Moody's Threatens to Downgrade US Debt

[Mircea]

So long as US Debt continues to exceed GDP, down-grades will be forth-coming.

There's no surprise there, and it has no effect on stocks.

[PamelaIamela]

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Originally Posted by Jobster

I don't know about that anymore. This is what I wrote in another thread:

It probably depends on how fast interest rates rise. The problem is the pressure that the Chinese 10 year is putting on the US 10 year. Chinese debt is looking more attractive, particularly as it has higher yields, and will likely lower interest rates in the event of a global recession which may occur. The Chinese have a good reason to have a strong yuan because they are starting the petro-yuan, with the intention to purchase commodities futures?

True.

As dollars outflow from the US into China, the yuan will appreciate against the dollar. China will put pressure on the US by driving commodity prices up and they will be able to do it because they will use gold to back their oil futures, and they are strategically opening their market to foreign investment at a time where their rates and credit are very attractive.

True about yuan vs dollar exchange rate. But using gold to back their oil futures? Everyone has talked about GOLD, but guess who has the most gold in the world today?..not that I think it matters, mind you. (and I have a boatload myself)


This is important because if interest rates in the US rise too fast it will disrupt what is actually a very fragile economy. While the US economy doesn't appear fragile from the outside, consider that credit card debt is at an all time high by a significant margin, personal savings rates are down to 2007 levels, houses have never been more unaffordable according to the Case-Shiller home index, student loan debt and auto debt are at all time highs, and retail and commercial real estate are on wobbly legs to say the least.

Valid points but it's nowhere as bad as the totally screwed up mortgage bond collapse ten years ago.

Also, China is going to stop its purchases of treasuries and sell what it currently has, which will force interest rates up higher. China will also put pressure on the US economy by driving oil prices up through purchases as the dollar declines in value.

There's always the FED to come in and buy those bonds.. endlessly if need be.
Fight them at your peril!

Additionally, let's say there is a global recession, which is what I expect. China will recover faster than the US. Capital is flowing into Chinese bonds, so China will lower rates, which will help its business recover faster than US businesses.

In contrast, the US will have to raise rates, which is bad for business.

Why?


If the US dollar drops, and the Chinese pile up on crude, China will make a huge power move to overthrow the petro-dollar with the petro-yuan. The implications of this are enormous. First, less countries will hold US reserves because its no longer necessary to purchase crude with dollars. They will go to the Chinese market instead. Secondly, since there is less demand for US treasuries, the US will not be able to continue spending.

Where is China getting all this crude? And last I looked, we still are the worlds #1 producer.
Of course we gobble up more than we produce, but a recession will fix that!

This is why I say our politicians stole everything from us. They left us with nothing.
....

PLEASE EXPLAIN. .. How was this done, by whom, and precisely when?

You make many interesting points, but somehow, we seem to come out OK afterwards.
And predictions on such a grand scale are often proved wanting.
Time will tell.

[wheelsup]

You've got such a hard on for China. This must've slipped your mind from a few months ago:

S&P Cuts China’s Credit Rating, Citing Risk From Debt Growth

[PamelaIamela]

To everyone who reads this thread: I did a poor job of separating OP's major points from my comments.
Mea culpa.. I'll be more careful in the future.