficulties up north. Maybe they are devaluing their currency or maybe when the shit hits the fan a lot of investors want to be holding US dollars thinking they'll go up in value sooner or later.
 

Toro

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When the US debt was downgraded recently,
why did the Canadian dollar depreciate
relative to the US?
Because the loonie is considered a risk asset. The downgrade was seen as an event which caused risk appetites to decline. When investors want to take on less risk, they sell risk assets and buy the US dollar and Treasuries.
 

JimH52

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Not exactly sure why they downgraded the US credit rating when everyone knows the US wil pay it's debts. Those credit rating agencies do not have a particularly good record of accurate evaluations of companies and countries when it comes to solvency, they were the ones who rated a whole lot of CDOs that contained a bunch of bad mortgages. In essence, that downgrade was BS.

As to the canadian dollar, I'm not aware of any financial difficulties up north. Maybe they are devaluing their currency or maybe when the shit hits the fan a lot of investors want to be holding US dollars thinking they'll go up in value sooner or later.
But we did have "serious" GOP presidential candidates advocating default and saying that it wouldn't be so bad. Then after the downgrade they pointed to the Democrats.

With the possibility of loons such as Batcrazy Bachmann taking over as President, you think the rating ageny was a little nervous?
 

Wiseacre

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Not exactly sure why they downgraded the US credit rating when everyone knows the US wil pay it's debts. Those credit rating agencies do not have a particularly good record of accurate evaluations of companies and countries when it comes to solvency, they were the ones who rated a whole lot of CDOs that contained a bunch of bad mortgages. In essence, that downgrade was BS.

As to the canadian dollar, I'm not aware of any financial difficulties up north. Maybe they are devaluing their currency or maybe when the shit hits the fan a lot of investors want to be holding US dollars thinking they'll go up in value sooner or later.
But we did have "serious" GOP presidential candidates advocating default and saying that it wouldn't be so bad. Then after the downgrade they pointed to the Democrats.

With the possibility of loons such as Batcrazy Bachmann taking over as President, you think the rating ageny was a little nervous?

There was a sizable number of repubs, mostly TP types, who did not want to raise the debt ceiling, just as there were many dems who wanted to raise it with no conditions whatsoever. Neither group was successful, thank God.

In particular, the Bachmanns of the repub party really are ridiculous when it comes to economic policy, anyone who proposes to cut the federal spending by 2 trillion or so immediately is out of their mind. The resulting depression would have been severe and lengthy IMHO. Fortunately, they didn't get their way. And Bachmann is falling off the map, which is a good thing IMHO.

However, the desire to cut spending if done wisely and gradually over the long term, coupled with reform to the tax code would go along way towards balancing the budget and get us back on track to a more stable economy with better growth prospects. And entitlement reform absolutely must be part of the deal, what we have now is unsustainable and I think everyone knows it. Anyone who believes we can just raise taxes on the rich to cover the difference is greatly mistaken.
 

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