Monday, August 8, 2011

S&P May Downgrade US Debt Again in November or December

CNBC is reporting that Bank of America Merrill Lynch held an emergency Sunday night conference call for clients.  Ethan Harris, North American economist for the firm stated, "We doubt the newly appointed bipartisan commission will come up with a credible long-term deficit reduction plan. Hence by November or December we would not be surprised to see S&P downgrade the debt again from AA-plus to AA."

Some other snippets from the article:
Harris said that the U.S. should have avoided the downgrade in the first place by meeting S&P's demands of a $4 trillion deficit cut and a "demonstrating a sensible budget process." What they got instead was a "deficit cut of $2.1 trillion and a budget process that's been extremely chaotic," said Harris.

The 45-minute call was moderated by Michael Hartnett, chief equity strategist for the firm. Along with Hartnett and Harris, six other top strategists from various fields were on the call. Hartnett made references a couple times to how many clients from Asia were listening in on the call. That's probably with good reason as China owns $1.2 trillion in U.S. debt.

"If a disorderly Treasury market leads to the Fed embarking on QE3, repercussions for the dollar will be catastrophic," said David Woo, head of global rates and currencies research, on the call. "Investors will be quick to conclude that U.S. monetary policy has been subjugated by fiscal policy and the Fed's independence would be placed seriously into question."

More at CNBC

I find it interesting that if Obama would have just caved to the Tea Party Republicans, S&P would not have issued a downgrade.

Note that the Federal Reserve will meet on Tuesday 9 August 2011.

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