Monday, July 2, 2012

1.       US credit downgrade is heading soon

By Shan Saeed

Last August 2nd 2011, Standard & Poor’s downgraded the U.S. government from its triple-A rating, sparking a plunge in stocks.. By the way, rating agencies have been behind the curve most of the time. All big banks /governments are the major clients of S&P, Moody's & Fitch. They don't want to make their clients [ big banks/governments ] to get angry with them. Otherwise, most of the employees of these ratings agencies would be on the road carrying their CVs for the jobs elsewhere. Ratings agencies are the puppets of big banks and governments. They get their reports vetted by their clients before sharing with media. All wordings of the reports [ of rating agencies ] are approved by the banks and governments. 

I see a lot of uncertainty till 2014 in the global financial markets. When I shared this thing in 2009 that I see lot of chaos , uncertainty and blood in the global market, people thought I was talking about clichés and jokes from the books. Time has proved that I am on the right side of the table.

One thing is pretty likely eventually, because there’s plenty of [government] borrowing continuing and not much plan about how to pay it back. QE, government borrowing and continued division among congressmen about tax benefits roll over will make things difficult for USA. But one of my friends said, USA
can continue to print the money even to the amount of USD 100 trillion and the value worth less than 5 cents. With this quantum of cash, many policy makers will find ways for them to find a solution to survive.

That’s the normal course of business in terms of governments all over the world. Some are a little faster than others, such as Greece, Spain, and Italy, but USA is in the same pack. Obama government spends money it doesn’t have. I call printing money as fantasy money with no legs.  U.S. government debt is equal to  $15.77 trillion, slightly higher than GDP size of $15.32 trillion. The outcome will be higher interest rates and low standard of living and decreasing in purchasing power of average merican.

After 31 years the bond market may be ending a long-term uptrend and getting ready to turn down. While some economists worry about the possibility of higher deflation, I rule out the possibility of Japanese style of deflation. Deflation is the source of many of the economic problems and low consumer confidence. It’s why the stock market is finally caving in. And deflation will ultimately mean higher interest rates on the bad debt, just like in Europe.
In a recent survey conducted by the Blue Chip Economic Indicators found that 93 percent of top Wall Street strategists and economists aren’t factoring a plunge over the fiscal cliff into next year’s economic forecasts.

Disclaimer: this is just a research piece and not an investment advice. All financial transactions carry a RISK. 

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