A Short Note On US Bond Ratings

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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The three credit ratings agencies have released their assessment of US creditworthiness and economic outlook.

August 02, 2011, Moody’s: AAA – Outlook negative

August 05, 2011, Standard & Poors (S&P): AA+, Outlook negative.

August 16, 2011, Fitch: AAA, Outlook stable.

Transformations LLC’s evaluation of the above three ratings by the author suggests that given the risks stemming from liquidity trap, human nature, and geopolitics, ceteris paribus Fitch and Moody’s are expected to concur with S&P.

Though the Securities and Exchange Commission (SEC) review of the methods of the S&P downgrade may fulfill the supervisory requirements of government oversight of a statistic which has substantial impact on market expectations, the government due diligence must be cautious not to appear to intervene in the normal functioning of the market place.

Our conclusion from all three ratings is that the economic outlook for the United States is highly correlated to its borrowing capacity.

We are of the opinion that the Federal Reserve directly financing annual Federal budget deficits after freezing the annual budget through 2022 at the 2012 nominal level without indexing it for inflation by Congressional edict poses less of a risk than borrowing directly and indirectly from the Federal Reserve through the financial markets to implement expansionary fiscal policy. Doing so to raise domestic real investment could, therefore, improve investor expectations and return US creditworthiness over all time horizons to AAA and at least a stable outlook.

We, therefore, recommend that the United States of America do three things to address investor anxiety and lift investor expectations:

1. Freeze the Federal budget through 2022 in 2012 nominal dollars without indexing for inflation.

2. That the Federal Reserve make industrial policy also serving as an investment bank for the United States.

3. Reform Dodd-Frank financial regulatory law to divest the Federal Reserve of financial markets supervision and the conduct of consumer relations from within the Federal Reserve.


About Chandrashekar (Chandra) Tamirisa

This entry was posted in Economics, Finance, Financial Regulation, Monetary Policy and tagged , , . Bookmark the permalink.

One Response to A Short Note On US Bond Ratings

  1. 58m The Atlantic ‏@TheAtlantic
    Moody’s gives the U.S. a choice: Double-dip recession, or credit rating downgrade? http://theatln.tc/Q2DBeC
    View summary Reply Retweet Favorite

    57m 1776 @1_776
    @TheAtlantic Excellent. http://ctamirisa.com/2012/09/11/forward-monetary-policy-of-the-united-states-2012-2032/
    Hide conversation Reply Delete Favorite
    2:41 PM – 12 Sep 12 · Details

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