Egan Jones is probably the least well known credit rating agency, but it made big news today. Egan Jones downgraded American debt to AA- from AA. Here is the key part of the report about the downgrade from CNBC:
In its downgrade, the firm said that [the Fed's] issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.'s real gross domestic product, but reduces the value of the dollar.
In turn, this increases the cost of commodities, which will pressure the profitability of businesses and increase the costs of consumers thereby reducing consumer purchasing power, the firm said.
I have to say that the analysis seems correct. The Fed's action will give a small boost to the housing industry, but it will not be meaningful. Cutting a mortgage from 2.85% to 2.65% really is not going to entice many more folks into buying homes. The damage done by the program will push up commodity prices which will lead to all sorts of other price increases and make it harder for the average American to pay his or her bills. Meanwhile, as the ratings agency points out the QE3 will not increase the GDP.
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