Ratings firm downgrades U.S. creditIt's been suggested that the reason for the Fed's action was to pump a mountain of cash into the system and give it something of a temporary boost before the election, a desperate effort to stave off an Obama defeat.
(CBS/AP) New York - Credit rating agency Egan-Jones is downgrading its rating on U.S. debt to AA- from AA, citing Federal Reserve plans to try to stimulate the economy.
The firm said the Fed's plans to buy mortgage bonds will likely hurt the economy more than help it. Egan-Jones said the plan will reduce the value of the dollar and raise the price of oil and other commodities, hurting businesses and consumers.
"Up, up and away -- the Fed's QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the U.S. economy and, by extension, credit quality," Egan-Jones said in a report Friday, alluding to a third round of quantitative easing announced by the central bank Thursday. "Issuing additional currency and depressing interest rates via the purchasing of [mortgage-backed securities] does little to raise the real GDP of the U.S., but does reduce the value of the dollar... and in turn increases the cost of commodities (see the recent rise in the prices of energy, gold and other commodities)." [link]
Perhaps that's so.
Regardless, we are now facing another financial burden, heaped upon the pile of burdens we already bear.
In a press release George Allen had this response to the news:
America’s latest credit downgrade is a disturbing indicator of what Washington’s fiscal recklessness is costing our country. Rather than make tough decisions, Washington has continued to make deals that jeopardize our national defense and hundreds of thousands of good-paying Virginia jobs. My opponent claimed that the Sequestration Deal last summer would 'help preserve our nation’s' credit rating. And he still calls the deal 'the right thing to do,' even as it has failed to prevent the downgrade of our credit rating and will devastate our military, jobs and families.Fiscal recklessness indeed.
As the Democratic National Committee Chairman, Tim Kaine championed the borrow and spend policies that have led to four straight years of over trillion dollar deficits and the credit downgrades we have seen the past year.
The long-term reform America needs is a Balanced Budget Amendment to force efficiency and accountability in Washington with positive job-growth regulatory and energy policies that spur economic vitality, jobs and revenues.