S&P downgrades U.S. credit rating for first time

thoughts?




S&P downgrades U.S. credit rating for first time
http://www.washingtonpost.com/busine...IxI_print.html

S&P downgrades U.S. credit rating for first time
By Zachary A. Goldfarb, Published: August 5

Standard & Poor’s announced Friday night that it has downgraded the U.S. credit rating for the first time, dealing a symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system.

Lowering the nation’s rating to one notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.

“It’s always possible the rating will come back, but we don’t think it’s coming back anytime soon,” said David Beers, head of S&P’s government debt rating unit.

The decision came after a day of furious back-and-forth debate between the Obama administration and S&P. Treasury Department officials fought back hard, arguing that the firm’s political analysis was flawed and that it had made a numerical error in a draft of its downgrade report that overstated the deficit over 10 years by $2 trillion. Officials had reviewed the draft earlier in the day.

“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokesman said Friday night.

The downgrade to AA+ will push the global financial markets into uncharted territory after a volatile week fueled by concerns over a worsening debt crisis in Europe and a faltering economy in the United States.

The AAA rating has made the U.S. Treasury bond one of the world’s safest investments — and has helped the nation borrow at extraordinarily cheap rates to finance its government operations, including two wars and an expensive social safety net for retirees.

Treasury bonds have also been a stalwart of stability amid the economic upheaval of the past few years. The nation has had a AAA rating for 70 years.

Analysts say that, over time, the downgrade could push up borrowing costs for the U.S. government, costing taxpayers tens of billions of dollars a year. It could also drive up interest rates for consumers and companies seeking mortgages, credit cards and business loans.

A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising the cost of borrowing for schools, roads and parks.

But the exact effects of the downgrade won’t be known until at least Sunday night, when Asian markets open, and perhaps not fully grasped for months. Analysts say the initial effect on the markets could be modest because they have been anticipating an S&P downgrade for weeks.

Federal officials are also examining the impact of a downgrade in large but esoteric financial markets where U.S. government bonds serve an extremely important function. They were generally confident that markets would hold up but were closely monitoring the situation. Regulators said that the downgrade would not affect how banking rules treat Treasury bonds — as risk-free assets.

The ratings action immediately fueled partisan wrangling Friday night. Allies to President Obama said it underscored his call for a “grand bargain” that would trim $4 trillion from the federal budget involving a mix of tax revenue and spending cuts.

Republicans criticized Obama’s handling of the economy.

“Standard & Poor’s rating downgrade is a deeply troubling indicator of our country’s decline under President Obama,” Republican presidential candidate Mitt Romney said.

S&P has angered government officials with aggressive warnings during the past few months of a potential downgrade. S&P corrected its draft report Friday after Treasury raised concerns about the math.

Over the past few months, the multiple warnings from S&P have not worried government bond markets. What’s more, the two other major credit rating companies, Moody’s Investors Service and Fitch Ratings, have said they would preserve the nation’s AAA rating for now.

S&P’s downgrade was as much a political critique as a financial conclusion. It is based on a view that U.S. political leaders would be unable to come up with at least $4 trillion in savings, which is needed to bring the nation’s debt to a manageable level over the next decade.

The debt deal swung earlier this week proposed spending cuts in two phases. Democrats and Republicans agreed to the first round, worth nearly $1 trillion. But a congressional committee must decide on the remaining $1.2 trillion to $1.5 trillion — and S&P questioned whether that would ever happen.

S&P added that it expects that the upper income Bush-era tax cuts will continue, despite vows from Obama to end the breaks next year.

“The majority of Republicans in Congress continue to resist any measure that would raise revenues,” the firm said.

S&P’s downgrade served as an indictment of the gridlock that sent the nation to the edge of defaulting on its debt obligations. It is also striking in part because it reflects the tremendous power of a small group of financial analysts employed by a New York company — part of McGraw-Hill. Credit-rating companies’ reputations were sullied during the financial crisis.

In Europe, political leaders have taken aim at credit rating companies when they cut the ratings of governments struggling with heavy debt burdens.

S&P said the nation could suffer additional downgrades later on if the nation’s debt burden grows worse. “A new political consensus might [or might not] emerge after the 2012 election, but we believe that by then the government debt burden will likely be higher,” the firm said.

The company said the United States’s financial position was diverging from that of other AAA countries, including Canada, France, Germany and Britain.

Countries with a AA+ rating include New Zealand and Belgium. Among those countries with a AA rating, one notch lower, are Bermuda, Spain and Qatar.
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the president has term limits, we nee congress to have term limits.
This is their fault, they are the ruling class, we are the sheep. I am young and dont understand the budget crap,I have a budget and it's based on my income, apparently thats not how to make a budget? Congress doesnt do that, thus we are in debt, I can't go into debt into the trillions or the equilivant for one person.
I am reminded of a town, Prichard, Alabama, that couldnt make a budget and went backrupt, unlike the Feds, they can't print money.

new taxes arent the answer.
Ive never gone to my accountant and get told,"you need a change, so instead of cutting your $500/week crack use,, I think you need to make more money..... go get another job or a raise."

 

I agree with this fella. http://robertreich.org/

Excerpt:

 

Hi David. Yes I did read it now .... somehow didn't see the (buried) link. :-o

However, I must post a small excerpt of that link in Wiki Criticism that caught my eye.

If credit/rating agencies are not to be trusted where will it lead? Politicizing and buying credit ratings???

 

Well, the President and the people got what they wanted. He told them to call Congress and demand more compromise than they already had compromised. The Republicans had more cuts/savings than the President would agree to. However, both parties have been raising the ceiling debt for the past 50+ years. I guess they thought they could do this 'forever?'. It just doesn't work that way. If so some people would never have to pay their credit card bills. Instead of the best of the best in politics, in the past we have had too many, greedy & 'I'm in charge & I'm going to stay in charge!'
Obviously they did not care about America, Americans or anything else except getting voted back into office & having large expense accounts, perks, porks and no accountability. Well there were plenty of greedy people who voted them back in. But kudos to the Tea Partiers who exposed all the debt ceiling raising, the people in Washington are being watched and held accountable, as much as possible. Although the Prez didn't seem to care. Obviously he's counting on a lot of people who don't pay attention and also don't care, to vote him rolleyesrolleyesback in? Oh God! I'm getting sick to my stomach!

 

To: WatchnTV - I'm old and I don't understand a lot of the crap going on in Washington either. BUT any kind of limits to Government period will be helpful. 1st Congress must stop giving themselves automatic raises or anything else w/o US approves it. And certainly term limits are a must, otherwise the ones who give the most pork will be voted back in until they can't stand up by themselves, much less think for themselves (i.e. Byrd & Thurmond come to mind). It is very discouraging, but IF we individually keep e-mailing our representatives what we think and demand (or calling them) on a regular basis and not just once because the Prez tells US to, THEN we are more likely to be heard.
It won't happen if it's left up to the needy greedies.

 

Yes the credit rating agencies do fill a strange quasi regulatory role and as Dave said its just a guess.

Conflict of interest? If you have the power to affect the markets as much as they do and their main role is to earn profit then in essence they know when the Dow will go up and down based on prior knowledge of their announcements.

Do they never act upon their knowledge prior to their announcements and buy Put options on the Dow or some other wrangling? I seriously doubt it,not if they're aprivate company not working for the government.

I have to admit though I know little of large credit ratings agency's and how they work.

 

Look at the congressman weiner crap, if a private sector worker had stolen company time to flirt/post pictures of himself to anyone, he would have been fired and sued for stolen time/money, as the time he posted the pics and sent tweets/emails, he wasnt doing the job he was hired for.
but Weiner is a congressman and he was given slack. why? why is it no one in congress is accountable for what they do?

 

it may not help the current deficit, but how does it help me(who congress works for, the public) to have Congressman/senators in office for 20-50 years?

 

I don't think he was taking pictures of his junk in the Capitol building and they don't punch a clock when legislating.. :-D

Term limits would also get rid of people like Dick Lugar and Joe Lieberman.

 

Ain't it the people voting for them who keep them in office and donation $$ for their re-re-elections? There is a lot to say for term limits, especially for the freshmen who got voted in less than a year ago. Got a question though. Why are presidents allowed only 2 terms while congress and senators can be voted in for life?

Didn't mean to get off topic though.

Ronnie raised the debt limit abt 18 times and Dubya 7 times without a hitch.

 

Yes. Term limits is just tossing out the baby with the bathwater.

http://www.salon.com/news/politics/war_room/2011/07/20/lyons_debt_deciling/index.html
http://www.salon.com/technology/how...or_kooky_gop_debt_ceiling_rhetoric/index.html
http://www.salon.com/news/politics/...ak_from_gop_on_debt_ceiling_debate/index.html

 

Ronnie did it 17 times. The problem here is that Ronnie did it during the cold war and raised defense spending less than the previous GOP admin, has gone up for the last 13 years when Russkie and Chinese don't play anymore. You guys pay more for offense than the whole world together, GDP wise only the Saudis, Eritrea and a few others pay more %wise. Quit it!

 

The 'debt ceiling' has been raised over 70 times before the current idiots in DC raised it. It should be called a 'debt goal' instead of a ceiling, and we can all have a big party when we reach our debt goal, and we can set the next debt goal! :-D:-D

S&P did not randomly downgrade the US. We did that to ourselves by electing poor politicians, and getting to the state of spending more than our GDP. Honestly, would any of you loan money to a person with the fiscal history and spending habits of the US?

 

Warren Buffett would.:-D

 

The current congress and some on the senate would love to throw out this current baby out of the WH, especially McConnell who said (if not mistaken) that he would make sure that President Obama would be only a one term president. Wondering if the GOP would have raised the debt limit without problems if there would have been a Republican president in the WH, NOT!!

Thanks for the links. Have bookmarked the website.

 

Some news media give different #'s and therefore I did put abt

Yep, quite right. Ronnie reminds me of the starwars program. :-D Cold war is done and over with. Why not cut the *defense* program and the hundreds of military bases around the globe? Why still having a military base in Germany for instance? The war was over in 1945! This way a lot of dough could be saved. Once the USA gets into a country it never leaves, it's in their own interest so it is said. If this continues there is no stopping to the expansion of bases and the tax payers will have to foot the increasing bills of *defense*. No wonder the debt limit has been increased so often partially due to the above.

 

It's like they've decided "It's not enough for us to win. They must lose too." Unfortunately, we all lose together.

 

Y, plus the fed rate being cut to kick the WallStreet gear can down the road, giving unpaid for tax breaks to the rich and an unpaid 'drug prescription plan' plus who knows what else. I can't just blame GWB on this as there's enough blame to go around. The problem now is that it has come to a head due to partisanship. It should be interesting to see the guillotine come down on spending if those jerks can't get it together!:-D

 

The bolded is an ongoing expense as long as it continues and will add to the deficit/debt limit. Ay, ay to the rest of this post.

 

SFAIK, what congressman Weiner did, he did at home on his computer and on his own time.
As for Slack - what slack? The guy was fried - he's out.

Since this is primarily a computer related forum, I'd like to make the following comment about Weiner's troubles.
In my opinion, what happended to Anthony Weiner is the result of a poorly designed User Interface.
Weiner stated that he had not intended to publicly post that meterial. It was intended to be a private communication.
In my opinion, a properly designed interface would make such an error more difficult and would clearly indicate the difference.

Not entirely Off Topic, since term limits was injected into this coversation.
The two term limit for US Prsidents is a precedent set by George Washington who left by choice after serving two terms.
Never before had someone with so much power and popularity willingly relinquished it all.

George Washington

The 22nd amendment to the US Constitution established presedential term limits.
Twenty-second Amendment to the United States Constitution

Yep, that's true. The United States spends more for defense than all other countries combined. Yet there are those that
argue that we still do not spend enough. I do not agree with this, but here is an example:
The
Heritage Foundation: U.S. Defense Spending

The current crisis was not caused Because the US has a debt ceiling or because of the amount of debt the US has.

This crisis was caused because certain congressman stated that they would refused to vote in favor of raising the debt ceiling
and did hold to that position, which brought the United States perilously close to default.

This in turn undermined the United States credit worthiness and cast serious doubt on it's willingness to honor and pay
it's current debt in a responsible manner.

Some of those congressmen stated that failure to raise the debt ceiling and going into default, would have No significant
consequences.

There may be many who would disagree with that assessment and for some it's a tough pill to swallow, but in my opinion, that
is the honest cause and effect relationship directly leading to this financial situation.

 

Excerpt:

http://mediamatters.org/research/201108060004
​

 

Heard on the radio news today, S&P warn that it could be further reduced, in about 2 years time, if the situation is not improved. :cry

http://www.cbn.com/cbnnews/finance/2011/August/SP-Downgrades-US-Credit-Rating-from-AAA-/

Partial quote:

Bazza

 

Standard & Poor’s reasoning for U.S. credit down-grading

 

Wonder why bo did not like 'Cut, Cap, and Balance'?

"Because it includes a constitutional amendment, it may be the only proposal that would meet S&P’s criteria of an agreement that “would be enacted and maintained throughout the decade,” resulting in S&P reaffirming the nation’s Triple-A credit rating."

"Already the nation’s total debt service ratio, a measure of average principal and interest owed every year over thirty years, stands at 41 percent. That includes $483 billion of principal and $430 billion of interest compared to $2.174 trillion of revenue.

If the current budget baseline is allowed to grow without any changes to current law, that ratio will likely rise to over 60 percent — if not worse — by 2021 when the debt reaches $26 trillion. That assumes tax revenues rise to about $3.5 trillion, which very much depends on some form of an economic recovery.

By then, interest rates are projected by the government to have returned to their historical norm of 5 percent, resulting in an annual interest payment obligation of over $1.3 trillion. Principal by then would be $866 billion a year."

Yep, has been coming for a while.

Quoted source: http://washingtonexaminer.com/opini...ort-vindicates-house-cut-cap-and-balance-plan