Jamie Dimon and Larry Summers criticize Fitch’s US downgrade as ‘ridiculous’ and ‘bizarre and inept’.
Jamie Dimon and Larry Summers criticize Fitch's US downgrade as 'ridiculous' and 'bizarre and inept'.
Fitch’s Downgrade of US Government Credit Score Receives Mixed Reactions
Fitch Ratings’ decision to downgrade the US government’s credit score from AAA to AA+ has sent shockwaves through the markets. This unexpected move has attracted attention from top voices in the financial world, including prominent figures like Warren Buffett, Jamie Dimon, and Larry Summers.
Fitch made the decision to lower the US’s long-term rating despite the seemingly stable state of the economy. The rating agency believes that the government is less likely to repay its debts, even though Congress lifted the debt ceiling to avoid default. Fitch cited a deterioration in governance, particularly in fiscal and debt matters, as a key factor in their decision.
The downgrade has sparked strong reactions from various quarters, with many market thinkers describing Fitch’s move as “bizarre” and “ridiculous.” Let’s take a closer look at the responses from eight influential figures in the industry.
Warren Buffett’s Nonchalant Response
Berkshire Hathaway CEO Warren Buffett took a lighthearted approach to the situation, stating, “Berkshire bought $10 billion in U.S. Treasuries last Monday. We bought $10 billion in Treasuries this Monday. And the only question for next Monday is whether we will buy $10 billion in 3-month or 6-month T-bills.” Buffett’s confidence suggests that he is not concerned about the latest downgrade, reinforcing his belief in the stability of the US economy.
Jamie Dimon’s Critique of Rating Agencies
Jamie Dimon, CEO of JPMorgan, dismissed the significance of Fitch’s downgrade. He emphasized that borrowing costs are determined by the market, not rating agencies. Dimon praised the economic prosperity and security of the United States, pointing out that there are even nations rated higher than the US that rely on the American military system. Dimon’s remarks highlight the perceived inadequacy of rating agencies in evaluating the true strength of a nation’s economy.
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Larry Summers Criticizes Fitch’s Decision
Former US Treasury Secretary Larry Summers expressed his disagreement with Fitch’s downgrade, calling it “bizarre and inept.” Summers argued that rating agencies are supposed to follow the markets, not lead them. He believes that Fitch’s proclamation should not sway anyone’s opinion, especially given the wide following of the Treasury market.
Mohamed El-Erian Questions Fitch’s Timing
Mohamed El-Erian, a top ANBLE and Allianz adviser, expressed his puzzlement over the timing and reasons given by Fitch for the downgrade. El-Erian suspects that many ANBLEs and market analysts share his confusion. The timing of Fitch’s decision, amidst a stronger-than-expected economy, adds further intrigue to the situation.
Paul Krugman Highlights Fiscal Challenges
Nobel Laureate economist Paul Krugman acknowledges the long-term fiscal challenges faced by the US. However, he questions why these challenges suddenly seem worse than they did a year ago. Krugman suggests that it would be interesting to understand the rationale behind Fitch’s “strange decision.”
Robert Kiyosaki Warns of Crash Landing
Renowned author of “Rich Dad Poor Dad,” Robert Kiyosaki, sees Fitch’s downgrade as the first warning sign of an impending crash landing. He believes that the Fed, Treasury, and big corporation CEOs have been living in a fantasy world and warns the public to prepare for the worst.
Janet Yellen Strongly Disagrees with Fitch
US Treasury Secretary Janet Yellen expressed her disagreement with Fitch’s decision, calling it puzzling given the strength of the US economy. Yellen believes the downgrade is entirely unwarranted, further reinforcing her confidence in the country’s financial stability.
Mark Haefele Anticipates Yield Compression
UBS Global Wealth Management CIO Mark Haefele believes that Fitch’s downgrade will not cause an increase in yields, as one might expect. Haefele argues that inflation cooling down and the Federal Reserve soon ending its hiking cycle will likely lead to a compression of yields.
While Fitch’s downgrade has certainly caused a stir, the responses from these influential figures span a wide range of opinions. Some, like Buffett and Dimon, remain unfazed by the downgrade, citing their continued trust in the strength of the US economy. Others, such as Summers and Krugman, express skepticism about the timing and rationale behind Fitch’s decision. Regardless, the impact of this downgrade on the US economy remains to be seen.
