Banking analyst, Dick Bove of Rochdale Securities attempted to put into perspective the dire straits of the American economy, likening the nation to a private company and explaining that if both were evaluated on a single credit scale, the recent downgrade would have proven far more severe than that delivered by Standard and Poor last week.
“There’s no likelihood whatsoever that this particular company [a.k.a. the United States] is able to pay down from its own resources the amount of debt that it has, nor is there any likelihood that it’s going to get rid of its deficit” he added. “If that was a real company, of course, that would be a junk bond.”
Whether or not the U.S. should have lost its coveted triple-A status is causing considerable controversy; yet Bove blames the nation’s balance sheet and burdensome debt unequivocally.
“[The country] owes $14.4 trillion [and] over the next five years that will get up to $20 trillion,” he said.
According to Standard and Poor’s David Beers, the above figures totaled to $15 trillion in annual gross domestic product for the second quarter of 2011.
“We’re building a reserve currency around a country which is bankrupt and can’t pay its debt. How can you, in essence, be aggressive and say, ‘I know where the bottom is, or I know how this is going to adjust’?” he said.
In agreement, noted investor, Jim Rogers, told CNBC Monday that the United States is not currently worthy of the AA-plus credit rating, let along the cherished AAA designation.
“They can roll it over and continue to play the charade, but the U.S. is bankrupt.”
The S&P demotion has done a number on the financial markets over the last week, producing unpredictable swings in trading and triggering ferocious selloffs.
Given the unknown black-hole effect resulting from plunging stocks, Bove anticipates additional turmoil down the road and therefore, recommends holding off on stock purchases that may encounter downward pressure.
“…I think the markets going lower so I’m not buying anything.”
He noted the seemingly aimless market movement recently.
“We have people buying Treasury securities because they’re worried about the Treasury. We’ve got people selling bank stocks, taking the cash and putting it into the banks for safety. It doesn’t make sense. What you’re seeing is this adjustment is occurring and people are not sure how to react…”
Bove doesn’t doubt the potential for more big down days in the upcoming future, noting the global financial restructuring taking place.
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