NP: No gov't; best gov't..from John Lanchester LRoB

[alice wellintown]

David, you are simply wrong. If S&P or Moodys or Duff & Phelps or
Fitch or any other reputable rating agency had reason to suspect that
the USA would default on its securities it could not and would not
give the USA a AA+ rating. How could it?

Paul is missing something here too. That is, the UST yield curve had
become steeper after the QE by the Fed. This steepening is owed to the
major market players in the UST  moving the long end up vs the short
term securities, so the bell weather 10 year and the old bell weather
or benchmark 30 year had declined in price and the yield increased as
the curve is a leading indicator, and the players were betting that
the economy would recover in a traditional steep pattern.  This is
normal. After a deep recession we usually get a steep recovery.

Of course, this did not happen. The double dip in the housing market,
now a double dip in the US banks and agencies, now heading to the
courts, along with other factors, including the Obama vs Rep Tea Party
factor and the S&P downgrade, Greece....Japan, natural
disasters...protracted wars...so on, has put an end to the whimpering
recovery. So, the UST yield curve, while a flight to quality play even
after a downgrade, as Paul noted, is normal as it is actually a
fundamental trade because the traders believe the USA is heading into
a recession and the tools it has to get out of it are all locked up
the woodshed Ben took the congress to the other day or broken or
useless. The fundamentals are weak and getting weaker, so the US long
term securities, never a default risk, are a good play right now. Buy
them! Also, because the US market is soooo big, it has liquidity. You
can sell a billion of these securities in one second and you will have
ten firms bidding aggressively to buy them from you. Try that with any
other bond.



As Paul notes, the US is not any old nation state but the locomotive
of the world economy; right now, it is, as Bob Dylan sez, a broke down
engine. How is the issue. How will we get out of it? How long will it
take?



On Fri, Sep 2, 2011 at 4:35 PM, David Morris <fqmorris at gmail.com> wrote:
> Right.  This fact really did make S&P's move look silly.  But they've
> been courting the silly for a while now...