What does the Moody's warning mean?

[henryclay]

I don't know how to post a link to a video and eliminate the commercial, so I'm linking the entire "CNBC Sqawk Box" video that spells out some of the reaction to the Moody's downgrade warning.

I take it that Moody's is telling the politicians that the financial world is fragile, and that indecisive politics can be ruinious to any economy, and the death knell to one that is already suffering.

Quotes from the video:

"Stop-gaps are the worst possible thing". . . " Even if we get our act together, ahead of the debt ceiling, (August 2), but it doesn't include meaningful fiscal consolidation, then we will stay on a negative outlook, and that [ ] warning is the reallly importand warning.."

Note the banner that says: "Slow growth and high unemployment is the new norm."

www.msnbc.msn.com/id/21134540/vp/43752820#43752820

[djAdvocate]

it means that we will be judged a higher credit risk, and be downgraded if we don't resolve this by 8/2. it is Moody's way of warning that a downgrade is coming.

i doubt it means anything insofar as the debt we already have outstanding, so long as it is not renewed, but all new debt will be taken out at a higher interest rate associated with that risk = higher cost. what a recent study discovered is that the higher risk ends up getting folded into rates "longer than the period surveyed", in other words, quasi permanently. the estimated additional cost per year would end up being something north of $50B/year.

this little game that is being played is going to get very very expensive. it will be interesting to see how people concerned with the budget react when they come to grips with that fact.

[pepper112765]

Too bad Moody's didn't accurately gauge the CDO markets....

[floridayankee]

Jul 14, 2011 15:14:39 GMT -5 djAdvocate said:

this little game that is being played is going to get very very expensive. it will be interesting to see how people concerned with the budget react when they come to grips with that fact.

It will only get expensive if the government decides to default and f-up their credit rating.

[reasonfreedom]

Moody's ratings is one of those effects where it becomes a common reference point just because everybody says it is or uses it. Moody's ratings in actuality mean completely nothing. In the short term keep the rating will be good, in the long term it will be bad. Do you think congress will actually keep chipping at the debt or will it go back to their old ways? I would look to the latter as being more common sense. People think it is different this time with people being more aware, but it was different the last 25 times they talked about chipping away at the desk. A politician with spending money is like a crack head with crack, if you give them a chance they will do it in a heart beat. I don't think people are proactive enough nowadays with the exception of the tea party, but then you have those people that will try and silence group like the tea party just because humans like to be controversial.

[billisonboard]

Gee, I thought this thread was going to be about menopause.

[djAdvocate]

Jul 14, 2011 15:43:40 GMT -5 reasonfreedom said:

Moody's ratings is one of those effects where it becomes a common reference point just because everybody says it is or uses it. Moody's ratings in actuality mean completely nothing.

Moody's means as much as you invest in it (taking the wider meaning of invest).

to you, it may mean nothing. to me it may mean nothing. to China it may mean $20B/year.

[djAdvocate]

Jul 14, 2011 15:31:56 GMT -5 floridayankee said:

Jul 14, 2011 15:14:39 GMT -5 djAdvocate said:

this little game that is being played is going to get very very expensive. it will be interesting to see how people concerned with the budget react when they come to grips with that fact.

It will only get expensive if the government decides to default and f-up their credit rating.

correct.

[mmhmm]

Jul 14, 2011 15:43:40 GMT -5 reasonfreedom said:

Moody's ratings is one of those effects where it becomes a common reference point just because everybody says it is or uses it. Moody's ratings in actuality mean completely nothing. In the short term keep the rating will be good, in the long term it will be bad. Do you think congress will actually keep chipping at the debt or will it go back to their old ways? I would look to the latter as being more common sense. People think it is different this time with people being more aware, but it was different the last 25 times they talked about chipping away at the desk. A politician with spending money is like a crack head with crack, if you give them a chance they will do it in a heart beat. I don't think people are proactive enough nowadays with the exception of the tea party, but then you have those people that will try and silence group like the tea party just because humans like to be controversial.

I don't think everyone who disagrees with the tea party stance on issues does so because they like to be controversial. Some of us simply don't believe the tea party stance to be correct.

[henryclay]

Moody's may not be the "be all end all" of the financial world, but didn't I hear this morning that Standard and Poor's said essentially the same thing Moody's said?

Are we to disregard all the market analysts and go on business as usual? And the reference to China is interesting. How will they react as August 2nd approaches? Is there a way for them to "nationalize" all the Chinese based investments owned by American individuals?

[reasonfreedom]

Jul 14, 2011 15:55:18 GMT -5 djAdvocate said:

Jul 14, 2011 15:43:40 GMT -5 reasonfreedom said:

Moody's ratings is one of those effects where it becomes a common reference point just because everybody says it is or uses it. Moody's ratings in actuality mean completely nothing.

Moody's means as much as you invest in it (taking the wider meaning of invest).

to you, it may mean nothing. to me it may mean nothing. to China it may mean $20B/year.

I guess what I meant was we don't really need those rating agencies at all, that is what we have the market for. They can rate anything anyway they want with out it being a valid rating, hence the sub-prime derivatives debacle. I think it is just a scare card that is all.

[reasonfreedom]

Jul 14, 2011 16:01:52 GMT -5 mmhmm said:

Jul 14, 2011 15:43:40 GMT -5 reasonfreedom said:

Moody's ratings is one of those effects where it becomes a common reference point just because everybody says it is or uses it. Moody's ratings in actuality mean completely nothing. In the short term keep the rating will be good, in the long term it will be bad. Do you think congress will actually keep chipping at the debt or will it go back to their old ways? I would look to the latter as being more common sense. People think it is different this time with people being more aware, but it was different the last 25 times they talked about chipping away at the desk. A politician with spending money is like a crack head with crack, if you give them a chance they will do it in a heart beat. I don't think people are proactive enough nowadays with the exception of the tea party, but then you have those people that will try and silence group like the tea party just because humans like to be controversial.

I don't think everyone who disagrees with the tea party stance on issues does so because they like to be controversial. Some of us simply don't believe the tea party stance to be correct.

I didn't mean to imply "everyone" if I did. I think most people though don't even know the main points that the tea party stands for, like all those people using the terminology of tea partier or other slang. I think the there is a minority of people that know what the tea party actually thinks on certain issues and could logically debate them, just as I think some tea party followers probably don't even know what they are following. Most people are followers and most of those people are blind followers.

[Driftr]

I think it is just a scare card that is all.

I'll go you one better and venture a guess that Moody's and Standard & Poor's may be in .gov's pocket since the sub-prime fiasco and are being used as one additional card in this debt ceiling game.

[djAdvocate]

Jul 14, 2011 16:43:35 GMT -5 Driftr said:

I think it is just a scare card that is all.

I'll go you one better and venture a guess that Moody's and Standard & Poor's may be in .gov's pocket since the sub-prime fiasco and are being used as one additional card in this debt ceiling game.

sadly, i think it is kinda the other way around. S&P has an enormous amount of power, imo.

[djAdvocate]

Jul 14, 2011 16:35:22 GMT -5 reasonfreedom said:

Jul 14, 2011 15:55:18 GMT -5 djAdvocate said:

Moody's means as much as you invest in it (taking the wider meaning of invest).

to you, it may mean nothing. to me it may mean nothing. to China it may mean $20B/year.

I guess what I meant was we don't really need those rating agencies at all, that is what we have the market for. They can rate anything anyway they want with out it being a valid rating, hence the sub-prime derivatives debacle. I think it is just a scare card that is all.

nah. it is just laziness. it takes time and $ to analyze creditworthiness. most people would rather just pay someone else to do it.

[reasonfreedom]

Jul 14, 2011 16:43:35 GMT -5 Driftr said:

I think it is just a scare card that is all.

I'll go you one better and venture a guess that Moody's and Standard & Poor's may be in .gov's pocket since the sub-prime fiasco and are being used as one additional card in this debt ceiling game.

Actually I though the rating companies were created by the government. I swear I read that somewhere.

[deziloooooo]

Jul 14, 2011 15:14:39 GMT -5 djAdvocate said:

it means that we will be judged a higher credit risk, and be downgraded if we don't resolve this by 8/2. it is Moody's way of warning that a downgrade is coming.

i doubt it means anything insofar as the debt we already have outstanding, so long as it is not renewed, but all new debt will be taken out at a higher interest rate associated with that risk = higher cost. what a recent study discovered is that the higher risk ends up getting folded into rates "longer than the period surveyed", in other words, quasi permanently. the estimated additional cost per year would end up being something north of $50B/year.

this little game that is being played is going to get very very expensive. it will be interesting to see how people concerned with the budget react when they come to grips with that fact.

So if your correct, lets assume so, right on the button, it means instead of having $ 50 billion more to say put toward reducing the debt..we just pay more , in this scenario, $50 Billion, to those who lend us the money, mmmm, gee MOM, that doesn't seem to smart does it, but it will teach some one a lesson right?

And if a person goes into the bank and robs it, say gets $1500 in cash from some teller, even if the reason they did so the kids are starving back home, wife/husband needs a doctor, dog needs shots, when all that is considered , he/she still gets a ten year sentence if not more..yet the ones who cost us the $50 Billion get applauded back home by their constituents for teaching a lesson ..

[privateinvestor]

It means the government debt rating is @ junk status if the debt ceiling is not raised or the impasse over this issue drags on for a few months..

[djAdvocate]

Jul 14, 2011 19:40:57 GMT -5 @privateinvestor said:

It means the government debt rating is @ junk status if the debt ceiling is not raised or the impasse over this issue drags on for a few months..

spot on.

[handyman2]

It means the same thing when your credit card says you are over due and you credit score is junk and any future payments will be the top interest we can charge you.

[floridayankee]

Jul 14, 2011 18:23:16 GMT -5 deziloooooo said:

So if your correct, lets assume so, right on the button, it means instead of having $ 50 billion more to say put toward reducing the debt..we just pay more , in this scenario, $50 Billion, to those who lend us the money, mmmm, gee MOM, that doesn't seem to smart does it, but it will teach some one a lesson right?

So...we need to up the debt ceiling another $2 trillion so we can avoid paying another $50 billion?

And......somehow that is "smart"?

[Driftr]

Full text available here on the S&P warning.
www.reuters.com/article/2011/07/14/market-ratings-creditwatch-us-idUSWNA372820110714
Of particular interest to me was this section.

-- We may lower the long-term rating on the U.S. by one or more notches into the 'AA' category in the next three months, if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.

That's not about the debt ceiling folks. That's about the seemingly ever-increasing debt load without a concrete plan to ever reduce it.

[privateinvestor]

US default: Doomsday for investors

If lawmakers fail to raise the federal debt limit, no asset class will be safe, and panic will sweep the financial markets. Interest rates will spike and the economy will fall back into a recession.



money.msn.com/mutual-fund/us-default-doomsday-for-investors-marketwatch.aspx

[Driftr]

S&P warns raising the debt limit may result in future lowering of US credit rating.

www.reuters.com/article/2011/07/1....WNA372820110714

[bubblyandblue]

Without a debt ceiling raise, the people who participate in the real market will pay higher interest rates - public and private - whatever it costs in public spending should the debt limit not be raised - it will cost the private sector many times as much.
The question is between the will of the people vs the will of the market. I grew up thinking that it is the will of the people that counts and that the will of the market would be an usurpation of the peoples will. When our legislature is creating law that is constrained by 'free market' ideologies then the will of the people is effectively under tyrannical rule.
I think the reason behind some of the following quotes gives weight to the suppositions above.
"America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves." - Abraham Lincoln
"We, the People, are the rightful masters of both the Congress and the Courts. Not to overthrow the Constitution, but to overthrow the men who have perverted it." - Abraham Lincoln
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Jefferson made in a letter to John Taylor in 1816. He wrote, "And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."