Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.
In conjunction with this action, Moody's has placed on review for possible downgrade the Aaa ratings of financial institutions directly linked to the US government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks. We have also placed on review for possible downgrade securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the US government or the affected financial institutions.
The triple-A rating on U.S. government bonds is one of the main reasons why many investors, including other major central banks, hold these dollar assets.
Take this top-level rating away and many will be forced to sell. The diversification flows into other major currencies, which have been a major source of dollar weakness in recent years, will only accelerate.
The Wall Street Journal claims the TARP costs include Fannie Mae and Freddie Mac. That's simply not true, Fannie and Freddie received a separate, unlimited bail out. The last loss projection was $400 billion dollars. If one notices, Freddie Mac and Fannie Mae are woefully absent in any financial reform legislation as well.
President Obama released his Fiscal Year 2011 Budget. Fiscal Year begins on October 1. The budget includes $3.8 trillion in spending and projects a $2.6 trillion in revenue for a projected budget deficit of $1.26 trillion. The federal deficit for FY 2010 is projected to be $1.56 trillion.
There is a lot of information to sift through but here are a few highlights:
1) Includes additional "Stimulus" spending in the form of "small business" tax credits.
2) The elimination of the Bush II - era upper income tax cuts.
3) The start of a spending "Freeze" (or "slushie" as Prof. Delong calls it) on non-security discretionary spending.
This should be obvious to most people, but its interesting to see it all spelled out in the MSM.
(Bloomberg) -- The world’s most affluent nations will take decades to work off the biggest buildup in debt since World War II. The political costs may be permanent, laid bare at this week’s Group of Eight summit of leading industrial powers.
Bank bailouts and recession-fighting measures will explode the debt of the advanced economies to at least 114 percent of gross domestic product in 2014, more than triple the 35 percent of the main emerging economies including China, the International Monetary Fund forecasts.
In parsing the article, a host of good things emerge that the Obama administration wants to look into to cut the deficit.
Repeal Bush Tax Cuts
Examine Privatization of Military, Contractors
Withdraw from Iraq
tax private equity and hedge funds at income level rates
cutting out private health insurers government subsidies when seniors would already by covered by Medicare
create revenue from permits for excessive greenhouse gas emissions
Lookin' good, trimming the fat and no privatization of social security mentioned or reduction of social safety nets.
I would suggest the Obama administration examine corporate offshore tax havens as well as incorporation offshore for tax purposes. Let's call it the global corporate tax shell game.
NEW YORK (CNNMoney.com) -- The federal budget deficit expanded by $83.6 billion in December, the Treasury Department reported Tuesday, bringing the total deficit for the first three months of the 2009 fiscal year to $485.2 billion.
Changes in Social Security and Medicare will be central to efforts to bring federal spending in line, President-elect Barack Obama said Wednesday, as the Congressional Budget Office projected a $1.2 trillion budget deficit for the fiscal year.
“We expect that discussion around entitlements will be a part, a central part” of efforts to curb federal spending, Mr. Obama said at a news conference. By February, he said, “we will have more to say about how we’re going to approach entitlement spending.
Has anyone bothered to ask the question of: Does the world have that much savings to borrow?
The U.S. government's borrowing needs will almost double to $2 trillion this fiscal year, prompting the Treasury to revive three-year notes and hold more frequent sales of 10- and 30-year debt, according to Goldman Sachs Group Inc.
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