A reader asks why do the credit agencies move the debt markets?

The credit agencies are used to "protect" investors and the people who make investment decisions? How so, Mr. webtalkwithbob?

While it is true we owe $1.4 trillion to China, we also owe money to state trust funds, union trust funds and large pension funds. They receive money from members and buy bonds. But they can not just by any old bonds or they might use their power to make wild investments in their cousin's new business. How is that prevented? The fund has a board of directors. The board passes a requirement that the investment managers can only invest for example, in AAA bonds or AA bonds or equities with a capitalization of more than $50 billion. These requirements are expressed in legal documents with severe penalties, including criminal prosecution for certain violations.

Suffice it to say that the board wants the investment managers to buy bonds from highly rated countries, aka the USA so when it comes time to pay the pensioner or the retired union member or retired teacher, the money is available. Yes there is still risk. But if the investment manager buys AAA bonds and there is a default, the manager is protected because he followed the requirements of the board. The investment managers may disagree with the rating agency, but in the interest of self preservation will follow the agency guidelines.

But what if a fund can only buy AAA bonds, like the good old USA and the good old USA bonds are downgraded to AA rating. Then the investment managers must sell the AAA bonds that it holds from the USA and buy other AAA bonds. They are legally required to do that by the legal contract they have with the trust fund board of directors.

Now to get this in perspective with round numbers. We owe $1.4 trillion to China.  $3 trillion to social security. $1 trillion to the civil service retirement fund and $5 trillion to USA Banks, State Trust funds and investment organizations. It is bad enough that we owe more than $1 trillion to China, but 50% of our debt we owe to ourselves. Go figure.

Questions please?

Do you now understand why we need a person with international and business experience in the White House? America does not have problem embryos, but adult problems of money, jobs and budgets. We are currently paying the price of educating a sitting president and the price is too high, and his education  will come too late.  We can not get our tuition money back, but we can encourage Obama to resign or at least not run for reelection. The impediment to our economy is sitting behind the Resolute desk.

Join me in encouraging him to make the "right" decision.