U.S. Rating Cut from AAA to AA+ by Egan Jones

[lovuian]

In its report, Egan Jones wrote that “The major factor driving credit quality is the relatively high level of debt and the difficulty in significantly cutting spending. We are taking a negative action not based on the delay in raising the debt ceiling but rather our concern about the high level of debt to GDP in excess of 100% compared to Canada’s 35%.”

The firm noted that although the “US’s debt is denominated in dollars, a hard default is unlikely,” it also cautioned that “History has proven that defaults on domestic public debt do occur.”

It went on to point out that “In fact, seventy out of three hundred twenty defaults since 1800 have been on domestic public debt. Egan-Jones does not view a country’s ability to print its own currency as a guarantee against default. Additionally, Egan-Jones generally views cases of excessive currency devaluation as a de facto default.”

http://www.zerohedge.com/article/egan-jones-downgrades-us-aaa-aa

[A HERETIC I AM]

1. The difference between AAA & AA+;

AAA = "They really really really REALLY will pay on time and in full."
AA+ = "They really really REALLY will pay on time and in full."

Honestly.

That's it.

[dixiegrrrrl]

2. how much will those repaid dollars be worth?

[JuniperLea]

3. It's more about the percentage of interest we will pay...

The worse your credit, the higher the interest.

Banks and other lenders base their interest charges on the worthiness of the borrower... same goes for countries lending and borrowing money.

If the interest rate we are charge goes up, we will spiral further into debt at a much faster pace.

[Major Hogwash]

4. And now it begins.

The blame game.
Is it Obama's fault or the GOP's fault?

Spin the wheel, win a kewpie doll.

[Igel]

5. Yes.

My answer to such things.

There's an OT story about Solomon's wisdom. A woman had a baby. Another took it and claimed it as her own. They went before Solomon, one woman asking for her baby back and the other saying it was hers. Solomon's response was to cut the baby in half and award half to either. The interloper said "okay" and the other woman said, "let her have it--it's more important for the baby to live." Currently both sides are posturing and saying, "It's better for me to have half a dead baby than to let the *other* side have it."

If both sides really think that a default is such a horrible thing, then their posturing and arguing can only mean one of several things.

1. They expect the other side to fold. Sure, it's possible. It's a game of fiscal chicken; it's happened before.

2. Neither has the guts to lose face and back down. Honor before sanity. But we're told that at least one side consists of grown-ups. If that's so, then backing down would be the responsible thing to do to avoid default.

3. They each believe that it is better to trigger a default than to raise the debt ceiling on the other's terms, even though they seem to each be saying (one more consistently than the other, to be sure) that a default would be a true catastrophe and calamity.

To be fair, some tea partiers are explicitly claiming (3). Not all, and not most (R), so lets rule out the tea partiers right now and limit it to a portion of the (R), most of the (D), and Obama. In this, there are three sides to satisfy: The House, the Senate, and the Oval Office. If there's a default and bad things happen it'll be a matter of spin when one says, "But if the others got their way, it would be worse!" Such claims about things that didn't happen are seldom verifiable or clearly predictable and always self-serving. On the other hand, it will clearly mean that at least two of the three parties said it was more important to have their proposals than to avoid a default. Obama need not be one of the two parties responsible--it's quite possible that he and the House could agree and then have it get hung up in the Senate. (Okay, not probable, but certainly not impossible.) It could get hung up in the House *or* the Senate--let's hear it for the filibuster. That, at least, would avoid any blame slung towards Obama.

[kenny blankenship]

6. Finally, the real Terrorists present their demands.

These bond ratings agencies are the same paragons of probity and financial acumen who rated all those subprime CDOs as AAA-safe-as-US-Treasuries.

[nadinbrzezinski]

7. First step before downgrading furthher

this is shot across bow... stays here, nothing really happens.