Author Topic: USA just lost AAA credit rating!! It begins  (Read 1186 times)

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Offline Matthew

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USA just lost AAA credit rating!! It begins
« on: August 05, 2011, 11:56:40 PM »
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  • S&P downgrades US credit rating from AAA
    S&P issues unprecedented downgrade of US credit rating, saying debt package falls short

    Companies:Moody's Corp.
    Topics:Upgrades & Downgrades

    FILE - This Monday, Aug. 1, 2011 picture shows the U.S. Capitol just after the House voted to pass debt legislation on Capitol Hill in Washington. Credit rating agency Standard & Poor's says it has downgraded the United States' credit rating for the first time in the history of the ratings. The credit rating agency says that it is cutting the country's top AAA rating by one notch to AA-plus. The credit agency said late Friday, Aug. 5, 2011 that it is making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation. (AP Photo/Jacquelyn Martin)

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    Martin Crutsinger, AP Economics Writer, On Friday August 5, 2011, 11:55 pm
    WASHINGTON (AP) -- The United States has lost its sterling credit rating from Standard & Poor's.

    The credit rating agency on Friday lowered the nation's AAA rating for the first time since granting it in 1917. The move came less than a week after a gridlocked Congress finally agreed to spending cuts that would reduce the debt by more than $2 trillion -- a tumultuous process that contributed to convulsions in financial markets. The promised cuts were not enough to satisfy S&P.

    The drop in the rating by one notch to AA-plus was telegraphed as a possibility back in April. The three main credit agencies, which also include Moody's Investor Service and Fitch, had warned during the budget fight that if Congress did not cut spending far enough, the country faced a downgrade. Moody's said it was keeping its AAA rating on the nation's debt, but that it might still lower it.

    One of the biggest questions after the downgrade was what impact it would have on already nervous investors. While the downgrade was not a surprise, some selling is expected when stock trading resumes Monday morning. The Dow Jones industrial average fell 699 points this week, the biggest weekly point drop since October 2008.

    "I think we will have a knee-jerk reaction on Monday," said Jack Ablin, chief investment officer at Harris Private Bank.

    But any losses might be short-lived. The threat of a downgrade is likely already reflected in the plunge in stocks this week, said Harvey Neiman, a portfolio manager of the Neiman Large Cap Value Fund.

    "The market's already been shaken out," Neiman said. "It knew it was coming."

    One fear in the market has been that a downgrade would scare buyers away from U.S. debt. If that were to happen, the interest rate paid on U.S. bonds, notes and bills would have to rise to attract buyers. And that could lead to higher borrowing rates for consumers, since the rates on mortgages and other loans are pegged to the yield on Treasury securities.

    However, even without an AAA rating from S&P, U.S. debt is seen as one of the safest investments in the world. And investors clearly weren't scared away this week. While stocks were plunging, investors were buying Treasurys and driving up their prices. The yield on the 10-year Treasury note, which falls when the price rises, fell to a low of 2.39 percent on Thursday from 2.75 percent Monday.

    A study by JPMorgan Chase found that there has been a slight rise in rates when countries lost an AAA rating. In 1998, S&P lowered ratings for Belgium, Italy and Spain. A week later, their 10-year rates had barely moved.

    The government fought the downgrade. Administration sources familiar with the discussions said the S&P analysis was fundamentally flawed. They spoke on condition of anonymity because they weren't authorized to discuss the matter publicly. S&P had sent the administration a draft document in the early afternoon Friday and the administration, after examining the numbers, challenged the analysis.

    S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade, to AA, would occur if the agency sees smaller reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period.

    In its statement, S&P said that it had changed its view "of the difficulties of bridging the gulf between the political parties" over a credible deficit reduction plan.

    S&P said it was now "pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics anytime soon."

    One analyst suggested the downgrade might move Congress to take concrete steps to fix the nation's budget problems.

    "It's a downgrade and it's bad, but if it spurs more conversation about bringing down spending and maybe more intelligent tax policy, it could be a good thing in the long run," said Frank Barbera, a portfolio manager of the Sierra Core Retirement Fund.

    The Federal Reserve and other U.S. regulators said in a joint statement that S&P's action should not have any impact on how banks and other financial institutions assess the riskiness of Treasurys or other securities guaranteed by the U.S. government. The statement was issued to make sure banks did not feel that the downgrade would affect the amount of capital that regulators require the banks to hold against possible losses.

    Before leaving for a weekend at Camp David, President Barack Obama met with Treasury Secretary Timothy Geithner in the Oval Office late Friday afternoon.

    The downgrade is likely to have little to no impact on how the United States finances its borrowing, through the sale of Treasury bonds, bills and notes. This week's buying proves that.

    "Investors have voted and are saying the U.S. is going to pay them," said Mark Zandi, chief economist of Moody's Analytics. "U.S. Treasurys are still the gold standard." He noted that neither his parent organization, Moody's, nor Fitch, the other of the three major rating agencies, have downgraded U.S. debt.

    The ratings agencies were sharply criticized after the financial crisis in 2008 for not warning investors about the risks of subprime mortgages. Those mortgages were packaged as securities and sold to investors who lost billions of dollars when the loans went bad.

    Japan had its ratings cut a decade ago to AA, and it didn't have much lasting impact. The credit ratings of both Canada and Australia have also been downgraded over time, without much lasting damage.

    "I don't think it's going to amount to a lot," said Peter Morici, a University of Maryland business economist.

    Still, he said, "The United States deserves to have this happen," because of its clumsy handling of fiscal policy.

    In reacting to the downgrade, Democrats and Republicans continued to blame each other and pledged to hold firm to their principles.

    Republican presidential candidates criticized the White House. Rep. Michele Bachmann, R-Minn., called on Obama to fire Treasury Secretary Timothy Geithner and submit a plan to balance the budget and not just reduce future deficits. Republican candidate Mitt Romney, former governor of Massachusetts, said the credit downgrade was the "latest casualty" in Obama's failed economic leadership.

    House Democratic Leader Nancy Pelosi said the American people will be closely watching the work of the 12-member joint committee that has been created to produce more than $1 trillion in additional savings over the next decade.

    "The work of this committee will affect all Americans, and its deliberations should be open to the press, to the public and webcast," she said.

    Senate Democratic Leader Harry Reid said the downgrade underscored the need for a "balanced approach to deficit reduction that combines spending cuts with revenue-raising measures" such as doing away with tax breaks for the wealthy and oil companies.
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    Offline Raoul76

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    USA just lost AAA credit rating!! It begins
    « Reply #1 on: August 06, 2011, 12:56:21 AM »
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  • That's because everyone is grumbling about how we own the credit-rating companies.  It's an attempt to make it look like they aren't biased and that we're getting more serious.  We have to make it look like we're tightening our belts in order to coax more money from China.  Actually, we don't HAVE to do this, because without us, they will collapse even worse than we will.  It's more like a diplomatic game, showing respect, etc.

    It's sort of like how a kid, when he wants money from his mom, will vacuum and do his homework and feed the dog and try to look responsible.  Then he'll go buy a video game.

    Anyway, it's all moot because, worthless as it is, when the dollar crashes, everyone else will crash as well.  The dollar is toilet paper, but it is toilet paper that happens to be the world reserve currency... If it weren't, we would be living in The Road Warrior by now.  We would have been abandoned and would have crashed and burned instantly.  It's still going to happen, just later on, and that is because of this insanely complicated interdependency of the various nations that has resulted from American dominance over the last century.

    The entire world is involved in trying to pad out the inevitable disaster.  It's all about making the crash-landing ultra-super-slow at this point.  I am beginning to think this long and drawn out decline really may go on longer than anyone can imagine -- until the 2030's even, like in that one Monarch prophecy.  When EVERYONE in the world relies on this farcical system of debt for their survival, when EVERYONE is doing their utmost to keep it going, it stands to reason that it will keep going.  It doesn't even matter now that the debt will never be paid back.  Everyone knows it but that doesn't help them, they still have to play the game.    

    The problem is that the people will be squeezed further and further just to pay a fraction of the interest of the debt, and so even if they are able to keep this system going indefinitely, eventually there will be revolts and massacres of the politicians.  In France there is no so-called left or right anymore, almost everyone uniformly loathes the politicans and knows they are just shills for the banks and corporations.  It is clear that they are smelling blood.  It is scary to hear these politicians talk, the emptiness they are spewing becomes more obvious by the day.  They live in a cocoon divorced from reality.

    It would be annihilation for anyone to try to back out of the Biggest Ponzi Scheme Ever now.  But it's a slower annihilation for anyone who stays in.  What would you choose as a manner of death, fast or slow?  Get it over with quickly, or have poor quality of life but stay around a little longer?  Most would choose the latter, and that's what the doomed nations of the world have done.

    As I was a new convert when posting here, my posts are often full of error, even unwitting heresy and rash judgment, all of which I renounce, and all my writings are best avoided -- MDLS

    Offline gladius_veritatis

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    USA just lost AAA credit rating!! It begins
    « Reply #2 on: August 06, 2011, 07:52:31 AM »
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  • Quote from: Raoul76
    I am beginning to think this long and drawn out decline really may go on longer than anyone can imagine -- until the 2030's even, like in that one Monarch prophecy...

    ...Even if they are able to keep this system going indefinitely, eventually there will be revolts and massacres of the politicians... It is clear that they are smelling blood.  

    I agree with much of what you are saying, Mike, but there is a kind of incongruity between the two ideas I quoted above (and I am not so sure that particular prophecy means what some seem to think it means).  IMO, there is no way the system can hold until the 2030s because the internal as well as external pressure is too great and increasing rapidly.  When people "smell blood", etc., it is a solid indicator that blood will soon flow.
    + Vincit veritas +

    Offline Iuvenalis

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    USA just lost AAA credit rating!! It begins
    « Reply #3 on: August 06, 2011, 09:58:33 AM »
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  • Why would anyone listen to ratings agencies who couldn't correctly rate mortgage backed securities, but somehow they have credibility??

    Offline SJB

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    USA just lost AAA credit rating!! It begins
    « Reply #4 on: August 06, 2011, 08:05:11 PM »
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  • Quote from: Raoul76
    It doesn't even matter now that the debt will never be paid back.

    The system (money created as a debt) prohibits the debt from ever being "paid back." When new (money) credit is created, it is created as a debt with interest due. The interest due is not created. It's been operating like this for quite some time and will continue this way.
    It would be comparatively easy for us to be holy if only we could always see the character of our neighbours either in soft shade or with the kindly deceits of moonlight upon them. Of course, we are not to grow blind to evil


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