Worst Is Yet to Come

"Worst Is Yet to Come:" Americans' Standard of Living Permanently Changed

by Aaron Task  in Investing, Recession

There's no question the American consumer is hurting in the face of a burst housing bubble, financial market meltdown and rising unemployment.

But "the worst is yet to come," according to Howard Davidowitz, chairman of Davidowitz & Associates, who believes American's standard of living is undergoing a "permanent change" - and not for the better as a result of:

    * An $8 trillion negative wealth effect from declining home values.
    * A $10 trillion negative wealth effect from weakened capital markets.
    * A $14 trillion consumer debt load amid "exploding unemployment", leading to "exploding bankruptcies."

"The average American used to be able to borrow to buy a home, send their kids to a good school [and] buy a car," Davidowitz says. "A lot of that is gone."

Going forward, the veteran retail industry consultant foresees higher savings rate and people trading down in both the goods and services they buy - as well as their aspirations.

The end of rampant consumerism is ultimately a good thing, he says, but the unraveling of an economy built on debt-fueled spending will be painful for years to come.

NEW YORK | Fri Aug 5, 2011 9:13pm EDT

(Reuters) - The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday, in a dramatic reversal of fortune for the world's largest economy.
S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

COMMENTS:
BORIS SCHLOSSBERG, DIRECTOR OF CURRENCY RESEARCH AT GFT, NEW YORK
"It's probably going to put a little bit more stress on the dollar when we open in Asia on Sunday night. It's the first time in history that the S&P has downgraded the United States. Even though most of the investors are not required to hold a triple-A rating, there' still a significant minority that may decide to liquidate at least some part of their U.S. holdings now that the downgrade is in effect. At least initially, the impact on the market will be negative because there will some forced liquidation of U.S. assets. I don't think this is an unexpected move."
(About the timing of downgrade)
"They want the market to absorb the news over the weekend. It will mitigate the shock of the announcement. (Still), it may cause a pretty steep sell-off in Asia when we open as the market considers the significance of the news."
PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK
"It's not totally unexpected. It's just the suddenness of the move and according to the S&P logic, it's justified. I don't know that it's unanticipated by the markets. There might be a mild reaction, but it won't be very pronounced. The timing is a little accelerated but it's no surprise. The S&P was looking for a longer term fiscal adjustment and that has not materialized and is unlikely to materialize before the election."
IAN LYNGEN, SENIOR GOVERNMENT BOND STRATEGIST, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT
"The Treasury market to a large extent has anticipated either an official downgrade of the U.S. credit rating to double-A plus, or the looming threat. To some extent I would expect when Tokyo opens on Sunday that we will see an initial knee-jerk sell-off (in Treasuries) followed by a rally. The reason I would call it that way is because the Treasury market has shifted from trading off the flight to quality dynamic to trading off of U.S. fundamentals, and U.S. fundamentals -- despite the slightly better than consensus employment report today -- continue to suggest ongoing broader economic concerns with the potential for a double-dip recession.
"When you look at what has happened to other triple-A rated countries who have lost that rating it has tended to be a bullish period, which has been characterized by lower interest rates. That is more a factor of the broader economic expectations than it is of what the ratings agencies are saying.
"In the credit crisis of 2008 and 2009, the ratings agencies were dealing with a credibility issue. The fact that they have now downgraded the United States suggests to me that they are now going to be dealing with a relevance issue, because the fact of the matter is that 10-year (Treasury note) yields are near 2.5 percent, and that in no way suggests a lack of sponsorship for U.S. debt."
PAUL DALES, CHIEF U.S.ECONOMIST, CAPITAL ECONOMICS, TORONTO, CANADA
"I don't think it will mean too much to be honest. There will probably be an initial market wobble -- fx markets might struggle and Treasury yields might fall a bit.
"The bigger picture is really that the world is not much different than it was a few hours ago. People are simply going to focus on what is happening on the ground and that is the economic news."
VASSILI SEREBRIAKOV, CURRENCY STRATEGIST AT WELLS FARGO IN NEW YORK
"It's not entirely unexpected. I believe it has already been partly priced into the dollar. We expect some further pressure on the U.S. dollar, but a sharp sell-off is in our view unlikely. One of the reasons we don't really think foreign investors will start selling U.S. Treasuries aggressively is because there are still few alternatives to the U.S. Treasury market in terms of depth and liquidity. It will probably put additional buying pressure on other safe-haven currencies such as the Japanese yen and Swiss franc. It will probably complicate the task for Japanese and Swiss authorities who are trying to curb currency gains."
STEVE BLITZ SENIOR ECONOMIST ITG, NEW YORK
"I don't know how seriously everyone is going to take it. There is S&P and there is Moody's and we don't know if Moody's is going to follow with a downgrade of its own.
"If you think about the things they have rated AAA over the past few years, then you think about the U.S. economy with 15 trillion dollars of income every year and it's never not paid its debt.
"I think maybe S&P is under a lot of heat. I think the other side of it is they are also ready and willing to downgrade the whole financial system because the whole financial system holds its capital in Treasuries and it leverages itself off of that capital."
WILLIAM LARKIN, FIXED INCOME PORTFOLIO MANAGER, CABOT MONEY MANAGEMENT, SALEM, MASSACHUSETTS:
"When they finally dealt with the debt ceiling they obviously kicked the can down the road, and the market did not need that. I thought at the time when they released it there would have been a downgrade.
"I don't think it is a great shock. If it didn't happen now I think it probably would have happened in a couple of months.
"A double-A plus is not a big issue, but it is going to have an impact. There are going to be ripples going across the pond."

The world's biggest net creditor doesn't have the all-important triple-A credit rating, but the world's biggest net debtor does
•   Graeme Wearden
•   guardian.co.uk, Wednesday 27 July 2011 16.49 BST
•   Article history
Credit ratings began as money poured into US railway companies in the 19th century. In the rush to open up the American continent, investors sought information to help them profit without losing their shirts.
As the US risks losing its AAA credit rating, we explain why the coveted top-notch grading matters.
Where does the AAA rating come from?
Rating agencies date back to the 19th century, and the heady early days of the US railways. In the rush to lay track and build railway stations across the American continent, investors craved information to help them profit without losing their shirts. Many railway companies went bankrupt, with some businessmen – among those later dubbed "robber barons" – using borderline-illegal tactics to cripple their rivals.
Henry Varnum Poor (one of the "fathers" of Standard & Poor's (S&P) credit-rating agencies) was one of the first analysts to tackle the railway tycoons. He collected and published analyses of the financial health of the various railroad companies that sprang up across the country. John Moody launched a similar venture, called Analyses of Railroad Investments, in the early 20th century.
Fitch says it was the first agency to create an alphabetical ranking for bonds issues by countries, called sovereign debt, and corporations in 1924. Fitch, Moody's and S&P, in 1975, became the first three companies to be recognised as "statistical rating agencies". Today, there are 10 rating agencies approved by the US securities and exchange commission.
What is special about the AAA rating?
The "triple A" rating is the highest possible rating that can be given to a company or country. S&P says that it only awards AAA when there is an "extremely strong capacity to meet financial commitments". This gold standard means an AAA-rated borrower can usually secure a loan at lower interest rates, as there is much less risk that the money will not be repaid.
Is AAA a guarantee, then, that a borrower will not default?
No. The rating agencies are careful to point out that their opinions exist "within a universe of credit risk", So, there is less chance of an AAA bond defaulting than a BBB one, but still some danger.
How many countries have an AAA rating?
Because the ratings agencies use slightly different methodologies, there is no single list of AAA-rated sovereign debt. As an example, Standard & Poor's have assigned the AAA rating to the following: Australia, Austria, Canada, Denmark, Finland, France, Germany, Liechtenstein, Luxembourg, the Netherlands, Norway, Singapore, Sweden, Switzerland, the United Kingdom and the United States. Territories that are not sovereign are also included: Guernsey, Hong Kong and the Isle of Man.
Why don't China or Japan make the cut?
Japan lost its AAA rating in 2001, when S&P warned that its weak economic growth and large deficit made it more of a credit risk. It is now only rated as AA-, the fourth-highest rating, with S&P. As Credit Suisse's Andrew Garthwaite pointed out, it is ironic that the world biggest net creditor has a lower credit rating than the world's biggest net debtor [the US].
In practice, the lower rating has little impact, as much of Japan's government debt is bought by its own citizens or corporations.
Despite its strong economic growth, China does not qualify for the AAA rating either. S&P says that "contingent liabilities" (ie unknown but possible future debts) in the Chinese banking system could knock its growth off course, and assigns it an AA- grade.
Does one cut lead to another?
Once a country is downgraded once, it can quickly see its rating deteriorate. This happened to Greece, which was cut from A to A- in January 2009, and two years later is about to default.
Gary Jenkins, a City analyst at Evolution Securities, believes that "from a rating agency perspective the first cut is the hardest ... once that initial downgrade has been made, no doubt others will follow."
Once a triple-A rating is lost, is it gone for ever?
No, it is possible to regain the faith of the rating agencies. Back in 1994, Moody's stripped Canada of its "Aaa" rating, citing concern over its rising debts. Seven years later, after a strict austerity programme helped to rebuild the nation's finances, it was upgraded to triple-A.

Yes, as said, “No realistic likelihood that the situation will improve anytime soon”.
Skipper started this thread last February 19, 2009, @12:40:24 AM. Quite a good prediction, isn’t it? How long forecasted before reaching its nadir?

Yep, now’s the best opportunity to invest in your knowledge. Build it up. So, you’ll be ready when economic recovery comes.
“Invest in yourself. Read. Travel. Learn. Find the right mentors and guides who can teach you about the ways of heaven and of earth. Deepen your faith. Grow in wisdom. You cannot give what you do not have. And if you want to make the world [or, at least, the small world around you] a better place, you have to start by making yourself a better person.”
- Edmun H. Liu

Remember that,
"Procrastination is opportunity's assassin."
- Victor Kiam
 

Oh, yeah, I do have my own kind of AAA-rating in my soulmate search. I rate girls according to a scale from 1 = lowest to 10 = highest. Based on my selection criteria – the 5Bs, viz., Brain, Beauty, Body, Breast, & Bottom.
Indeed, I do place some consideration on her bottom. Gotta be tough enough to absorb  punishment. Reason I’d insist on a ‘lobot-biopsy'. If you don’t know what it means, ask Angel. 

The Canberra Times
22 Dec, 2011 08:31 AM

Treasurer Wayne Swan has welcomed international ratings agency Moody’s reaffirmation of Australia’s AAA credit rating.
Earlier this month, Fitch Ratings joined the other two major ratings agencies - Moody’s and Standard and Poor’s - in awarding Australia a AAA long-term credit rating.

Moody’s confirmed its rating overnight, saying “Australia's Aaa ratings are based on the country's very high economic resiliency, very high government financial strength, and very low susceptibility to event risk”.

“Economic resiliency is demonstrated by the country's very high per capita income, large size, and economic diversity,” it said.

“The government's debt rating of Aaa takes into account the aim of maintaining a balanced budget, on average, over the business cycle. It is supported by the very low level of public debt and the country's strong financial system. In comparison to most other Aaa-rated countries, Australia's government financial strength is very high, with very low gross debt that is easily affordable and provides a high degree of fiscal flexibility.”

Mr Swan said in a statement that the reaffirmation was a “resounding endorsement of our sturdy public finances and strong economic fundamentals”.

“Australia ends the year rated AAA by all three global ratings agencies – something that was never achieved under the previous government,” he said in a statement.

“Despite the substantial global headwinds that are hitting our economy, Australians have reason to be confident about our economic strengths that are unmatched by just about any other developed economy.

“We have a solidly growing economy, low unemployment, contained inflation, strong public finances and a record pipeline of investment that is gathering pace.”

gotta be ready at all times

gotta be ready at all times

Merely trying to discourage sheilas from choosing you or Dawg. Hehehe. All is fair in love and war. 
Yes, sheilas! for greener pasture Aus’s the way to go. Forget about USA. Uncle Sam’s current debt is $15,147,433,975,560.41.

Hahahahha namuot ko ni Juan 

i just want to leave the bad memories in 2011, there's no turning back to those who have caused us pain, i don't want them in my life >>> ever!