Traders in the credit default swaps market are no longer showing the same faith in the USA that major credit rating agencies show. This past quarter, the price paid to insure against a US sovereign debt default recently jumped up nearly 30 percent. That spike in cost made the US the third worst performing nation in the derivatives market, after only Ireland and Portugal. Not exactly good company to be in.[Read more...]
Excerpted from his presentation to the Ira Sohn Investment Research Conference on May 26, 2010
I have titled today’s talk Good News for the Grandchildren. By that, I mean that I do not believe that there is a need to worry that today’s debts will be passed on to our current youth…I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation – not our grandchildren’s – will have to deal with the consequences. If we do one thing, let’s stop bemoaning the fate of our grandchildren on this topic. We might take the issue more seriously if we realize that our own future is at risk.[Read more...]
Rating agencies have rightly shouldered much of the blame for the financial crisis, and yet the world still looks to them for guidance on sovereign debt. For example, the Euro, which has now dipped under $1.30, owes part of its lost value to recent credit rating agency (CRA) downgrades of Greece, Portugal and Spain. These countries are clearly mismanaging their national budgets, but given the recent history of CRA blunders it feels a bit ironic to trust them in particular to tell us when a country’s in trouble.
From Fund Strategy:
Credit rating agency Fitch Ratings is indicating that it sees the US on the wrong path when it comes to spending and taxes. From The Telegraph, here’s a quote from the head of its sovereign ratings division, Brian Coulton:
“‘Difficult decisions will have to be made regarding spending and tax to underpin market confidence in the long-run sustainability of public finances. In the absence of measures to reduce the budget deficit over the next three to five years, government indebtedness will approach levels by the latter half of the decade that will bring pressure to bear on the US’s “AAA” status’, he said.”[Read more...]