Although big credit ratings agencies like Moody’s and Standard & Poor are still issuing warnings that a downgrade on the United States’ sovereign debt rating could be coming, a smaller credit rating agency called Egan-Jones is warning that its downgrade could come as early as next week. While Moody’s and ilk are waiting on resolution on the debt ceiling issue and trying to determine if the U.S. is actually going to default on portions of its debt or fail to send out social security checks – threats that many politicians have cited as pure fearmongering on the part of advocates for raising the debt ceiling – Egan-Jones believes that the downgrade may not be able to wait. “We are looking now at whether we should downgrade,” said Sean Egan, the agency’s managing director, late last week. He added that the agency would make a decision over the weekend and announce its decision early in the week and called the debt ceiling debate a “red herring,” comparing it to a single missed mortgage payment that you make up after missing it because you are on vacation.
Egan-Jones has received attention over the past few years by making calls like this one months ahead of better-known agencies, and has been proven correct in cases like Countrywide, General Motors, IndyMac and Lehman Brothers. Egan has said publicly that one of the big problems with the current situation at home and with the economy in Europe is that “most people miss how little control governments have over this economic problem…[because] the markets drive them.” He told Barrons last week that he feared that ultimately the U.S. taxpayer would end up on the hook for Europe’s economic problems as well as those at home.
Do you think that Egan-Jones should go ahead and make the call, or do they have a responsibility to wait and give the government a chance to work the issue out?
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