EconomicCrisis.US

It finally happened. Last week, one of the big bond rating agencies, Standard and Poor’s, put a “negative” watch on U.S. government debt. This is the first time the good old US of A isn’t AAA-rated with a “stable” outlook.

How long can we spend $1.40 for every $1 we bring in? According to S&P, the chickens will come home to roost as early as 2013 if Washington doesn’t start getting our nation’s finances in order.

The credit watchdogs are rightfully worried the right and the left won’t come to an agreement to reduce deficits until it’s too late, resulting in a possible downgrade of our actual bond rating, from AAA to AA, and not just a downgrade in the “outlook.”
Read the rest of this entry »

The world has changed since the Federal Reserve decided in November to purchase an additional $600 billion of U.S. Treasury bonds to give the U.S. economy a lift.

The U.S. economy looks stronger. The government is unexpectedly cutting taxes. The Fed is facing stiff political criticism at home and abroad. In part as a result of these developments, the very long-term interest rates the Fed was trying to keep down are rising.

Does this change the Fed’s conviction about the “quantitative easing” program, also known as QE2? The answer in short: If the Fed had known in November what it knows now, it would have made a tough decision even harder, but there’s a good chance it would have proceeded anyway. Moreover, it’s unlikely to change course now unless there is a much bigger improvement in the economic outlook or uptick in inflation.
Read the rest of this entry »

Moody’s Investors Service said its top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries” because their public finances are worsening in the wake of the global financial crisis.

The U.S. and U.K. have “resilient” Aaa ratings, as opposed to the “resistant” top ratings of Canada, Germany and France, analysts led by Pierre Cailleteau in London said in a report. None of the top-rated countries is “vulnerable,” or have public finances that are “stretched beyond the point of ‘no return’ to the Aaa category,” New York-based Moody’s said.

The dollar weakened to 88.60 yen, from 89.51 yen, and strengthened to $1.4795 per euro from $1.4827. The pound fell against all 16 most-traded counterparts, dropping to $1.6289, from $1.6446. It weakened to 90.83 pence per euro, from 90.16. U.K. bonds rose, pushing the yield down 8 basis points to 1.08 percent, the biggest drop since Nov. 9.
Read the rest of this entry »

Federal Reserve officials are increasingly confident the U.S. economic recovery will be durable, but do not see employment or inflation picking up soon, minutes from their November meeting showed.

Senior Fed officials, meeting on November 3-4, also expressed concern their plans to keep interest rates low for a prolonged period could have negative repercussions, including possible speculative activity in financial markets.

“Most participants now view the risks to their growth forecasts as being roughly balanced rather than tilted to the downside,” according to the minutes, which were released on Tuesday and were accompanied by upward revisions to policy makers’ growth forecasts.
Read the rest of this entry »