Gold, silver and other commodities continue to fly higher as concerns over sovereign debt in Europe and here in the U.S. intensify. The spot price for gold hit $1500 for the first time ever on Tuesday before settling slightly lower. And, silver hit a 31-year high.
These record prices came a day after Standard and Poor's reduced its outlook on U.S. debt from stable to negative. (See: "Reasons for Concern": Stocks Tumble After S&P Cuts U.S. Debt Outlook)
Markets reacted to the downgraded outlook on Monday, but gained back some of the losses Tuesday.
There is no question the S&P warning has investors spooked.
But, why should we care about the opinion of the ratings agencies?
Ratings agencies have failed the public before. Moody's, S&P and Fitch all labeled many of the sub-prime mortgage-backed securities as AAA, when in reality these MBS were junk. And, who can forget that all three have failed to accurately assess the debt of many European countries until after it was already considered a crisis.
With a less than stellar track record over the last five years, William Black, professor of economics at the University of Missouri has a very strong opinion on whether we should care what the top three rating agencies say.
"[They] are one of the best indicators of the real situation," he says. "You take the opposite of whatever they say, and then you are very likely to have the truth."
Black does not necessarily feel the U.S. debt situation is improving, but he is confident the U.S. will never fail to pay its creditors even at a time when many staunch conservative Tea Party members are threatening to not raise the $14.3 trillion debt ceiling. A unanimous "no" vote would effectively cause the U.S. to default. (See: Republican Threats About Raising the Debt Ceiling Are Just a Bunch of Hot Air)
"The only way the United States is going to default is if a political party decided to commit political suicide…by forcing the U.S. government into a default when it has the ability to pay."
Black's bottom line: "None of the three ratings agencies should exist…they provide no use to the world…they actually harm the world"
Tell us what you think!
- mortgage-backed securities
- Standard and Poor s
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