Zero Hedge – Moody’s Chief Economist Proposed Deal Will Avoid US Downgrade

And there you have it. Mark Zandi, better known for predicting at least 18 occurrences of a US recovery in the past 4 quarters, and being as wrong on the shape of the US growth curve as everyone else on Wall Street (although being Moody’s head economist that is a perfectly normal track record), just told CNN’s State of the Union that the deal is substantive enough to where Moody’s will not move to downgrade the US’ AAA rating. Naturally, the fact that this is merely another massive can kicking exercise which will see the US debt ceiling raised by $3 trillion with actual cumulative cuts of about $100 billion tops by November 2012 at which point yet another debt ceiling hike will have to be planned is irrelevant. All that matters is to get the S&P back to the year’s highs, 120% debt/GDP (same as Greece) be damned.

From Politico:

Former Moody’s top economist Mark Zandi says he’s quite “excited” by the framework of a debt ceiling deal being discussed on the Sunday shows — and believes the certainty of substantive deal will lift markets and head-off a downgrade from AAA.

“I’m not in the rating agency… but listening to what they have to say, I think this would be sufficient… but this is substantive and should avoid a big downgrade,” said Zandi, adding that some agencies “may go down a different path.”

“If the deal collapses, look out, he warned. “If there is any misstep here it will likely undermine confidence and we will likely slip into recession…the economy literally hangs in the balance,” Zandi told CNN’s “State of the Union.”

But if the deal hangs together – a big if, considering the likely opposition of tea partiers — it’s “great news and that gets us very close to fiscal sustainability — I’m very excited.”

Being the apparatchik that he is, and that would fit perfectly in any centrally planned bureaucracy as a D-grade sycophant, he also had the following to add: “The bicameral, bipartisan committee “is a positive step” that will give markets a real sense of certainty on future deficit reduction.”

Ah yes, let’s leave the future of our country to a “bipartisan committee” whose determinations will be completely ignored when the time comes. Any why not: Obama will have a carte blanche to continue on his present course for another $3 trillion worth of debt.

http://www.zerohedge.com/news/moodys-chief-economist-says-proposed-deal-will-avoid-us-downgrade

I believe my comments from yesterday on the matter were as follows:

Moody’s is either making themselves look more foolish than they already are by constantly attempting to grab attention, or they are actually serious about a downgrade and will do so next week. Moody’s, like S&P have missed many obvious ratings in the past (take MBS for example) and it seems foolish for anyone to care what credit ratings they decide to give out. Additionally, a downgrade of US debt without labeling many others across the globe as junk is hypocritical and adds to the ridiculousness of their image.

So is Moody’s really going to wimp out again? Do they realize that it is the empty threats and pointless attention grabbing like this are the reason that no one really cares about their opinions anymore? I guess I’ll leave the surge in UST’s on Friday as evidence that the market excludes just about anything they say from their sentiment regarding bonds and equities.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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