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US Debt Downgrades. British humor on US soil.

Written by A Forex View From Afar on Friday, January 11, 2008

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Moody's just warned the US that it is at the point of losing its top Bond rating status, due to huge US spending. This rating was given back in 1917, when Moody's first rated US debt.

I can only find two reasons why Moody's would say something like this. First it's a political play. We are in an electoral year now and probably everything that can influence votes will be used, even something serious like this.
At the same time JP Morgan just signed a part-time deal with former PM Tony Blair with a salary said to exceed $1m (£500,000) a year. This needs some thinking about; is it either returning a service, or either JP is trying to attract some Middle East investors?
So, doing a favor at a high level is not so uncommon, and looks very profitable too.

The second reason why Moody's would cut US debt rating is perhaps that they know something we don't know. We have to think behind Moody's there is Berkshire Hathaway run by Warren Buffett the Omaha Oracle. Is he expecting something much worse to come?

And now the irony of British Humor hits US soil, when most of the Bonds are downgraded from triple A rating (the best and the most secured) to mostly junk, even US debt will be downgraded from triple A.
If more rating agencies will announce this, it could be huge for the Markets. In uncertain Market times (like now), the riskier assets are sold and the flight to the safety moves things to US Treasuries. From this safety flights, the dollar get a lot of support.
With the Moody’s downgrade, these Bonds won't have the same appeal to investors, who in turn will be looking for some other safe assets to hedge their risk, outside of the Greenback.

Watch out for other Rating Agencies moving in on US Debt valuations, they may assist a major market shift.

Please add your Comments

Source: FT: Moody’s says spending threatens US rating
The Guardian: Blair joins JP Morgan as $1m-a-year adviser

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