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In the wake of the Berkshire Hathaway (BRK.A) downgrade yesterday, consider this: Only four U.S....

In the wake of the Berkshire Hathaway (BRK.A) downgrade yesterday, consider this: Only four U.S. non-financial firms now sport AAA ratings: Automatic Data Processing (ADP), ExxonMobil (XOM), Johnson & Johnson (JNJ) and Microsoft (MSFT). Only 18 financial companies have AAA credit. Indeed, the world has become a much more leveraged place.
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Comments (8)
  • Tom Au, CFA
    , contributor
    Comments (6777) | Send Message
     
    That's just the problem. There are no widows and orphans' holdings anymore because the world is so fond of leverage.
    5 Feb 2010, 12:57 PM Reply Like
  • Tack
    , contributor
    Comments (13576) | Send Message
     
    It seems to be perpetually overlooked that all increases in overall leverage occur, ultimately, at the national level --whether in U.S., Europe, or anywhere-- and that the added currency that finds its way into the economies never really disappears, whether it is paid back to the specific "lender" or not.

     

    So, over time, the consequences are the same as one can observe historically and near constantly in world fiat-currency affairs, namely inflation. The debts, inevitably get erased, in some fashion, but the expanded currencies remain, thereby assuring inflation, as soon as monetary velocity resumes.
    5 Feb 2010, 01:10 PM Reply Like
  • Doug Poretz
    , contributor
    Comments (137) | Send Message
     
    great observation
    5 Feb 2010, 01:18 PM Reply Like
  • bfstrog
    , contributor
    Comments (74) | Send Message
     
    " The debts, inevitably get erased, in some fashion, but the expanded currencies remain, thereby assuring inflation, as soon as monetary velocity resumes."

     

    When debt is created the money supply does expand, but when it is destroyed as loans are payed back and consumers de-leverage, there will be a contraction in the money supply, which will tend to deflate the currency. The expanded currencies do NOT remain after debts are re-paid. If they are not re-paid, the currency remains but the lender's balance sheet is impacted with a loss. It is a zero sum game, except for the magical printing press located in the US treasury.

     

    Helicopter Ben is attempting to avoid deflation by injecting dollars into the system, but he is only providing sufficient liquidity to those lucky enough to have access to the discount window and/or Fed bailouts. But this backfired... those lucky few have instead used that cash to profit from the spread between the discount window and treasuries, while the consumer sector continues to deflate. The banks benefit from the extra liquidity before inflation hits the system as a whole (it is a long, slow, process).
    5 Feb 2010, 01:29 PM Reply Like
  • bbro
    , contributor
    Comments (9852) | Send Message
     
    Don't you think MOODY's is gettings lot tougher on AAA ratings since they handed it out like candy 3 or 4 years ago....
    5 Feb 2010, 01:13 PM Reply Like
  • Doug Poretz
    , contributor
    Comments (137) | Send Message
     
    At one point, this recession/economic period was called by some "The Great De-leveraging" -- that's proving to be a major misuse of a description.

     

    But there is another misused description that concerns me more: the news media interprets bad news as something that might slow down the recovery or dampen the recovery, and every time they report that it assumes that we are in fact IN a recovery, even if it is tentative and early. I do not see anything (except aberrations that prove the rule) that would lead anyone to believe a recovery has actually begun, albeit there are some indications that the speed of the decline is slowing in some instances and some people and enterprises have figured out how to cope, at least for now.

     

    To me, when just about every important trend is heading south, regardless of the pace, we are not in even the very early stages of a recovery. Instead of describing bad news as something that might slow down the recovery, the news media should be telling the core truth: things are getting worse. To do otherwise is to mislead the public.
    5 Feb 2010, 01:31 PM Reply Like
  • bfstrog
    , contributor
    Comments (74) | Send Message
     
    Doug, in reality, macroeconomic forces are too great for 1 person (see: Bernanke), or even one television network, to understand. They tell people what they want to hear, and we see it for what it is. We are not in a recovery, never have been - the fraudulent GDP numbers are not even an accurate judge of US economic activity.
    5 Feb 2010, 03:32 PM Reply Like
  • youngman442002
    , contributor
    Comments (5131) | Send Message
     
    This explains why the USA still has a triple A rating...HUH?
    LOL
    5 Feb 2010, 01:41 PM Reply Like
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