Originally Posted By: sinij
FED does not have absolute control over interest rates, if markets decide not to buy US Treasuries, there is very little FED could do to force the issue. When I said "interest rates" I referred to US Treasuries interest rates, not FED-controlled inter-banking interest rate. These are related but not the same.

US Treasuries dictate cost of borrowing, and probably the only reliable indicator of what markets think about state of the economy. Currently US Treasuries rate is below inflation levels, meaning people are willing to lose money to hold these. Meaning markets think it is extremely unlikely that US will meaningfully default (all shenanigans with US congress have very little to do with getting paid in grand scheme of things) and that there is very real possibility of deflation as a result of on-going deleveraging.

In contrast - PIGS Treasuries rates are through the roof. Last time I checked they were in double digits. This is how market signals no-confidence.

As to rating agency - anyone can open one and start issuing ratings. Some ratings mean more than others, but at the end all of them are financial equivalent to punditry.


Apparently you missed the part where the Fed is manipulating the T-bill rates by adding them to their *own* balance sheet. The Fed has at least 1.6 trillion in T-bills now , that we know about. Many people suspect the number is far far higher - but we wouldn't know without a true and full audit. And thats just the direct buys, not the deals where Fed extends loans to entities who buy T-bills or buys toxic assets in return for T-bills.

You are correct though to say that noone expects that the USA will default anytime soon. However without the Fed propping up our reduced borrowing costs, the market would long since have squeezed us. Our demand for credit is high, and the Fed is supplying even more than is needed - flooding the market with cheap credit.

As for ratings agencies... well I never said those were worth a damn. As I explained previously, just because they are right *this* time doesnt mean they generally do a good job.

For who could be free when every other man's humour might domineer over him? - John Locke (2nd Treatise, sect 57)