Agency Downgrades US Credit Rating

Egan-Jones has downgraded the United States credit rating from AA to AA- thanks to Ben Bernanke’s announcement that the Federal Reserve is going into non-stop printing and spending mode.

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. …

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. (Read More)

I’m surprised they didn’t downgrade us even further. This policy is insane, as noted at The Wall Street Journal earlier.

The Fed will start buying $40 billion of additional mortgage assets a month, with a goal of further reducing long-term interest rates. But if “the labor market does not improve substantially,” as the central bankers put it, the Fed will plunge ahead and buy more assets. And if that doesn’t work, it will buy still more. And if . . .

[…]

Then there are the real and potential costs of endless easing, three of which Mr. Bernanke addressed at his Thursday press conference. He said Americans shouldn’t complain about getting a pittance of interest on their savings because they’ll benefit in the long term from a better economy spurred by low rates. Retirees might retort that they know what Lord Keynes said about the long term.

Mr. Bernanke was also as slippery as a politician in claiming that his policies don’t promote deficit spending because the Fed earns interest on the bonds it buys and hands that as revenue to the Treasury. Yes, but its near-zero policy also disguises the real interest-payment burden of running serial $1.2 trillion deficits, while creating a debt-repayment cliff when interest rates inevitably rise. Does he really think Congress would spend as much if he weren’t making the cost of government borrowing essentially free?

The third cost is the risk of future inflation, which Mr. Bernanke accurately said hasn’t strayed too far above the Fed’s 2% “core inflation” target. That conveniently ignores the run-up in food and energy prices, which consumers pay even if the Fed discounts them in its own “core” calculations.

The deeper into exotic monetary easing the Fed goes, the harder it will also be to unwind in a timely fashion. Mr. Bernanke says not to worry, he has the tools and the will to pull the trigger before inflation builds. (Read More)

What’s going to happen when they stop? Do you trust Bernanke to know when to pull the trigger? Will he even be around to clean up the mess he’s creating? The stock market is doing great, for now. But just today I noticed the price of regular unleaded at the gas station around the corner – it was $4.09 per gallon. It’s probably going to go up even higher thanks to these reckless policies and the mess in the middle east. That means the cost of food and everything else will go up along with it. But hey, as long as Wall Street is happy and Bernanke can give the illusion of some improvement in the economy you probably won’t hear much about this from the lame media.

Update: I didn’t realize Andy had already written about this. Oh well, QE3 is so rotten it’s deserving of a little extra attention. Also, thanks to I’m 41 to linking to the other post.