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Saturday, October 22, 2011

“Bombshell” Prediction From BOA’s Harris

Another Credit Downgrade May Happen Sooner Than Later

By Dell Hill

We saw a minor drop in the unemployment figures this week.  That’s a good thing.  But, as most analysts predict, it will be short lived...over and done with immediately after the holiday season, if not sooner.

There’s one extremely disturbing prediction that made the business news this week and you haven’t seen or heard about it until now.

In an analyst note, Bank of America/Merrill Lynch Ethan S. Harris says we should be prepared for at least one more credit downgrade, and perhaps two!  That’s NOT good.

Some business insiders are calling this a “bombshell prediction”.  Here’s a look at exactly what Harris had to say:

“We expect a moderate slowdown in the beginning of next year, as two small policy shocks—another debt downgrade and fiscal tightening—hit the economy.  The “not-so-super” Deficit Commission is very unlikely to come up with a credible deficit-reduction plan.  The committee is more divided than the overall Congress.  Since the fall-back plan is sharp cuts in discretionary spending, the whole point of the Committee is to put taxes and entitlements on the table.  However, all the Republican members have signed the Norquist “no taxes” pledge and with taxes off the table it is hard to imagine the liberal Democrats on the Committee agreeing to significant entitlement cuts.

The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan.  Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes.”

Not only did Harris predict at least one more downgrade, he predicted the President’s Deficit Commission will be unable to even come close to an agreement on how to approach the task of eliminating nearly a trillion and a half dollars of US debt.  That’s not good.  One major problem that will cause another major problem.

Just when the holiday shopping season is in high gear, Harris expects the Deficit Commission to throw up its hands in failure.  If that happens, and another downgrade slams the economy before the end of December, it’s going to be a VERY long, cold winter everywhere.  If you’re watching the markets closely, you know that investors aren’t exactly burning up the NYSE computers with “buy orders”.  Another downgrade would cause the word “sell” to echo from the opening to the closing bell.

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