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Skip to comments.US Credit Rating Cut by Egan-Jones ... Again [pumping blamed]
Posted on 09/14/2012 1:37:16 PM PDT by Cincinatus' Wife
Ratings firm Egan-Jones cut its credit rating on the U.S. government to "AA-" from "AA," citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country's credit quality.
The Fed on Thursday said it would pump $40 billion into the U.S. economy each month until it saw a sustained upturn in the weak jobs market.
In its downgrade, the firm said that issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.'s real gross domestic product, but reduces the value of the dollar.
In turn, this increases the cost of commodities, which will pressure the profitability of businesses and increase the costs of consumers thereby reducing consumer purchasing power, the firm said.....
(Excerpt) Read more at cnbc.com ...
Bernanke announced that he was going to run the printing presses overtime to print $85 Billion a month to “stimulate” the economy and “create jobs”, but all he is doing is priming the pump for run away inflation.
This rating cut is obviously the fault of Mitt Romney and the anti-muslim video.
This is the 3rd downgrade by Egan with the big names like Moody's still waiting to catch up.
The above quote from Egan contradicts the supposed intent of this action by the Fed. The Fed says it is to increase hiring. Egan says it REDUCES consumer purchasing power.
Reducing consumer purchasing power means they will purchase LESS, which means manufacturers have fewer orders, which means they need fewer workers.
Can it be true that Obama is secretly -- through the Fed, through ObamaCare, through ending the Bush tax cuts, through promoting higher energy costs, and through pushing for additional tax increases -- following a high unemployment strategy?
Conservatives have been onto that for at least 2 years.
This is a classic liquidity trap and we are also in the middle of a massive deleveraging as well as asset deflation. But commodities are different in that they react to monetary stimulus through inflation. The classic monetary response to deflation (what we have seen in real estate as well as what is seen in the monetary velocity charts) is to add liquidity (first through rate reductions but directly through QE)
As far as Egan, they are considered by the “elite” in the financial world as a bit of a joke (she on Twitter called them the Mr. Pibb of rating agencies) . But they are the ones that are “telling the truth”. Personally I don’t think that QE will have that much impact on input costs but do agree with the downgrade due to the complete lack of leadership on solving the long term financial issues. Obama’s regulations on energy will have a far greater impact on input costs than anything from a monetary policy standpoint.
So flooding the market with cash will drive up commodities, move houses (mortgages?), AND restrict consumer purchasing power.
How does a buyer with less purchasing power qualify for a house?
And how does this not increase unemployment?
The theory is that in deflation people/banks are hoarding cash. By adding liquidity it makes additional dollars less meaningful and banks will be more willing to lend which spurs economic activity which, of course, drives employment.
On the flip side there is this post from ZeroHedge that highlights BofA’s call for the results of QE: