Raters Put U.S. on Notice
How a credit rating downgrade will worsen U.S. deficit
- Duration 5:08
- Date Jul 15, 2011
How a credit rating downgrade will worsen U.S. deficit
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Bond -- in his with a -- and I in CEO.
But you've been here before -- -- -- -- almost sometimes really -- same story different day but.
What's your sense of what these credit agencies are doing to the market -- now.
Well I I think they're just sending -- wake up call for the government.
For I don't think the markets are really surprised by this I think the markets have known for quite some time editors -- major debt problem with the US government.
So for Ross Standard and Poor's and Moody's to to come out with these statements now I don't think is that big of a surprise after role.
Standard and Poor's a few months ago already on lowered their outlook on US government as.
This is a more formal step but they've taken and basically said that the probability of a downgrade.
Has increased and they happen sooner rather than later so I don't think anything in the way anybody in the markets really -- surprised by this.
We've been here before me have in 2008 -- and -- and and it will happen again.
And it seems to me that we're not learning our lesson right we come up with a short term -- is just to get us through them -- -- we revisit.
And we get -- and again and goes on and on and on so you almost wonder if the rating agencies in any week at all.
Well you know the rating agencies were all strongly criticized in.
-- -- exactly yeah they were all too slow to downgrade the mortgages they gave a lot of cross sub prime mortgages.
Investment grade ratings -- we ended up with all these problems there were congressional hearings.
And many of the same congressmen.
-- -- in congress today we're criticizing the rating agencies are being too slow know why did you see this coming why did you.
Lower the rating sooner.
And now ironically the rating agencies are being very proactive and they're downgrading the government that are released threatening to downgrade haven't downgraded anything -- but.
They're being much more proactive which I think is a is a good thing and it's but it's a slap in the face to many of these politicians.
They're not getting their own house in order -- we need to do that and this is this is very critical.
Now if the US government.
Waiting -- home was lower.
On many people expect that interest rates would go off and this would of course make the deficit bigger because interest payments would be bigger.
I think there's a chance that interest rates may not actually increase all all that much because on a relative basis.
US government that would still be better than most other sovereign debt.
On Europe of course has many more problems than we do -- there -- only a handful of countries that will continue to have played a triple triple A rating.
But if we were to go to let's say double -- plots.
-- -- it would still be an investment grade rating and I think many investors around the world would still want to hold US government but it will -- interest rates.
It low interest rates will go off on how much they don't want is the big question.
Don't her though -- she and anyway in many many levels you know that and creditors are to come -- now it's gonna be even harder interest rates will go up.
And this it's just this.
You know confidence.
Levels are down tremendously to begin with we got the numbers were down eight points from June alone.
That's this is not gonna help the economy at all no -- have.
Course saw one of the most critical interest rates is the mortgage interest rate right and mortgage rates are often -- to two government debt so right government interest rates go up mortgage rates going to.
And that's not a good thing when you're in the middle of -- housing crisis so we have a situation right now where many people are under water.
On many people who would like to buy -- house can't qualify for a mortgage.
And now we might even raise the rate on the mortgages so -- so this could really cause the economy to go into a double dip recession what do you think about retail sales numbers.
They were disappointing and right horse but I actually thought.
But the big surprises that retail sales continue to go off.
Right are given how dismal jobs market is on which makes me wonder you know we are all these people who are unemployed are looking for work -- -- getting the money from to continue buying.
I've -- our savings rate dropped a little bit some people might be dipping and -- -- and dimes and a TV if I wanna get it.
Well they are going from savings but I think the bigger issue is that there were a lot of people in the US economy right now that are working in the underground economy so -- -- like officially be unemployed of what they are doing something that's bringing in.
-- -- And unfortunately got income is not being traced by the government and airports not being taxed.
So now we have a situation where you have politicians like President Obama saying that we need to tax the rich.
More but the rich are already over tax on the top 1% has -- 40% of all the income taxes.
-- there are a large number of people who are skipping out on taxes altogether I think would be more effective.
To make sure that everybody is paying their fair share that would bring in more revenue into the -- of.
You are the chief investment officer -- -- wealth management I -- believe your clients are wealthy.
Yes very yes OK what do they worry about well they're very worried about all political risk I would say -- wonderful -- debt default.
Well the I -- I wouldn't say they're so worried about.
That the fault but they are certainly worried about.
The risk of that in -- of investing in US government securities as -- -- And at the risk that the US politicians may do something to hurt the economy useful.