USA Credit Rating Will Plummet

Feb 2010 update

2010-02-08T20:01:00.000-08:00

In the news, the Treasury Secretary says the USA will never lose its AAA credit rating. If that's true, why does he have to say that?

It's not like Tim Geithner would lie. He might actually believe in the all powerful state run by Jews. Why Jews are god's chosen, they can do no wrong. Fiat money is as good as gold because we say it. If we Jews (god) say it, then you must believe it! Who can see that believing in Jesus is exactly the same as believing in fiat money? And both beliefs originate from the same criminal mind space.

God's chosen few, insane Jewish con men:

I think of course that if the credit rating is being verbally defended then it must be in real trouble. Any one who thinks US Treasury debt is as good as gold is a deluded fool, and in the CDS market Treasuries cost more to insure than many corporations. As with any borrower, there is a limit. When the end comes it could be sudden because those in charge are using every stick to prop up a dead horse.

There is simply no way for the USA corporation to get out of the hole it has dug for itself, its economy shredded and its debt exponential. But have no fear, there is always the deflation play, the last stick that can temporarily prop up a nation is decline. Deflation could force billions fleeing debt destruction into the US bond market.

"I am more concerned with the return of my money than the return on my money." - Twain

CDS curve starting up again, once the panic starts, yeah ha, watch out!

Sovereign bond CDS of lesser states is an omen for USA

Projecting CDS Curve US Treasuries

2009-03-02T09:53:00.000-08:00

Everyone wants to know, how long will it take before the Uncle Sam goes bust?

US Treasuries CDS is forming an exponential curve:

I transferred the data from the chart above onto 4 cycle semi-log graph paper. Doing so I was able to accurately project the US Treasury curve into the future. On semi-log paper the curved data points make a near perfect straight line, thus I can extend the line and calculate when CDS line will cross:

100 basis points = 27 Feb 2009
200 = 15 Apr 2009
400 = 15 Jun 2009
1,000 = 15 Sep 2009
10,000 = 15 May 2010

click on chart for larger image:

I hope you'll find this useful for planning purposes. It's better to be prepared than caught off guard. I'd say that when Treasury CDS passes 400 basis points that it will make front page news, when it reaches 1,000 a full blown crisis will be upon us. So by Sep-Oct 2009 we ought to be looking at a major debacle unfolding for Treasury borrowing. The implications, of course, are staggering.

I'd also like to note that it seems to me that the sellers of this "insurance" will hardly be able to make good if the US Treasury faulters. Who's going to back up the sellers of CDS insurance this time if Uncle Sam goes bust? It's all a game, the whole reason that default swaps were invented was to pass bad debt off as good. It's a con(fidence) game, everyone plays without critical thinking.

If you think that default is likely and are tempted to buy protection then why are you even buying the instrument in the first place? If you are thinking that US Treasury default is likely, why buy US TBonds? The situation is absurd, the government is already bankrupt, 40 years of deficits is proof. Why is it taking so long for the shoe to drop? Waning confidence is the answer.(see this acclaimed essay http://theconfidencegame.blogspot.com/)

Do you think the State that is over 10 trillion in debt, that has over 50 trillion in unfunded liabilities, is in the process of trying to prop up the dead horse of car manufacturing, insurance agencies, pension funds, and dead banks; and is now actually admitting to a 2 trillion plus FY2009 deficit actually has the ability or intention of actually paying off your bonds in real dollars?

Yes I know deflation is a good reason to park money in bonds, and we all know there's a panic in the credit markets that money moved to safe havens of government bonds but the truth is that US debt is not really AAA rated because default insurance on 10 year notes now exceeds lower rated corporate debt (see charts below).

In the chart below, was it not obvious that AIG was going under all through 2007 and 2008? It was obvious to a rational person. Humans love to operate in denial, confidence is slipping slowly at first then panic sets in for a dramatic ending.

Just before the Wall Street institution went bust last year, the basis points spike:

As default insurance on Treasuries soars, the actual credit rating will decline,
and bond prices will drop and interest rates will spike during the depression making it worse.

If you keep putting bad apples into your bushel, then pretty soon you have a bushel of bad apples. This is exactly what the the government is doing, it is ruining it's own credit rating by bailing out the zombie banks. It very likely that CDS on US Treasuries will continue along it's projected path until the crisis reaches the point where the politicians have to cut spending.

USA AAA credit rating already slipping:

Likely events include nationalized health care, nationalization of the banks, and drastic cuts in military spending. Stocks that service Medicaid are already dropping severely. Chart Humana (HUM), Wellpoint (WLP), Aetna (AET), Cigna (CI). Health care Exchange Traded Funds(ETF's) like VHT, PTH, PTJ, and IHF also declining. The forced cuts in spending will drive mega deflation (see my essay http://deflationgood.blogspot.com/)

If the Treasury keeps buying bank stocks, it is nationalizing the banks slowly. Because the member banks own Federal Reserve stock, that also means the Fed is being nationalized. That would be advantageous to the spendaholics. The government would then eliminate the huge interest on the national debt, which amounts to $400 billion a year. So it's time to put the Federal into the Federal Reserve System.

Also, I've been predicting that defense spending overseas will be drastically curtailed. The war machine industrial complex spends trillions in empire maintenance. This is likely to change soon. (See me essay http://endofamericanempire.blogspot.com/).

Ultimately the Federal Reserve debt-money fraud is really a confidence game. (see my essay http://theconfidencegame.blogspot.com/)

This chart tells all, government debt stimulus is now harming the economy.
The zero hour has already arrived, GDP is rapidly declining while trillions of new debt are created.
The curve now is actually negative, debt is killing the economy.

Phishna
4 March 2009

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Credit Default Swaps Starting to Indicate Treasury Bond Default!

2008-09-30T10:41:00.000-07:00

Just what is a credit default swap? It's a contract between two parties to swap risk of bond exposure.

Chart: until recently, US Treasuries were considered safe, now the are being viewed more and risky and the default premium is soaring. This is exactly what happened to the investment banks before they tanked.

Say you buy a pool of home mortgages that you think might decline, you purchase default insurance, you swap risk of default to another party. There's just one small problem, the seller of the default insurance may not be able to actually make good on the pay out.

chart: just before Bear Stearns went bust, CDS premium exploded upwards

The big problem with CDS is that large institutions have been UNABLE to actually make the payout when the underlying security goes bust. So why does the CDS market continue to grow exponentially even though the buyers of default protection have to pay hefty premiums although in an actual case of default the seller can't make good on on the promise to pay? Because the game is to collect the billions in premiums.

JP Morgan's primary business these days is to sell CDS insurance. JPM is currently trying to get the US government to cover the bad loans so there isn't a run on their "free market" insurance scam. The fact is JPM can't pay because there's no assets to back up it's "insurance" claims, and is trying to offload the risk of their insurance racket onto the taxpayers.

Unbelievable! The sellers of CDS insurance operate under the name of free market then try to socialize the risk. Now think clearly about this fact: nothing in Nature grows exponentially forever. All exponential systems eventually collapse and the rise of credit/debt way of life is no exception.

One day, after the fraud is realized, CDS market will collapse along with the institutions that spawned it.

Phishna

PS:

McDonald’s Deemed More Credit-Worthy than U.S. Government

By Juhana Rossi

Translated By Henri Rautonen

September 26, 2008

Finland - Helsingin Sanomat - Original Article (Finnish)The State of Finland and fast-food chain McDonald’s are now deemed more credit-worthy than the U.S. when measured by prices of CDS-derivatives (credit default swaps).The insurance risk-premium for a 10-year U.S. treasury bond shifted on Friday up to 0.3% according to a broker in a Finnish bank. In practice this means that if an investor wishes to insure 10 million dollars worth of U.S. T-bonds against a government default the insurance will cost 30,000 dollars. Such an insurance for the same amount of investments on Finnish bonds cost on Friday only about half of that at 16,000 dollars. Even loans to McDonald’s would be cheaper to insure than U.S.-bonds, at 28,000 dollars per 10 million. CDS-derivative prices are an indicator of investors’ views and mood, but as such they reveal nothing of the true financial state and wealth of their targets. Thus, while Finland’s and McDonald’s risk of bankruptcy is now smaller in investors’ opinion than that of the U.S. this does not mean that Finland and McDonald’s would necessarily be any wealthier and thus safer targets of investment than the U.S.This being said, it is extremely rare for a fast-food chain’s corporate loan to be viewed as a safer investment than the bonds of the world’s most powerful country.

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