Moody’s follows Fitch and Standard & Poor’s and downgrades Eurozone Countries

Posted by PITHOCRATES - February 18th, 2012

Week in Review

Now it’s Moody’s turn to show their lack of confidence in the Eurozone (see Moody’s downgrades European countries by James O’Toole posted 2/14/2012 on CNNMoney).

Moody’s cut the credit ratings of six European countries on Monday amid continued anxiety over the continent’s debt crisis and its sluggish economy.

Italy, Malta, Portugal, Slovakia, Slovenia and Spain were all downgraded, while three other countries — Austria, France and the United Kingdom — had the outlook on their current Aaa ratings changed to “negative…”

The move follows similar downgrades of European nations recently by fellow rating agencies Fitch and Standard & Poor’s, and comes as investors are waiting to see whether euro-area finance ministers will approve the latest bailout for Greece this week…

Investors may be heartened by the fact that Moody’s didn’t downgrade the eurozone’s bailout fund, the European Financial Stability Fund.

Interesting.  They didn’t downgrade the European Financial Stability Fund.  But they downgraded the countries that fund it did.  Interesting because the member states guarantee the loans.  The interest costs.  And the capital raising costs of this Eurozone bailout fund.  So if the member states are greater risks one would think the thing they fund and guarantee would be a greater risk, too.

Looks like those social democracies of Europe are learning their lessons about socialism.  It’s costly.  And it bankrupts nations.  Capitalism doesn’t do this.  Only those nations that abandoned capitalism in favor of social democracy find themselves in these financial messes.  Sadly, two of the great nations of capitalism are limping down this same road.  The UK.  And the USA.  Who had their credit rating downgraded themselves only last year.  And the latest budget offered by the Obama administration forecasts a $1.3 trillion deficit.

Those who do not learn the lessons of history are condemned to repeat history’s worst mistakes.  And, apparently, we are.

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Fitch follows S&P and Downgrades Eurozone Countries which doesn’t Help the Eurozone Debt Crisis

Posted by PITHOCRATES - January 29th, 2012

Week in Review

First Standard & Poor’s.  Now Fitch.  Things are not looking up for the Eurozone (see Greek debt deal hit by eurozone ratings downgrades by Angela Monaghan posted 1/28/2012 on The Telegraph).

Following similar action from rival Standard & Poor’s (S&P) earlier this month, Fitch downgraded Italy, Spain and Slovenia by two notches and Belgium and Cyprus by one notch. Fitch took no action on France’s AAA credit rating despite S&P downgrading the country two weeks ago.

The rating agency warned that the eurozone crisis would only be resolved “as and when there is broad economic recovery” and with “greater fiscal integration”.

It was also being reported last night that the German government wants Greece to hand over control of tax and spending decisions to a ‘budget commissioner’ appointed by the rest of the eurozone, before the country gets its second bail-out.

The budget commissioner would have to power to veto decisions made by the Greek government, according to a proposal seen by the Financial Times, marking a significant step-up in the EU’s powers over the sovereign governments of member states…

Eurozone finance ministers said that while there were still considerable challenges ahead, they believed in the future of a united eurozone.

They’re still trying to save the Eurozone because they can’t save the Eurozone.  Greater fiscal integration?  Hand over tax and spending decisions?  Having a veto over other sovereign nations?  It sounds like to save the Eurozone will require some erasing.  Of the borders between these sovereign states.  Something that sovereign states don’t like.  Being conquered.  Only with Euros and debt.  Instead of artillery and bullets.  Or sword and lance.

So to save Greece all the Greek people have to agree to is to become a vassal of the greater power.  Sort of a step back in time.  To the days of feudalism.  Where the poorer states serve their lord.  Who serves their sovereign.  The new Eurozone structure.  Whatever that may be.  Where the stronger member states will be among the nobility and have greater privileges than the poorer states.  Who will be among the serfs.  Grateful for the generosity of their masters.  And showing due gratitude and obedience.

It’s a simple plan.  But knowing the history of Europe one that is not likely to work.  Not in an age when the trend is towards independence.  Not subjugation.  Hell, even Scotland is talking about their independence from the United Kingdom.  So to think the Greeks are just going to surrender their sovereignty is wishful thinking.  Not in the land where Western Civilization was born.  Not in the country that contains the once great city-state of Athens.  That inspired Alexander the Great.  And the Romans.  No.  That’s just a wee bit too much history for the Greeks to surrender.

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The Republicans and the Credit Rating Agencies believe it’s a Debt Crisis, not a Revenue Problem

Posted by PITHOCRATES - July 23rd, 2011

The Crisis of the Debt Crisis Negotiations

It’s near crunch time.  When something has to happen.  Something.  Good.  Or bad.  But the politicians aren’t playing nice.  And the pundits are opining (see Reactions to the impasse posted 7/23/2011 on First Read).

Andrew Sullivan: Republicans are anarchists.

David Frum: The Republicans made the debt problem a debt crisis.

Jay Cost: Obama is a lot like Jimmy Carter.

Ezra Klein: John Boehner is purposely wasting time by making non-offers.

Over on the New York Times, Paul Krugman is calling it Naked Blackmail (posted 7/23/2011). 

It turns out that in the final stages of the debt negotiations, Republicans suddenly added a new demand — a trigger that would end up eliminating the individual mandate in health care reform.

…the health care mandate has nothing to do with debt and deficits. So this is naked blackmail: the GOP is trying to use the threat of financial catastrophe to impose its policy vision, even in areas that have nothing to do with the issue at hand, a vision that it lacks the votes to enact through normal legislation.

Which is one side of the story why Boehner walked out of the negotiations.  For another side you can read Why the Obama-Boehner talks fell apart by Keith Hennessey (posted 7/23/2011).

The President backtracked in private negotiations this week, demanding bigger tax increases after the Gang of Six, including three conservative Republican Senators, released a plan that raised taxes more than the President had previously demanded…

…the President retreated from an earlier position on taxes as a result of the Gang of Six introducing their plan. On total tax revenues, tax rates, and refundable outlays, the President increased his demands last week.

And then there’s the unfunded mandate.

…the President and the Speaker had open disputes about how much to save from Medicaid, and about an automatic mechanism to force Congress to act on the entitlement and tax provisions. The President wanted a provision that would “decouple” tax rates if Congress failed to act, allowing top tax rates to increase while extending the other tax rates. Republicans would hate this outcome and would therefore have an incentive to legislate the deal. The Speaker insisted that if this automatic hammer decoupled tax rates, it also had to repeal the individual mandate from the Affordable Care Act (ObamaCare), to create roughly equal legislative pressure on both sides of the aisle.

So there’s a lot more to the story some people are leaving out in their condemnation of Speaker Boehner and the Republicans.  For it would appear that it’s Obama and the Democrats who are refusing to make a deal that cuts spending or doesn’t raise taxes.  And it’s Obama that’s been increasing his demands.  With an able assist from the Gang of Six.

The Debt Rating Agencies siding with Boehner and the Republicans

But are Boehner and the Republicans just partisan mad men?  Making mountains out of molehills?  Debt crises out of debt problems?  Guess it depends on who you talk to.  If you talk to partisans on the left, yes.  If you talk to credit rating agencies, no (see Egan Jones cuts US rating, cites high debt load by Karen Brettell posted 7/18/2011 on Reuters).

Credit rating agency Egan-Jones has cut the United States’ top credit ranking, citing concerns over the country’s high debt load and the difficulty the government faces in significantly reducing spending.

…the cut is due the U.S. debt load standing at more than 100 percent of its gross domestic product. This compares with Canada, for example, which has a debt-to-GDP ratio of 35 percent, Egan-Jones said in a report sent on Saturday.

And S&P is getting closer to following suit (see Obama officials clash with S&P over downgrade threats by Tim Reid and Rachelle Younglai, Reuters, posted 7/23/2011 on Yahoo! News).

Since October, S&P has accelerated its deadline three times for when it might downgrade the United States’ coveted AAA credit rating as efforts in Washington to reach a deal on cutting long-term deficits have faltered.

The U.S. is in very dangerous debt territory.  Even Al Jazeera is writing about the severity of this debt problem (see Obama launches crisis talks over US debt posted 7/23/2011).

The US government now owes $14.3tn, which is its current legal limit, and is more than the size of the economies of China, Japan and Germany put together…

The largest US creditor, China, has twice warned that the US must protect investor interests, as ratings agencies Moody’s and Standard & Poor’s have said the sterling Triple-A US debt rating was in danger of a downgrade.

You know your debt is bad when it exceeds the sum of three of the largest economies in the world.  At least you should know.  That’s why the rating agencies are looking at downgrading American sovereign debt.  The debt problem is that bad.  And tax hikes without spending cuts will only make this very bad problem much, much worse.  Because it’s a debt problem.  Not a revenue problem.

And, yes, the high costs of Obamacare need to be included in this conversation.  Because it is a BIG part of the spending problem.

From Sea to Shining Sea, at Least for awhile Yet

Raising the debt ceiling is not the problem here.  It’s the amount of debt that’s the problem.  Whatever happens in the next few weeks the United States will survive.  But it will not be able to survive the long term explosion of spending (in particular on health care) and debt.  Which is the thing that is making the rating agencies nervous.  As well as the rest of the world.

In the grand scheme of things, it would appear that Boehner and the Republicans are trying to do the right thing.  Whereas Obama and the Democrats are merely looking for short-term political gain.  Which is not in the best interests of the country.  But they’re not worried.  For whatever becomes of America, they are certain that they will be ensconced in their liberal Democrat city-states.  Insulated from the surrounding ruins that they will simply refer to as flyover country.

So much for “from sea to shining sea.”

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