Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Reality. Although not 'bonds' those bundled products were "dogshit wrapped inside catshit"[2] and given a triple-A rating because $$$$$$$. Or as Anthony Bourdain (RIP) said in the film about bundled products back then, "it's not 3-day-old fish, it's a whole new thing!"[1]
(that movie should be required watching for investors!)
A key expression in Moody's press release is "Without adjustments to taxation and spending".
What does "without adjustments" mean? There are two interpretations: under current law and under current policy. If you were to say this sounds like doublespeak, I wouldn't disagree. Nevertheless, the former means literally as the law is written, i.e. with the 2017 tax cuts expiring, while the latter means that the "policy" of reduced taxes continues unabated.
What Moody's is using as its base case is not current law, but current policy. While that's likely to happen, it is still hypothetical as Moody's acknowledges. The GOP has tried to position this as not costing a dime, let alone an extra $4T over the next decade. "Key Senate leaders are endorsing the idea that tax cuts are not really tax cuts at all, and thus have no cost."
While maintaining current policy would cause the debt to rise to 134% of GDP by 2035, a budget under current law wouldn't be that much better. The Congressional Budget Office (CBO) estimates that the federal debt would still rise to 118% of GDP. In dollars, the debt would rise from its current $30.1T to $52.1T in 2035.
What Moody's is using as its base case is not current law, but current policy. While that's likely to happen, it is still hypothetical as Moody's acknowledges. The GOP has tried to position this as not costing a dime, let alone an extra $4T over the next decade.
So is Moody's, for once, actually doing what they are supposed to do - assign/adjust risk ratings based on best available assumptions?
As I wrote before, Moody's is late to the party. In that sense, Bessent is correct that Moody's is a lagging indicator. However, Moody's is also correct that there has been an "increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.”
The "more than a decade" that Moody's is looking at started in 2013 when Congress, with bipartisan support, made the Bush tax cuts permanent.
Right through 2012, the Congressional Budget Office (CBO) was projecting declining debt through 2037 (25 years).
Under the extended baseline scenario, which generally adheres closely to current law, federal debt would gradually decline over the next 25 years—from an estimated 73 percent of GDP this year to 61 percent by 2022 and 53 percent by 2037. ... ... The budget outlook is much bleaker under the extended alternative fiscal scenario, which maintains what some analysts might consider “current policies,” as opposed to current laws. Federal debt would grow rapidly from its already high level, exceeding 90 percent of GDP in 2022.
In 2013, after making the Bush tax cuts permanent, the CBO offered this outlook:
CBO produced an extended baseline for this report that extrapolates those projections through 2038 (and, with even greater uncertainty, through later decades). Under the extended baseline, budget deficits would rise steadily and, by 2038, would push federal debt held by the public close to the percentage of GDP seen just after World War II—even without factoring in the harm that growing debt would cause to the economy. ... [U]nder the assumptions of the extended baseline, CBO projects [b]y 2038, the deficit would be 6½ percent of GDP, larger than in any year between 1947 and 2008, and federal debt held by the public would reach 100 percent of GDP, more than in any year except 1945 and 1946. With such large deficits, federal debt would be growing faster than GDP, a path that would ultimately be unsustainable.
Moody's did not pull "over a decade" out of a hat because a decade sounds like a nice round number. It started at 2013 for a reason. And now, even without extending the Trump tax cuts, CBO is projecting deficits to run around about 6.1% of GDP annually over the next decade. That's not much less than 6½ and likewise unsustainable.
JP Morgan chief executive Jamie Dimon warned on Monday that investors were being too complacent as markets shook off news that the US has lost its last triple-A credit rating amid fresh concern over the federal government’s burgeoning debt pile.
Credit ratings agency Moody’s dealt a blow to Washington on Friday when it stripped the US of its top-notch rating, downgrading the world’s largest economy by one notch to AA1 and become becoming the last of the big three agencies to drop its triple-A rating for the US.
The announcement unnerved markets on Monday morning, but stock markets had recovered by the end of the day. Speaking at JP Morgan’s annual investor day meeting in New York, Dimon warned against complacency. “We have huge deficits; we have what I consider almost complacent central banks. You all think they can manage all this. I don’t think [they can],” he said.
Dimon said he saw an “extraordinary amount of complacency” and added that he believes the possibility of stagflation – a recession with rising prices – was far higher than investors believe.
On Wall Street, the benchmark S&P 500 fell during early trading, before recovering its losses to close marginally higher, while the tech-focused Nasdaq also closed broadly flat after reversing early declines. The FTSE 100 rose 0.2% in London.
Bond markets also came under pressure, with the yield on 30-year US treasury bonds climbing 13 basis points to 5.026%. Yields rise as bond prices drop; an increase signals that investors are seeking a higher return for holding US debt. The dollar weakened against a basket of currencies.
“Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat,” said Moody’s. “In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher. The US’s fiscal performance is likely to deteriorate relative to its own past and compared with other highly rated sovereigns.”
Earlier in this thread I invited @FD1000 to comment on the pending major increase in US Government debt. I see that he showed up here (just above) but evidently doesn't care to say much on this subject.
“Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat,” said Moody’s. “In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher. The US’s fiscal performance is likely to deteriorate relative to its own past and compared with other highly rated sovereigns.”
The coddled, spoiled, under-taxed wealthy have effectively been cannibalizing the rest of us for many years. Extension of the 2017 tax cut will simply accelerate that process. Current federal "leadership" in all three branches of gummint have created of s-hole country here already. On the current trajectory, we'll just slide deeper into the toilet. Misguided public priorities, misappropriated money, and the LACK of public funds available show up in so many ways: still no universal medical coverage. Still, we have antiquated mass transit. Still, the schools graduate kids who can't read and function and think. If there is a single decent lesson to be learned from the current regime, it's that gov't no longer is actually responsive to people's needs--- but not because there is some weird-ass "deep state" conspiracy.
Fact, the Moody downgrade was a non-event. The SP500 was up.
And this remark addresses the issues raised... how? Not at all. Sure, there's always money to be made. And everyone is free to ignore our collective mutual responsibility to each other. We can live ethically, or unethically, or amorally. No one can force you to care about anyone else. 1 Timothy 6:10 communicates a great deal of wisdom.
The growing size of the U.S. debt, and the concerns over how much more it will increase, is very much on the minds of investors, markets and lawmakers. The developments were tied in part to Moody’s announcement that it was downgrading the U.S. credit rating over concerns about large annual deficits, debt and rising interest costs. Amna Nawaz discussed more with David Wessel.
Fact, I'll put my money on Jamie Dimon's read on this.
Fact, I very much doubt that you're going to worry that your tax-break money will be coming from medicaid allowances for the poor.
Fact, I very much doubt that you're going to worry that your tax-break money will be coming from elimination of government services vital to the safety and well-being of everyone in the U.S.
Fact, I very much doubt that you care about much of anything that doesn't increase your personal wealth.
Fact, you still haven't explained how your people's enormous increase in the national debt is good or healthy for the United States.
Did you rant with the same passion about the rich 1-2-3-4-10 years ago?
Let's hear why it was better in that period. The rich get richer is old news. From memory, an average CEO used to make 30 times their average employee, it's over 300 times for years. Our politicians are great at spending money if they want to get elected. The US was downgraded already in 2011. Please save me the tears, Dems policies are great, GOP are evil. Another thread that discuss politics and policies without current investment applications. I don't need to explain my people, I don't have people, I voted for both parties and what I do with my own money or my contributions is irrelevant.
"On Monday, Moody’s Ratings announced a downgrade in the long-term ratings for several major U.S. banks, including JPMorgan Chase & Co, Bank of America"
Comments
"The Big Short" movie- ratings Agencies - discussion about assigning ratings to mortgage tranches:
Standard & Poors "If we don't give them the (AAA) ratings, they will go to Moodys".
Fictional or reality?
(that movie should be required watching for investors!)
[1]
[2]
What does "without adjustments" mean? There are two interpretations: under current law and under current policy. If you were to say this sounds like doublespeak, I wouldn't disagree. Nevertheless, the former means literally as the law is written, i.e. with the 2017 tax cuts expiring, while the latter means that the "policy" of reduced taxes continues unabated.
https://bipartisanpolicy.org/explainer/the-2025-tax-debate-all-about-that-baseline/
What Moody's is using as its base case is not current law, but current policy. While that's likely to happen, it is still hypothetical as Moody's acknowledges. The GOP has tried to position this as not costing a dime, let alone an extra $4T over the next decade. "Key Senate leaders are endorsing the idea that tax cuts are not really tax cuts at all, and thus have no cost."
https://taxpolicycenter.org/taxvox/no-matter-how-congress-labels-it-extending-2017-tax-cuts-will-cost-4-trillion-plus
While maintaining current policy would cause the debt to rise to 134% of GDP by 2035, a budget under current law wouldn't be that much better. The Congressional Budget Office (CBO) estimates that the federal debt would still rise to 118% of GDP. In dollars, the debt would rise from its current $30.1T to $52.1T in 2035.
https://bipartisanpolicy.org/blog/visualizing-cbos-budget-and-economic-outlook-2025/
Mr. Bessent seems to disagree.
The "more than a decade" that Moody's is looking at started in 2013 when Congress, with bipartisan support, made the Bush tax cuts permanent.
Right through 2012, the Congressional Budget Office (CBO) was projecting declining debt through 2037 (25 years). https://www.cbo.gov/publication/43288
In 2013, after making the Bush tax cuts permanent, the CBO offered this outlook: https://www.cbo.gov/publication/44521
Moody's did not pull "over a decade" out of a hat because a decade sounds like a nice round number. It started at 2013 for a reason. And now, even without extending the Trump tax cuts, CBO is projecting deficits to run around about 6.1% of GDP annually over the next decade. That's not much less than 6½ and likewise unsustainable.
Jamie Dimon says possibility of stagflation far higher than investors realize as markets shake off Moody’s triple-A cut
Following are excerpts from a current report in The Guardian:
The coddled, spoiled, under-taxed wealthy have effectively been cannibalizing the rest of us for many years. Extension of the 2017 tax cut will simply accelerate that process. Current federal "leadership" in all three branches of gummint have created of s-hole country here already. On the current trajectory, we'll just slide deeper into the toilet. Misguided public priorities, misappropriated money, and the LACK of public funds available show up in so many ways: still no universal medical coverage. Still, we have antiquated mass transit. Still, the schools graduate kids who can't read and function and think. If there is a single decent lesson to be learned from the current regime, it's that gov't no longer is actually responsive to people's needs--- but not because there is some weird-ass "deep state" conspiracy.
H'mmm... some good points. I wonder if maybe ol' FD fits in there someplace? That might account for his silence here.
The SP500 was up.
Go ahead and tax the rich and start with Hollywood.
Not at all. Sure, there's always money to be made. And everyone is free to ignore our collective mutual responsibility to each other. We can live ethically, or unethically, or amorally. No one can force you to care about anyone else.
1 Timothy 6:10 communicates a great deal of wisdom.
is very much on the minds of investors, markets and lawmakers.
The developments were tied in part to Moody’s announcement that it was downgrading
the U.S. credit rating over concerns about large annual deficits, debt and rising interest costs.
Amna Nawaz discussed more with David Wessel.
https://www.pbs.org/newshour/show/credit-rating-downgrade-triggers-warning-signs-for-u-s-economy
Fact, I very much doubt that you're going to worry that your tax-break money will be coming from medicaid allowances for the poor.
Fact, I very much doubt that you're going to worry that your tax-break money will be coming from elimination of government services vital to the safety and well-being of everyone in the U.S.
Fact, I very much doubt that you care about much of anything that doesn't increase your personal wealth.
Fact, you still haven't explained how your people's enormous increase in the national debt is good or healthy for the United States.
Go ahead there FD- let's hear all about it.
'this used to be a great investing forum. i always make money, but tell me which stocks to buy, and why.'
Let's hear why it was better in that period.
The rich get richer is old news.
From memory, an average CEO used to make 30 times their average employee, it's over 300 times for years.
Our politicians are great at spending money if they want to get elected.
The US was downgraded already in 2011.
Please save me the tears, Dems policies are great, GOP are evil.
Another thread that discuss politics and policies without current investment applications.
I don't need to explain my people, I don't have people, I voted for both parties and what I do with my own money or my contributions is irrelevant.
https://www.amazon.com/Capital-Twenty-Century-Thomas-Piketty/dp/067443000X
News from Thailand https://www.kaohooninternational.com/markets/558008
https://www.tradingview.com/news/zacks:93124ead9094b:0-u-s-banks-ratings-cut-by-moody-s-on-rising-sovereign-debt-concerns/