Downgraded

I'm still keeping my eye on those charts and gathering them, the tone though may have just shifted. Moody's threatened to downgrade the US if Congressional grid-lock didn't break, do you notice there are never any threats to downgrade a country if their central bank doesn't do "XYZ"? That's because as Bernie has been trying to point out to Congress from testimony to Jackson Hole, the F_E_D can only do so much and if you look at how much has been done (truly unprecedented in the history of Central Banking), the results for the real economy (not the stock market "wealth effect") the F_E_D delivers very little bang for the buck and it remains to be seen what the unintended consequences will be when all is said and done (QE2 threw manufacturers in to a profit margin squeeze and sent many emerging markets tumbling as the US exported inflation). The US's problems are structural and only the politicians can fix them unless the F_E_D did something truly effective and made the US take its medicine and just get it over with.

As you are about to see, it turns out F_E_D actions really do have unintended consequences.

Just 15 minutes ago or so, the little train that could, probably the most honest, least politically biased and best at what they do, Egan Jones, just downgraded the United States from AA (no there's not a 3rd "a" missing there) to AA-

From Egan Jones:
"

Synopsis: UNITED STATES (GOVT OF) EJR Sen Rating(Curr/Prj) AA-/ N/A Rating Analysis - 9/14/12 EJR CP Rating: A1+ Debt: $15.2B EJR's 1 yr. Default Probability: 1.2%

Up, up, and away - the FED's QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US.

Some market observers contend that a country issuing debt in its own currency can never default since it can simply print additional currency. However, per Reinhart & Rogoff's " This Time Is Different: Eight Centuries of Financial Folly " , p.111, 70 out of 320 defaults since 1800 have been on domestic (i.e., local currency) public debt. Note, US funding costs are likely to slowly rise as the global economy recovers or the FED scales back its Treas. purchases (75% recently).

From 2006 to present, the US's debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%. In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%. We are therefore downgrading the US country rating from "AA" to "AA-".

Ratings History:
Egan-Jones rating history for United States (Govt of).
9.14.12  AA to AA (-)
4.15.12  AA+ to AA (Negative outlook) 
7.16.11  AAA to AA+ "

As it turns out, this sentence from above,

 "The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US."'

was very much along the lines of the question asked of Bernie yesterday at 2:27 which the market did not like and put in an intraday top at that minute for most risk assets as shown in last night's post.