[GenryDont]

S&P Downgrades U.S. Debt for First Time - WSJ.com

A cornerstone of the global financial system was shaken Friday when officials at ratings firm Standard & Poor's said U.S. Treasury debt no longer deserved to be considered among the safest investments in the world.

"S&P removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal recently brokered in Washington didn't do enough to address the gloomy outlook for America's finances. It downgraded long-term U.S. debt to AA+, a score that ranks below more than a dozen countries, including Liechtenstein, and on par with Belgium and New Zealand. S&P also put the new grade on "negative outlook," meaning the U.S. has little chance of regaining the top rating in the near term."

Note: The article title was too long to post and did not reflect the content of the story.

I'd be interested to hear more about why S&P chose to go foreward with the downgrade if their original assessment was based on a math error beyond the official reason.

I think the Philadelphia Inquirer's editorial opinion today summed up that situation quite well, including the unnecessary damage (self-fulfilling in a way) it is inflicting based on its math and predictions credibility problems and propriety of considerations problems with the assessment.

Posted on Tue, Aug. 9, 2011

Inquirer Editorial: Credit-rating drop unnecessary

Standard & Poor's downgrade of the nation's credit rating is a flawed conclusion from a discredited messenger.

Rather than adding a helpful push to get the nation on a more sustainable financial footing, S&P's misguided judgment call may actually increase the risk of harm to the nation's economy.

There was not, and is not, any risk that the United States won't pay its bonded debts as promised. Even if Congress hadn't raised the debt ceiling, the government would have paid what it owes to investors.

There might have been chaos elsewhere in government operations, and the economy as a whole would have been jolted, but the nation's bond debts were covered.

Consider, too, that S&P comes at this credit-rating question with tarnished credibility. In the run-up to the financial crash of 2008, S&P and other rating agencies routinely granted the best rating, AAA, to complicated investments that proved to be worthless junk.

Now, S&P is making the opposite mistake, seeing significant risk to investors where it doesn't exist.

U.S. Treasury officials found a $2 trillion (yes, trillion) mistake in S&P's projections at the last minute, but the ratings agency rejiggered its analysis and issued the downgrade anyway.

Its conclusion was candidly based on political predictions about what Congress will do, rather than economic fundamentals.

There's a reason the other two major rating agencies have not followed S&P's lead: U.S. Treasury debt is still the world's most secure investment. If investors had agreed with S&P's analysis, interest rates on short-term U.S. debt would have spiked upward to reflect higher risk. Instead, interest rates dropped slightly.

Nonetheless, S&P's hotly disputed judgment may well cause disruption elsewhere in the economy.

Investments that are riskier than Treasury bonds, such as mortgages and credit-card debt, may have to charge higher interest rates to draw investors away from much safer Treasury bills. That would drive up costs to consumers and reduce their spending, which would jeopardize the economy's shaky recovery.

S&P's defenders might argue that its analysis will help push Congress forward as it works on further cutting the deficit. If only that were the case.

S&P is right that congressional Republicans' stubborn refusal to consider raising revenues with higher taxes doesn't help. S&P is also right that entitlement programs dear to Democrats have to be wrestled under tighter control. But neither point is new to anyone who's been paying attention.

Ditto for the doubts that S&P expressed about the yet-to-be-appointed congressional super-committee's work on stage two of deficit reduction.

All those are obvious, legitimate, and well-understood concerns - but they don't mean there's any appreciable risk that the United States would default on the national debt. Tinkering with the nation's credit rating now wasn't justified. Inquirer Editorial: Credit-rating drop unnecessary | Philadelphia Inquirer | 08/09/2011

[Lyikmcmb]

[url=http://online.wsj.com/article/SB10001424053111903366504576491421339802788.html?m od=WSJ_hp_LEFTTopStories]

I'd be interested to hear more about why S&P chose to go foreward with the downgrade if their original assessment was based on a math error beyond the official reason.

I think their judgement was political, not economic. They ran some numbers to justify their Tea Party Downgrade, so when the mistake was called to their attention, they just omitted that part and went ahead with the downgrade anyway.
It makes them look awfully foolish, as it should.

[AAAESLLESO]

TEA party downgrade? Are you really serious?

Without the TEA party the debt ceiling would have been raised without any thought of cutting spending. We could be downgraded to aa instead of aa+

[bomondus]

I'm not saying this is what hapedned, but it would be a real hoot to find out those involved in the downgrade shorted the market, and made billions of $ in the process. It pays to be in a position of power.

[standaman]

I think their judgement was political, not economic. They ran some numbers to justify their Tea Party Downgrade, so when the mistake was called to their attention, they just omitted that part and went ahead with the downgrade anyway.
It makes them look awfully foolish, as it should.

Now that statement of a T-Party Downgrade, I would suggest is as wrong as it gets. The simple fact of the downgrade is because of our national debt. No debt no downgrade. Simple to understand

It's a nice try to throw blame, but the fact remains it's the debt that brought the downgrade. The American people are not buying the blame game you suggest is the T-Party Downgrade when they see our national debt rising higher and faster than ever before in US History.

[ZXRamon]

Jason Marcel
That's bullshit. You know very well that this President inherited two wars that weren't on the books. He put them on the books and it makes the books look terrible. Conservatives have a convenient way of applying their stupid logic: if you don't see it, it doesn't exist.
One more time for the stupid, ignorant fools that don't understand one damn thing about the Federal Budget process. By "weren't on the books" it means that the appropriations for those were not done as part of the baseline appropriations process, they were done separately. There WERE nonetheless including in every single calculation of what was ACTUALLY spent.

The massive increase in ACTUAL spending under Obama has NOTHING to do with whether or not the appropriations for the wars are on or "off" budget, that ONLY means that they are dealt with outside the standard appropriations process.

Learn some basic facts before you say demonstrably stupid things.

[Gedominew]

I think the Philadelphia Inquirer's editorial opinion today summed up that situation quite well, including the unnecessary damage (self-fulfilling in a way) it is inflicting based on its math and predictions credibility problems and propriety of considerations problems with the assessment.



Inquirer Editorial: Credit-rating drop unnecessary | Philadelphia Inquirer | 08/09/2011

There was not, and is not, any risk that the United States won't pay its bonded debts as promised. Even if Congress hadn't raised the debt ceiling, the government would have paid what it owes to investors

How? How when you look at 10 year bonds and the fact we will be be over 30 trillion in debt by the based on current spending. How do you and the phidelphia inquirer think we will be able to meet all the obligations?

The only way to pay the debt then will be with 70% income tax rates on everyone and cutting entitlememnt programs in half.

[mikeyyuiok]

How? How when you look at 10 year bonds and the fact we will be be over 30 trillion in debt by the based on current spending. How do you and the phidelphia inquirer think we will be able to meet all the obligations?

The only way to pay the debt then will be with 70% income tax rates on everyone and cutting entitlememnt programs in half.

There is another option and Greenspan made mention of it the other day. You just print more money.

Greenspan US Can Pay Any Debt. We just print more money.

[Lyikmcmb]

Now that statement of a T-Party Downgrade, I would suggest is as wrong as it gets. The simple fact of the downgrade is because of our national debt. No debt no downgrade. Simple to understand

So the high deficits means that everyone's worried about our ability to continue to fund our debt, right? Just like Greece, right?

Simple, right?

Right?

[Romobencience]

The irony is that the downgrade ended up pushing more money towards US bonds and lowering interest rates.

The truth is in behavior.

[ReneCM]

Clearly they felt the risk outweighed the relevance of a $2 trillion dollar math error.

Here's an explanation seemingly from S&P:
Quote:
Standard & Poor’s Clarifies Assumption Used On Discretionary Spending Growth

.............In the near term horizon, by 2015, the U.S. net general government debt with the new assumptions were projected to be $14.5 trillion (79% of 2015 GDP) ........

S&P Explains Why The "$2 Trillion Error" Is Irrelevant | ZeroHedge

2010 Debt to GDP of countries with AAA rating,

Country Comparison :: Public debt
(% of GDP)

14 Canada- 84.00- 2010 est.
15 France- 83.50- 2010 est.
20 Germany- 78.80- 2010 est.
24 United Kingdom- 76.50- 2010 est.
25 Austria- 70.40- 2010 est.
27 Netherlands- 64.60- 2010 est
38 United States- 58.90- 2010 est.
https://www.cia.gov/library/publicat.../2186rank.html now minus the US.