A less well-known ratings agency, Egan-Jones, has downgraded the federal government’s debt from AAA to AA+. The report explaining why can be found here. If you’re not a client, Zero Hedge has the press release, complete with charts, which gives you a solid understanding of the report’s contents:
We are taking a negative action not based on the delay in raising the debt ceiling but rather our concern about the high level of debt to GDP in excess of 100% compared to Canada’s 35%. Nonetheless, since the US’s debt is denominated in dollars, a hard default is unlikely.
So the mummery behind the debt ceiling talks has little to do with the government’s fundamentals, which are only getting worse. This additional item is worth remembering as doomsday (or at least doomsday as it is preached in the press) approaches:
Egan-Jones does not view a country’s ability to print its own currency as a guarantee against default. Additionally, Egan-Jones generally views cases of excessive currency devaluation as a de facto default.
Based upon that last bit, one could argue that the Federal Reserve’s mass printing of money over the last several years has effectively rendered the United States a larger version of Zimbabwe.
(Cross-posted at Score Radio Network)
