• 5 minutes Rage Without Proof: Maduro Accuses U.S. Official Of Plotting Venezuela Invasion
  • 11 minutes IEA Sees Global Oil Supply Tightening More Quickly In 2019
  • 14 minutes Paris Is Burning Over Climate Change Taxes -- Is America Next?
  • 6 mins Alberta govt to construct another WCS processing refinery
  • 12 hours Let's Just Block the Sun, Shall We?
  • 1 day U.S. Senate Advances Resolution To End Military Support For Saudis In Yemen
  • 1 day Waste-to-Energy Chugging Along
  • 1 day What will the future hold for nations dependent on high oil prices.
  • 7 hours What Can Bring Oil Down to $20?
  • 1 day Venezuela continues to sink in misery
  • 2 days UK Power and loss of power stations
  • 1 day Contradictory: Euro Zone Takes Step To Deeper Integration, Key Issues Unresolved
  • 1 day Regular Gas dropped to $2.21 per gallon today
  • 2 days No, The U.S. Is Not A Net Exporter Of Crude Oil
  • 2 days EPA To Roll Back Carbon Rule On New Coal Plants
  • 20 hours Sleeping Hydrocarbon Giant
  • 21 hours Sane Take on the Russia-Ukraine Case
Alt Text

Yieldcos Are Back And Better Than Ever

Yieldcos have had a rocky…

Alt Text

World Bank To Cut Off Oil & Gas Funding

In accordance with the Paris…

Alt Text

Trump’s Tariffs Lead To Selloff In Oil Markets

The announcement of the Trump…

Mad Hedge Fund Trader

Mad Hedge Fund Trader

John Thomas, The Mad Hedge Fund Trader is one of today's most successful Hedge Fund Managers and a 40 year veteran of the financial markets.…

More Info

Trending Discussions

RIP for America’s Triple A Rating

At long last, after months of warnings, leaks, hand wringing, and speculation, Standard and Poor’s has at last downgraded US Treasury bonds a notch to AA+. The change was the most telegraphed ratings change in history.

You can bet this weekend saw a flurry of emergency board meetings across the country. Many institutions are only permitted to own AAA debt securities, and rules will need to be changed quickly to permit their continued residence in institutional portfolios.

I don’t expect to see any major market impact, beyond a day or two. The fact is that America’s financial health has been sliding down hill for the last 30 years. Standard & Poor’s should have made the downgrade during 1980-82, when Ronald Reagans quadrupled the national debt, from $1 trillion to $4 trillion.

It should have downgraded Uncle Sam’s debt a second time when George W. Bush doubled it again from $5 trillion to $10.5 trillion. It turns out that cutting taxes while starting two new wars is not a great budget balancing strategy. If any other country were issuing bonds with this balance sheet, I reckon they would catch a single “A” rating at best.

I suspect that the timing of the downgrade now was more of a political than analytical decision. It’s not that Standard & Poor’s has any great credibility here. It totally missed the 2008 financial collapse. During the credit boom, it handed out triple “A” ratings with reckless abandon to subprime securities that were clearly junk. To this day, I am amazed that the shoddy practices of the ratings agencies didn’t get the principals sued out of existence or put in jail.

Sovereign debt downgrades from triple “A” are not without precedent. In every case the change turned out to be a deep lagging indicator, a classic case of closing the barn door after the horses have bolted. One need look no further than Japan, whose downgrade was greeted with no more than a yawn.

Today, the Japanese government can borrow all it wants at 1.01% for ten years, and a pitiful 1.90% for 30 years, less than half of what the US government currently pays. The true irony here is that Standard & Poor’s made its move the day after ten year Treasury bond yields matched a 40 year low at 2.35%.
span style="background-color: #ffff99;">em>
It may turn out that America’s long heralded debt downgrade is the first boring thing that happened this month.

Figure 1

By. Mad Hedge Fund Trader




Back to homepage

Trending Discussions


Leave a comment
  • Anonymous on August 07 2011 said:
    Some good observations in this article. For instance, who died and left Standard and Poor's in charge of deciding who needs clean underwear. I also like seeing that Mr Reagan quadrupled the national debt. I have that in my finance book, but some people thought that I had lost my mind when I pointed it out in a lecture.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News