U.S. loses AAA credit rating from S&P

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U.S. loses AAA credit rating from S&P

Postby nitePhyyre » Sat Aug 06, 2011 12:56 am UTC

http://news.yahoo.com/p-reconsidering-u-downgrade-cnbc-001207261.html wrote:NEW YORK (Reuters) - The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday in an unprecedented reversal of fortune for the world's largest economy.
S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about the government's budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers.
"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.
The decision follows a bitter political battle in Congress over cutting spending and raising taxes to reduce the government's debt burden and allow its statutory borrowing limit to be raised.
On August 2 President Barack Obama signed legislation designed to reduce the fiscal deficit by $2.1 trillion over 10 years. But that was well short of the $4 trillion in savings S&P had called for as a good "down payment" on fixing America's finances.
The political gridlock in Washington and the failure to seriously address U.S. long-term fiscal problems came against the backdrop of slowing U.S. economic growth and led to the worst week in the U.S. stock market in two years this week.
The S&P 500 stock index fell 10.8 percent in the past 10 trading days on concerns that the U.S. economy may head into another recession and because the European debt crisis has been growing worse as it spreads to Italy.
(Additional reporting by Daniel Bases; Editing by Jan Paschal)


Looks like raising the debt ceiling didn't work.
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Re: U.S. loses AAA credit rating from S&P

Postby Game_boy » Sat Aug 06, 2011 1:01 am UTC

To me, it looks like the rating agencies can act with impunity according to completely internal guidelines, but their word is taken as law. The markets still do not question their ratings, and for example the EU leadership sounded desperate in their attempts to stop them downgrading Greece, yet their choice of rating is unregulated. Even when they screwed up (rating structured products with subprime debt as AAA) there were no consequences for them and no extra regulation was put on them to prevent a repeat occurrence.

"S&P said it was because the deficit reduction plan passed by Congress on Tuesday did not go far enough." - BBC

That sounds like a political statement to me. Using their unique position to extract more cuts from Congress.

In the real world, the US would be the last country on Earth not to pay out on its Treasury bills. Everything else in the world rated AAA is less stable than that. I view the rating change as a cynical pressure move rather than a realistic statement it is risker than anything labelled AAA.
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Re: U.S. loses AAA credit rating from S&P

Postby Aaeriele » Sat Aug 06, 2011 1:19 am UTC

Game_boy wrote:To me, it looks like the rating agencies can act without impunity according to completely internal guidelines


Did you mean 'with impunity' ?
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Re: U.S. loses AAA credit rating from S&P

Postby Game_boy » Sat Aug 06, 2011 1:25 am UTC

Aaeriele wrote:
Game_boy wrote:To me, it looks like the rating agencies can act without impunity according to completely internal guidelines


Did you mean 'with impunity' ?


Yes, I think I had two conflicting sentences in my head.
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Re: U.S. loses AAA credit rating from S&P

Postby Dark567 » Sat Aug 06, 2011 1:35 am UTC

@Gameboy: If the government had regulations on the rating agencies to prevent their own downgrades, they wouldn't be trustworthy to the market. The markets would simply ignore it and give the yields to bonds that they see fit. Granted one of the reasons that the ratings are so important is that other areas of finance are regulated with regards to these agencies ratings.

Anyway, it will be interesting to see if Moody's and Fitch do the same or if they believe differently.

I am actually really surprised by this, I would have guessed the agencies would have avoided doing this due to political fallout and the criticism that will result. At the same time its probably warranted.
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Re: U.S. loses AAA credit rating from S&P

Postby Whimsical Eloquence » Sat Aug 06, 2011 1:41 am UTC

Game_boy wrote:To me, it looks like the rating agencies can act with impunity according to completely internal guidelines, but their word is taken as law. The markets still do not question their ratings, and for example the EU leadership sounded desperate in their attempts to stop them downgrading Greece, yet their choice of rating is unregulated. Even when they screwed up (rating structured products with subprime debt as AAA) there were no consequences for them and no extra regulation was put on them to prevent a repeat occurrence.


The Market is irrational, fallible and prone to misjudgement - particularly with the U.S. To an extent, the Ratings Agencies have shared in this unchecked confidence about the U.S. - because it's the US! - but the Debt Ceiling fiasco really highlights the ineptitude of the U.S. and the extent to which its absurd internal politicking will affect its finances. In the case of the Eurozone, the Markets were on the whole somewhat fiercer than they might have been. Ratings Agencies at least outline some reasoning unlike the markets, and are generally taken as symbolic arbiters as much as anything else.


"S&P said it was because the deficit reduction plan passed by Congress on Tuesday did not go far enough." - BBC

That sounds like a political statement to me. Using their unique position to extract more cuts from Congress.


They didn't say anything about more/less cuts (same goes for taxes). The U.S. left what they did incredibly late and what they did was simply pushing the problem down the line without any outline as to how they intend to solve it. That's recklessness and uncertainty, and behaviour which would from any other country earn them multiple downgrades. What the Debt Deal showed is just how inane and non-constructive U.S. Internal Politics is and the impunity with which it cause chaos and obstruction. S&P is highlighting this fact and the lack of any future plans in its assessment.
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Re: U.S. loses AAA credit rating from S&P

Postby Tirian » Sat Aug 06, 2011 3:50 am UTC

Dark567 wrote:Anyway, it will be interesting to see if Moody's and Fitch do the same or if they believe differently.


They've already declared that they won't. Their determination was that the United States is more than capable of meeting its financial obligations in the near-to-medium term, given that the government actually did lift the debt ceiling. Frankly, I'm surprised that this isn't the consideration that S&P uses as well. Getting upset over the speed of deficit reduction agreements seems a little bit like downgrading Sony's credit rating because the rating's agency doesn't like that the PS3 doesn't play PS2 games.

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Re: U.S. loses AAA credit rating from S&P

Postby Garm » Sat Aug 06, 2011 3:53 am UTC

Tirian wrote:
Dark567 wrote:Anyway, it will be interesting to see if Moody's and Fitch do the same or if they believe differently.


They've already declared that they won't. Their determination was that the United States is more than capable of meeting its financial obligations in the near-to-medium term, given that the government actually did lift the debt ceiling. Frankly, I'm surprised that this isn't the consideration that S&P uses as well. Getting upset over the speed of deficit reduction agreements seems a little bit like downgrading Sony's credit rating because the rating's agency doesn't like that the PS3 doesn't play PS2 games.


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Re: U.S. loses AAA credit rating from S&P

Postby omgryebread » Sat Aug 06, 2011 4:20 am UTC

Tirian wrote: Getting upset over the speed of deficit reduction agreements seems a little bit like downgrading Sony's credit rating because the rating's agency doesn't like that the PS3 doesn't play PS2 games.
They did do that!

GameStop Article wrote:Osamu Kobayashi, the S&P analyst who outlined the rating change, said, "The downgrade and negative outlook primarily reflect Sony's profitability, which has been strained from product and price competition, especially in its core electronics business, where there is still uncertainty regarding sustainable improvement in Sony's earnings-generating ability."

"Sony has been undergoing major restructuring efforts to reduce fixed costs and increase its overall competitiveness," Mr. Kobayashi continued. "However, Sony's efforts to strengthen its product portfolio, including audiovisual products--a traditional strength for Sony--have lagged behind in an increasingly competitive market characterized by aggressive development and marketing of new products. There is a concern over the negative impact on Sony's market position."
Stripping out the econo-babble, that is kinda why they downgraded Sony's credit rating. The products weren't as competitive as they used to be. Not that Sony can't, right now, pay its bills, but that if things don't improve, it might be harder for them to pay in the future.

Which is the same thing S&P is saying about the US. Though I think they are totally wrong, and I think it's stupid to say that investing in the U.S. is less safe than investing in Johnson & Johnson.
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Re: U.S. loses AAA credit rating from S&P

Postby Garm » Sat Aug 06, 2011 4:37 am UTC

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Re: U.S. loses AAA credit rating from S&P

Postby CorruptUser » Sat Aug 06, 2011 4:46 am UTC

Wait, people still listen to what S&P have to say about bonds and such? After the fiasco that was the CDO ratings, I thought everyone ignored S&P's ratings.

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Re: U.S. loses AAA credit rating from S&P

Postby Jahoclave » Sat Aug 06, 2011 5:32 am UTC

Look, all I know is now that we're AA we're only two A's away from the Pros.

But I am rather distrustful of these agencies and their ability to be political manipulative to their own particular neoliberal agenda.

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Re: U.S. loses AAA credit rating from S&P

Postby cjmcjmcjmcjm » Sat Aug 06, 2011 6:08 am UTC

It's not like they were ever good at doing their job, anyway. http://robertreich.org/post/8542550924
I wonder what the other big agencies will do?
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Re: U.S. loses AAA credit rating from S&P

Postby netcrusher88 » Sat Aug 06, 2011 6:25 am UTC

Actually, S&P did say something about taxes:
TPM, from the S&P report wrote:Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

That's not the only time they mention revenues, which constitutes the bulk of what they have to say about the US not having a credible deficit reduction plan.

That said, the deficit is not the only concern they mention. S&P also goes on at length about the fact that this whole debate - I believe they refer to turning the debt limit into a bargaining chip - casts (for the first time in history) serious doubt on the ability of the US to not default in the future. You know, that permanent (at least to hear Ryan crow over it) change in behavior that the tea party is so proud of.
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Re: U.S. loses AAA credit rating from S&P

Postby Cdevon2 » Sat Aug 06, 2011 7:32 am UTC

Tirian wrote:They've already declared that they won't. Their determination was that the United States is more than capable of meeting its financial obligations in the near-to-medium term, given that the government actually did lift the debt ceiling.


Forgive me if I'm not grasping this correctly, but this seems like paying off credit card debt by getting another credit card.

In any case, it seems that Congress has increasingly shifted their priorities. Now, the first priority seems to be holding office.
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Re: U.S. loses AAA credit rating from S&P

Postby netcrusher88 » Sat Aug 06, 2011 7:50 am UTC

Pretty much it on both counts. It's not a perfect analogy for the debt-go-round but it's close - it is taking on new debt to pay off old debt as it matures. I've never been clear on why exactly this works but I think it's one of those mutually-assured-destruction things - every nation does it.
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Re: U.S. loses AAA credit rating from S&P

Postby Zamfir » Sat Aug 06, 2011 8:33 am UTC

It's fairly simple why it works. There is at any moment in time a significant demand for a safe vehicle to postpone consumption. Think pensions, or bank reserves. This kind of demand is not even primarily saving because of the interest, but mostly as result of people who have income now but expect expenditures in the future.

Governments are a near-perfect match for that kind of demand for low-risk, low-yield savings vehicles. More than any other entity, national states can reliable assure that their cash flow source will still be around a few decades. And many have good credit histories going back longer than other entities even exist.

So up to a certain level, governments can continuously have a debt outstanding without any negative effects to them or the economy, simply by picking up the role of safest, most boring savings vehicle around. Providing that on a large scale is basically a service to the people. There's always people saving for their old age, and at least part of those savings should go to a safe place.

Note that AA-rated sovereign debt is still supposed to be far safer than most AAA-rated other types, the ratings only compare with a class of debt.

Of course, that level of 'good' debt is finite, though people disagree where it is. But just from observation, there seems to be no economic benefit at all to lowering debt below 50% of GDP or so.

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Re: U.S. loses AAA credit rating from S&P

Postby Deep_Thought » Sat Aug 06, 2011 8:58 am UTC

What gets me about the Credit Agencies is that, from an outsider's viewpoint, they seem so slow to act. If they were worried about the US government process (a valid point IMHO), then surely they should have downgraded 2 weeks ago when the debate was still dragging on? Similarly, Greece's debt should have been downgraded way quicker.

Coupled to this is the fact that because they act so slow, their response inevitably makes things worse. Ireland's debt got downgraded gain a few weeks ago, which meant their borrowing costs leapt a few percentage points. They were solvent (just) under the old rate, but weren't with the new one. I understand why the agencies exist, but sometimes they seem to be pretty terrible at their job (not that it's an easy one).

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Re: U.S. loses AAA credit rating from S&P

Postby Arancaytar » Sat Aug 06, 2011 4:22 pm UTC

I'm surprised they didn't do it years ago when the crisis broke out. The rating agencies seemed to have the same religious faith in the USD and the economy that investors had leading up to 2008.
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Re: U.S. loses AAA credit rating from S&P

Postby KnightExemplar » Sat Aug 06, 2011 5:10 pm UTC

Arancaytar wrote:I'm surprised they didn't do it years ago when the crisis broke out. The rating agencies seemed to have the same religious faith in the USD and the economy that investors had leading up to 2008.


The housing crisis did not hamper the US's ability to pay off its debts. This is a completely separate issue, and is actually easy to understand. Investors like to make money, and one way to make money is called the Mortgage Backed Security (aka: MBS): http://personal.fidelity.com/products/f ... ombs.shtml

A Mortgage Backed Security is a Bond that you can buy. If you buy a $25,000 MBS with a coupon of say, 6.16%, you'll make $1540 a year for several years... then you'll get your $25,000 back in full. This is a real example by the way: you can buy this bond from http://fixedincome.fidelity.com/fi/FIBo ... =31359MEA7 . (Fidelity is just one broker. I'm pretty sure E-Trade offers these as well...)

So if you went to your broker, and bought this bond from them, you'll make $1540 per year, and on the year 2028, you'll get not only the $1540, but the entire $25,000 back. If you bought the bond today, you'd get a total of $49,640 by the year 2028. Obviously, these sorts of things are good for your retirement account. You spend $25,000 today, and that money will nearly double in ~15 years from now. (Note: I'm not a financial adviser. Please do more research before buying bonds. There are a ton of risk factors)

Talking about those risk factors... this "free money" isn't so free. Everything comes at a risk, and THIS risk is simple. You will only get this money if the people behind your security pay off their loans. In this case, your bond is Mortgage Backed: as long as people pay their Mortgages, you'll get your money. Hell, even if they don't pay their mortgages, the Bank will foreclose on their house, and you'll get your money back as soon as the bank sells their house! Its nearly a risk free investment!!! (And there are other risks of course, but this is "Default Risk", which is the one typically associated with the credit rating)

Wait, millions of people are failing to pay their mortgages? Wait... banks are trying to foreclose on those houses, but the housing prices are so low that I'm not going to get my money back? Where is my money damn it??!?!?!?

Again, Moodys and the S&P downgraded many MBS securities. Investors lost money as people failed to pay their mortgages on time, and those homeowners lost their homes. Banks got worthless properties (because the housing bubble burst), and everyone was stuck. But the US Government had little to do with it, aside from a few guarantees that they offered to investors. (Some MBS securities were also backed by the US Government). One of the big issues was trying to track down which MBS securities should be downgraded, and which ones were still considered to be safe. The one I linked to earlier is still considered a AAA Rated Bond, so I guess that MBS was safe to hold on to.

----------------------------------------------

The (former) AAA Credit Rating for the US Treasuries is a different matter all together. Instead of lending your money (essentially) to homeowners who want to buy a house... you'll lend your money directly to the US Government itself. You can buy THESE bonds from here: http://www.treasurydirect.gov/tdhome.htm

Obviously, the US Government has tons and tons of money. Its highly unlikely that they'll never be able to pay you back, so instead of getting the ~6% that you'd get from a MBS, you'll only get like, 3.5% from a 10-year note. (IE: $25,000 investment will only make $875 a year. The reason why you make less money... is because the US Government is considered more trustworthy than homeowners. People think it is far less likely for the US Government to fail to pay back its loans.

Here's the problem: The US Government came within days of being unable to pay back its loans. As a result, S&P has decided to downgrade the US Credit Rating. If Congress was more swift on the issue, then perhaps our perfect credit rating would still be around. Oh well, as an Investor, I don't own any Treasuries yet. But with the downgrade, I'll probably get a better rate on the notes. :twisted: Too bad the US Government is going to pay more for its debt now...
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Re: U.S. loses AAA credit rating from S&P

Postby Dark567 » Sat Aug 06, 2011 5:18 pm UTC

KnightExemplar wrote:Here's the problem: The US Government came within days of being unable to pay back its loans.
Hours, actually.

Also another thing worth noting is that sovereign debt isn't just rated at the ability of governments to pay it back, it also can reflect the stability of a currency. Governments(well other then in the Eurozone) can always just print money to pay of their debt, but just because you can be assured they will pay you back, doesn't assure you that the money they give you will be worth anything by then. The agencies will have no problem downgrading countries for monetizing debt.
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Re: U.S. loses AAA credit rating from S&P

Postby KnightExemplar » Sat Aug 06, 2011 5:24 pm UTC

Dark567 wrote:
KnightExemplar wrote:Here's the problem: The US Government came within days of being unable to pay back its loans.
Hours, actually.

Also another thing worth noting is that sovereign debt isn't just rated at the ability of governments to pay it back, it also can reflect the stability of a currency. Governments(well other then in the Eurozone) can always just print money to pay of their debt, but just because you can be assured they will pay you back, doesn't assure you that the money they give you will be worth anything by then. The agencies will have no problem downgrading countries for monetizing debt.


I read a report from somewhere that tax revenues from businesses were slightly higher than expected in July. Meaning that we probably could have afforded the standoff for another day or two. It could have been Republican Propaganda to push the issue beyond the edge... but I'm fairly certain that the August 2 Deadline was only an estimate.

Either way, the credit-downgrade is well-deserved. The whole issue should not have come up in the first place. When the budget was passed earlier this year, the credit limit should have been raised along with the budget. Everyone knew we wouldn't have been able to afford the planned budget this year without raising the credit limit...
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Re: U.S. loses AAA credit rating from S&P

Postby TheGrammarBolshevik » Sat Aug 06, 2011 5:28 pm UTC

So the risk of not being able to pay back our debts simply came from our at-the-time inability to take on new debts to pay the old?
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Re: U.S. loses AAA credit rating from S&P

Postby KnightExemplar » Sat Aug 06, 2011 5:38 pm UTC

TheGrammarBolshevik wrote:So the risk of not being able to pay back our debts simply came from our at-the-time inability to take on new debts to pay the old?


From my understanding, yes.

If our politicians had a bit more foresight, they would have solved this problem earlier this year (by cutting programs / raising taxes then). This credit-limit increase crisis is a direct result of the 2011 budget. However, brinksmanship seems to be the most effective driver of policy changes... so in a good political move (but a terrible move for the country), we have the whole credit-limit fiasco from the past few months.
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Re: U.S. loses AAA credit rating from S&P

Postby Whimsical Eloquence » Sat Aug 06, 2011 6:36 pm UTC

TheGrammarBolshevik wrote: So the risk of not being able to pay back our debts simply came from our at-the-time inability to take on new debts to pay the old?


Yes. The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred. Raising the debt ceiling allowed the federal government to continue to borrow money to support current spending levels. If the debt ceiling hadn't been raised, the federal government would have had to cut spending immediately by 40 percent, affecting many daily operations of the government.The Treasury would determine what items wouldn't have been paid. One item of spending - the critical one - that the U.S. had to make was interest payments on the national debt. Not paying interest when its due = sovereign default.

So, strictly speaking, it's not borrowing to pay off old debt - it's borrowing to pay off the interest on old debt.
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Re: U.S. loses AAA credit rating from S&P

Postby TheGrammarBolshevik » Sat Aug 06, 2011 6:55 pm UTC

What's the benefit of limiting the Treasury's ability to pay back obligations?
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Re: U.S. loses AAA credit rating from S&P

Postby Dark567 » Sat Aug 06, 2011 7:05 pm UTC

TheGrammarBolshevik wrote:What's the benefit of limiting the Treasury's ability to pay back obligations?
The benefit of a debt ceiling is preventing the US from taking on too much debt.... in theory.
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Re: U.S. loses AAA credit rating from S&P

Postby TheGrammarBolshevik » Sat Aug 06, 2011 7:10 pm UTC

But how does it accomplish that if, as Whimsical Eloquence says, "The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations"?
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Re: U.S. loses AAA credit rating from S&P

Postby Aetius » Sat Aug 06, 2011 7:14 pm UTC

TheGrammarBolshevik wrote:But how does it accomplish that if, as Whimsical Eloquence says, "The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations"?


It relies on the naive assumption that politicians won't spend more than they have. Silly bastards.

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Re: U.S. loses AAA credit rating from S&P

Postby Dark567 » Sat Aug 06, 2011 7:19 pm UTC

TheGrammarBolshevik wrote:But how does it accomplish that if, as Whimsical Eloquence says, "The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations"?
Well that doesn't make any sense to me, sorry I missed that. The debt limit certainly limits the governments ability to run deficits. You can't run a deficit if you can't continue to borrow.
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Re: U.S. loses AAA credit rating from S&P

Postby KnightExemplar » Sat Aug 06, 2011 7:32 pm UTC

TheGrammarBolshevik wrote:What's the benefit of limiting the Treasury's ability to pay back obligations?


It forces a debate that otherwise would have been ignored. I think I like the idea of the debt ceiling... even if it is mostly symbolic. What I don't like are politicians who use the debt ceiling as a bargaining chip. But I guess that's what their job is to do...
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Re: U.S. loses AAA credit rating from S&P

Postby Dark567 » Sat Aug 06, 2011 8:28 pm UTC

Jahoclave wrote:But I am rather distrustful of these agencies and their ability to be political manipulative to their own particular neoliberal agenda.
The more I think about it, the more I like the idea that we have someone outside of the government to hold us to the Neoliberal agenda. I am too afraid of democracy/politicians fucking with it.
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Re: U.S. loses AAA credit rating from S&P

Postby Silknor » Sat Aug 06, 2011 8:54 pm UTC

TheGrammarBolshevik wrote:So the risk of not being able to pay back our debts simply came from our at-the-time inability to take on new debts to pay the old?


No. The debt-ceiling itself isn't the problem (and while we were close to that inability, it didn't occur and we won't be close again until at least the end of 2012 or so). Otherwise the downgrade wouldn't come after the issue had been resolved.

Rather S&P said that their increased assessment of risk is based on two factors:
1. They expected that the deficit deal would be larger, and the current deal won't be enough to stabilize our debt trajectory in the medium-term (unless perhaps the super committee comes up with far more than $1.5 trillion in deficit reduction).
2. The politics of the debt-ceiling increase caused them to become more pessimistic about the likelihood that our political system will be able to reach deals sufficient to manage the growing debt burden and prevent a default in the future.

For example, S&P said that their baseline expectation is now complete, instead of partial, renewal of the Bush Tax Cuts, due to continue Republican opposition to tax increases. This of course has a notable impact on future debt projections.

TheGrammarBolshevik wrote:What's the benefit of limiting the Treasury's ability to pay back obligations?


The contemporary justification is that it forces Congress to debate overall spending/tax patterns. Of course, budget resolutions serve the same purpose, and most debt-ceiling increases have not forced a real debate, the latest being an exception. However, the debt ceiling was not imposed to force a debate, but rather to give the Treasury more flexibility in borrowing:

Before 1917, Congress authorized the Treasury to issue bonds for specific purposes. But that meant approving every bond separately. To fund World War I, Congress decided to give the Treasury more latitude by instituting caps on how much it could borrow through each type of bond, rather than forcing it to get every new bond approved separately. In 1939, this was changed so that most bonds were bound by the same limit, effectively creating the general debt ceiling we have today.

http://www.washingtonpost.com/blogs/ezr ... _blog.html
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Re: U.S. loses AAA credit rating from S&P

Postby stevenf » Sat Aug 06, 2011 9:36 pm UTC

The individual components of the global financial crisis ought not to be viewed in isolation - everything is intimately connected to everything else, to the extent that it should really not be regarded as a series of interacting systems but as a syncytium.

When viewed from this perspective it is possible to describe to problem more accurately and the immensity of the reform task becomes truly apparent.

Debt financed, growth dependent, resource depleting, globalised, unregulated free-market capitalism is dead. Putting a few volts through it with QE or debt ceiling lifting or banking reform will not arrest the putrifaction.

The options available are many (some discussed elsewhere on xkcd) and we have to hope that inspirational leadership of the right kind emerges before we find history repeating itself.

Centre left, progressive, social-democratic, green - these are the directions to take. The success of this approach is shown by those countries which are less severely affected by the current problems - the Nordic countries and Germany for example.

Prosperity without growth will look and feel different but it is possible. Living within resource limits will require a host of changes but can be achieved. Distributing employment rationally around the planet benefits everyone. Taking the control of money away from bankers and their snake oil affiliates has to be the right thing to do. Living within your income is essential - either as individuals or nations. Ending status-anxiety driven consumerism requires no effort on the part of the thoughtful citizen.

We can all have a great future and our kids and their kids but not going the way we are at present.

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Re: U.S. loses AAA credit rating from S&P

Postby Dark567 » Sat Aug 06, 2011 10:55 pm UTC

stevenf wrote:Centre left, progressive, social-democratic, green - these are the directions to take. The success of this approach is shown by those countries which are less severely affected by the current problems - the Nordic countries and Germany for example.
Plenty of countries have done well without progressive economic policies. There are also countries with fairly progressive systems that have gotten nailed hard by the crisis. For that matter its my understanding the nordic model is fairly neoliberal(i.e. relatively little regulation, high privatization, strong property rights) with the addition of a large welfare state. Although I feel someone is going to come along and correct me on that....


stevenf wrote:Prosperity without growth will look and feel different but it is possible.
It hasn't been done before, I see no reason to believe its possible now.
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Re: U.S. loses AAA credit rating from S&P

Postby Iceman » Sun Aug 07, 2011 12:50 am UTC

S&P release on June 30th, 2011 their new criteria for evaluating Sovereign debt in a 43 page document.
http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobkey=id&blobcol=urldata&blobheadername1=content-type&blobheadervalue3=UTF-8&blobheadervalue1=application/pdf&blobheadername2=Content-Disposition&blobwhere=1243925794293&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename=CriteriaGovernmentsSovereignsSovereignGovernmentRatingMethodologyAndAssumptions_6_30_11.pdf

Investment firms were already not treating US long term debt as risk free, This S&P rating change is about 3 years late when it comes to reflecting the reality of the marketplace.

S&P stated when it changed its criteria that 15% of sovereign nations and 1% of companies it rates are AAA...and that in the 6 months pending the re-assessment of each sovereign's fiscal shape, that the 15% would be expected to drop.

Yes, Credit Agencies are notoriously slow to act, unfortunately this is because governments have placed restrictions, not on the agencies, but on investment firms that certain funds may only hold securities of certain rating quality. So if an agency were to cut a rating without warning, they'd be forced to liquidate and we'd have a big liquidity problem (again).

Countries are evaluated for Political, Economic, External, Fiscal and Monetary risk. If any country scores less than the top tier in Any of these categories, it cannot be rated AAA.

US Debt levels are 2nd highest in its peer group and climbing, while political concerns are real. Further to that most peers are reducing debt loads as US gains.
If you did some side by side comparison of US debt and say, Canadian debt. You've got 30% Debt to GDP and no political risk...vs 79% and a crisis.
Canadian real rates are lower than US real rates, that the market already telling you 'We the market rate This debt higher'

S&P is just making it official....years late.

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Re: U.S. loses AAA credit rating from S&P

Postby TheGrammarBolshevik » Sun Aug 07, 2011 12:52 am UTC

Silknor wrote:
TheGrammarBolshevik wrote:So the risk of not being able to pay back our debts simply came from our at-the-time inability to take on new debts to pay the old?


No. The debt-ceiling itself isn't the problem (and while we were close to that inability, it didn't occur and we won't be close again until at least the end of 2012 or so). Otherwise the downgrade wouldn't come after the issue had been resolved.

I was talking about the past.
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Re: U.S. loses AAA credit rating from S&P

Postby Dark567 » Sun Aug 07, 2011 1:01 am UTC

Iceman wrote:Investment firms were already not treating US long term debt as risk free, This S&P rating change is about 3 years late when it comes to reflecting the reality of the marketplace.
When I worked in finance a couple years ago, we used the Euribor for our risk free rate. Kinda a pain in the ass to add in the currency exchange risk, but we felt like it was a better risk free rate then US treasuries.
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Re: U.S. loses AAA credit rating from S&P

Postby nitePhyyre » Sun Aug 07, 2011 1:10 am UTC

Thanks for the info!

Iceman wrote:US Debt levels are 2nd highest in its peer group and climbing, while political concerns are real. Further to that most peers are reducing debt loads as US gains.
If you did some side by side comparison of US debt and say, Canadian debt. You've got 30% Debt to GDP and no political risk...vs 79% and a crisis.
Canadian real rates are lower than US real rates, that the market already telling you 'We the market rate This debt higher'

S&P is just making it official....years late.

Hmm, Canada needs more debt.
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Re: U.S. loses AAA credit rating from S&P

Postby meliescomic » Sun Aug 07, 2011 1:26 am UTC

The Tea Party publicly playing chicken with our economy couldn't have ANYTHING to do with the world losing faith in us...


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