Commentary: The same people who once rated subprime mortgage-backed securities as among the highest quality assets money could buy have now announced they think the sovereign debt of the United States is on the verge of becoming junk. In both instances, the opinion of these private, fee based, credit rating agencies has created a sudden and dramatic shift in the trend trajectory of interest rates.
Standard & Poor's has joined Moody's in assigning a "negative" outlook on the U.S. AAA credit rating. These two rating agencies have effectively given a two-year deadline to the United States government to make notable reductions to the government's deficit spending - or face the equivalent impact of seeing their 820 FICO score reduced to 680 or lower. A drop in credit quality of that magnitude would push the cost of government debt substantially higher - a condition that would undoubtedly shove mortgage interest rates higher as well.
As you might imagine, mortgage investors will be keenly attuned to the upcoming Congressional budget battle. The pressure is on both the Administration and on Congress to make the hard choices to get the country's financial house in order. Tangible action on this issue will be supportive of steady to perhaps fractionally lower mortgage interest rates. On the other hand, should Congress devolve into partisan bickering and political brinkmanship the prospect for lower mortgage interest rates will dim rapidly.
It appears Uncle Sam has finally kicked the deficit spending can down-the-road as far as it will go. The nation is now facing a financial "do or die" situation. The pending critical financial decisions will be made in a relatively short period of time - the impact of those decisions will likely last a decade or more. May those upon who we are all counting on be granted the wisdom and the courage to do what is right for the country -- without consideration to what is right for their own political future.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
