Despite decades in the finance world, and being disturbingly familiar with rating agencies and their rating requirements, I never thought
this would happen. Not in my lifetime. Even though it's been inevitable, literally inevitable, for a couple of years now. The only thing preventing an earlier downgrade has been political pressure. And, obviously, even that won't work anymore.
Expect Moody's to downgrade the US in the next six months.* And I'm not even really sure what's going to happen next. There are literally BILLIONS and BILLIONS (maybe even TRILLIONS) of dollars that are required, absolutely required, to be invested in AAA debt - particularly pension funds. And there's not a lot of AAA debt to be purchased anymore. So who the hell knows what's going to happen when the Moody's downgrade comes (most finance/debt investment deals need downgrades from 2 or more rating agencies before triggers require the money to be invested elsewhere). I have no idea what money will chase - maybe German debt? This will impact the banking system - expect banks to get downgraded, too. And I imagine on Monday the market will sink (unless the last couple of days it has been pricing this in).
Bleh.
The only positive things I can see about this, which doesn't help my FSO dreams at all, is that this might...maybe...God I hope so...get the politicians to get their heads out of their asses and manage both the debt and the budget in a meaningful way. Also, counter-intuitively, there might be a flight to treasuries - a lot of investors will go where they think there is safety, no matter what the return may be.
Can I say it again? Never thought I'd live to see this. But then, I never thought I'd see Lehman...frickin' Lehman, go the way of the dodo bird.
*For those not familiar with rating agencies, S&P is generally the leader in establishing ratings and Moody's generally rates in lock-step or soon follows S&P - Fitch, in my opinion, is a me-too rating agency that does whatever the other two do.
