Standard and Poors downgrades United States AAA Rating to AA+

[Guest Luke]

Bummed that our U.S. AAA debt rating was just cut by Standard & Poor's. Just wondering how this is going to play out with everyone. Are we going to get serious as a nation or are we just going to pretend that it is not really happening.

[Guest John Bellows]

In a document provided to Treasury on Friday afternoon, Standard and Poor’s (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error – a basic math error of significant consequence – S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one.

 

S&P has said their decision to downgrade the U.S. was based in part on the fact that the Budget Control Act, which will reduce projected deficits by more than $2 trillion over the next 10 years, fell short of their $4 trillion expectation for deficit reduction. Clearly, in that context, S&P considers a $2 trillion change to projected deficits to be very significant. Yet, although S&P's math error understated the deficit reduction in the Budget Control Act by $2 trillion, they found this same sum insignificant in this instance.

 

In fact, S&P’s $2 trillion mistake led to a very misleading picture of debt sustainability – the foundation for their initial judgment. This mistake undermined the economic justification for S&P’s credit rating decision. Yet after acknowledging their mistake, S&P simply removed a prominent discussion of the economic justification from their document.

 

In their initial, incorrect estimates, S&P projected that the debt as a share of GDP would rise rapidly through the middle of the decade, and they cited this as a primary reason for a downgrade.

 

In S&P’s corrected estimates – which lowered S&P's projection of future deficits by $2 trillion over 10 years and lowered S&P's estimate of debt as a share of GDP in 2021 by 8 percentage points - public debt is much more stable.

 

The error came about because S&P took the amount of deficit reduction CBO calculated from the Budget Control Act and applied it to the wrong starting point, or “baseline.”

 

Specifically, CBO calculated that the Budget Control Act, including its discretionary caps, would save $2.1 trillion relative to a “baseline” in which current discretionary funding levels grow with inflation.

 

S&P incorrectly added that same $2.1 trillion in deficit reduction to an entirely different “baseline” where discretionary funding levels grow with nominal GDP over the next 10 years. Relative to this alternative “baseline,” the Budget Control Act will save more than $4 trillion over ten years – or over $2 trillion more than S&P calculated. (The baseline in which discretionary spending grows with nominal GDP is substantially higher because CBO assumes that nominal GDP grows by just under 5 percent a year on average, while inflation is around 2.5 percent a year on average.

 

The impact of this mistake was to dramatically overstate projected deficits—by $2 trillion over 10 years. As anybody who has followed the fiscal discussions knows, a change of this magnitude is very significant. Nonetheless, S&P did not believe a mistake of this magnitude was significant enough to warrant reconsidering their judgment, or even significant enough to warrant another day to carefully re-evaluate their analysis.

 

S&P acknowledged this error – in private conversations with Treasury on Friday afternoon and then publicly early Saturday morning. In the interim, they chose to issue a downgrade of the US credit rating.

 

Independent of this error, there is no justifiable rationale for downgrading the debt of the United States. There are millions of investors around the globe that trade Treasury securities. They assess our creditworthiness every minute of every day, and their collective judgment is that the U.S. has the means and political will to make good on its obligations. The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action.

[Guest HUMAN]

I didn't post earlier about the budget battles because I was hoping that with out the internets input that it would put more pressure on the democrats when it came to the U.S. budget.

 

I do have the information for investing in this country as well as others but considering the nature of the internet in the way it is structured today? NOT A CHANCE.

 

We ARE in economic wars with other countries out there and I AM treating the information I have as being TOO SENSATIVE for the internet.

 

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In a document provided to Treasury on Friday afternoon, Standard and Poor’s (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error – a basic math error of significant consequence – S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one.

 

S&P has said their decision to downgrade the U.S. was based in part on the fact that the Budget Control Act, which will reduce projected deficits by more than $2 trillion over the next 10 years, fell short of their $4 trillion expectation for deficit reduction. Clearly, in that context, S&P considers a $2 trillion change to projected deficits to be very significant. Yet, although S&P's math error understated the deficit reduction in the Budget Control Act by $2 trillion, they found this same sum insignificant in this instance.

 

In fact, S&P’s $2 trillion mistake led to a very misleading picture of debt sustainability – the foundation for their initial judgment. This mistake undermined the economic justification for S&P’s credit rating decision. Yet after acknowledging their mistake, S&P simply removed a prominent discussion of the economic justification from their document.

 

In their initial, incorrect estimates, S&P projected that the debt as a share of GDP would rise rapidly through the middle of the decade, and they cited this as a primary reason for a downgrade.

 

In S&P’s corrected estimates – which lowered S&P's projection of future deficits by $2 trillion over 10 years and lowered S&P's estimate of debt as a share of GDP in 2021 by 8 percentage points - public debt is much more stable.

 

The error came about because S&P took the amount of deficit reduction CBO calculated from the Budget Control Act and applied it to the wrong starting point, or “baseline.”

 

Specifically, CBO calculated that the Budget Control Act, including its discretionary caps, would save $2.1 trillion relative to a “baseline” in which current discretionary funding levels grow with inflation.

 

S&P incorrectly added that same $2.1 trillion in deficit reduction to an entirely different “baseline” where discretionary funding levels grow with nominal GDP over the next 10 years. Relative to this alternative “baseline,” the Budget Control Act will save more than $4 trillion over ten years – or over $2 trillion more than S&P calculated. (The baseline in which discretionary spending grows with nominal GDP is substantially higher because CBO assumes that nominal GDP grows by just under 5 percent a year on average, while inflation is around 2.5 percent a year on average.

 

The impact of this mistake was to dramatically overstate projected deficits—by $2 trillion over 10 years. As anybody who has followed the fiscal discussions knows, a change of this magnitude is very significant. Nonetheless, S&P did not believe a mistake of this magnitude was significant enough to warrant reconsidering their judgment, or even significant enough to warrant another day to carefully re-evaluate their analysis.

 

S&P acknowledged this error – in private conversations with Treasury on Friday afternoon and then publicly early Saturday morning. In the interim, they chose to issue a downgrade of the US credit rating.

 

Independent of this error, there is no justifiable rationale for downgrading the debt of the United States. There are millions of investors around the globe that trade Treasury securities. They assess our creditworthiness every minute of every day, and their collective judgment is that the U.S. has the means and political will to make good on its obligations. The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action.

[Guest Pissed Off]

How does Australia, Austria, Canada, Denmark, Finland, France, Germany, Guernsey, Hong Kong, Isle of Man, Liechtenstein, Luxembourg, Netherlands, Norway, Singapore, Sweden, Switzerland, United Kingdom have a AAA credit rating from S&P.

 

I also have no respect that they give tax havens AAA ratings. That is just not fair to all countries.

 

I would like to know why Finland, France and the UK

 

Australia has a market economy with high GDP per capita and low rate of poverty. Makes sense.

 

Austria is the 12th richest country in the world in terms of GDP (Gross domestic product) per capita. Labour movements are particularly strong in Austria and have large influence on labor politics. Makes sense.

 

Canada is one of the world's wealthiest nations, with a high per-capita income. It is a member of the Organisation for Economic Co-operation and Development (OECD) and the G8, and is one of the world's top ten trading nations. Canada is a mixed economy, ranking above the U.S. and most western European nations on the Heritage Foundation's index of economic freedom. Makes sense.

 

Denmark's mixed economy features above average European living standards and high amount of free trade. Denmark ranks 16th in the world in terms of GDP (PPP) per capita and ranks 5th in nominal GDP per capita. According to World Bank Group, Denmark has the most flexible labour market in Europe; the policy is called flexicurity. It is easy to hire and fire (flexibility), and between jobs, unemployment compensation is very high (security). Makes sense.

 

Finland has a highly industrialized mixed economy with a per capita output equal to that of other European economies such as France, Germany, Belgium or the UK. The largest sector of the economy is services at 66%, followed by manufacturing and refining at 31%. Unfunded pensions and other promises such as health insurances are a dominant future liability, though Finland is much better prepared than countries such as France or Germany. Makes no sense.

 

France is a member of the G8 group of leading industrialised countries, it is ranked as the world's fifth largest and Europe's second largest economy by nominal GDP;[149] with 39 of the 500 biggest companies of the world in 2010, France ranks world's 4th and Europe's 1st in the Fortune Global 500 ahead of Germany and the UK. Financial services, banking and the insurance sector are an important part of France's economy. The Paris stock exchange market (French: La Bourse de Paris) is an ancient institution, as it was created by Louis XV in 1724. The French branch of the NYSE Euronext group is Europe's second largest stock exchange market, behind the London Stock Exchange. rance has one of the lowest 15–64 years employment rates of the OECD countries: in 2004, only 69% of the French population aged 15–64 years were in employment, compared to 80% in Japan, 79% in the UK, 77% in the US, and 71% in Germany. The unemployment rate decreased from 9% in 2006 to 7% in 2008 but remains one of the highest in Europe. Mixed feelings on this one.

 

Germany has a social market economy with a highly qualified labour force, a large capital stock, a low level of corruption, and a high level of innovation. It has the largest national economy in Europe, the fourth largest by nominal GDP in the world, and the fifth largest by PPP (purchasing power parity). Makes sense.

 

Guernsey a popular offshore finance centre for private equity funds due to its light taxes and death duties. However, while Guernsey is not a member of the European Union, the EU is forcing Guernsey to comply more and more with its rules. As with other offshore centres, Guernsey is also coming under pressure from bigger nations to change its way of doing business. Guernsey is changing the way its tax system works in order to remain OECD ( and EU ) compliant. Tax Haven makes sense.

 

Hong Kong has a major capitalist service economy characterised by low taxation and free trade, and the currency, Hong Kong dollar, is the ninth most traded currency in the world. Hong Kong was once described by Milton Friedman as the world’s greatest experiment in laissez-faire capitalism. It maintains a highly developed capitalist economy, ranked the freest in the world by the Index of Economic Freedom for 15 consecutive years. Makes sense.

 

The Isle of Man is a low-tax economy with no capital gains tax, wealth tax, stamp duty, or inheritance tax and a top rate of income tax of 20%. A tax cap is in force; the maximum amount of tax payable by an individual is £115,000 or £230,000 for couples if they choose to have their incomes jointly assessed. The £115,000 tax cap equates to an assessable income of £589,550. Personal income is assessed and taxed on a total worldwide income basis rather than a remittance basis. This means that all income earned throughout the world is assessable for Manx tax rather than only income earned in or brought into the Island. The rate of corporation tax is 0% for almost all types of income, the only exceptions are that the profits of banks are taxed at 10%, as is rental (or other) income from land and buildings situated on Mann. Offshore banking, manufacturing, and tourism form key sectors of the economy. Makes sense.

 

Luxembourg is the world's second largest investment fund center (after the United States), the most important private banking center in the Eurozone and Europe's leading center for reinsurance companies. Moreover, the Luxembourgish government has tried to attract internet start-ups. Skype and eBay are two of the many internet companies that have shifted their regional headquarters to Luxembourg. Concern about Luxembourg's banking secrecy laws, and its reputation as a tax haven, led in April 2009 to it being added to a "grey list" of nations with questionable banking arrangements by the G20. Luxembourg adapted some months later the OECD standards on exchange of information and moved into the category of 'Jurisdictions that have substantially implemented the internationally agreed tax standard. Makes sense.

 

The Netherlands has a very strong economy and has been playing a special role in the European economy for many centuries. Since the 16th century, shipping, fishing, trade, and banking have been leading sectors of the Dutch economy. The Netherlands is one of the world's 10 leading exporting countries. Foodstuffs form the largest industrial sector. Other major industries include chemicals, metallurgy, machinery, electrical, goods and tourism. Examples include Unilever, Heineken, financial services (ING), chemicals (DSM), petroleum refining (Shell), electronical machinery (Philips, ASML) and car navigation TomTom. The country continues to be one of the leading European nations for attracting foreign direct investment and is one of the five largest investors in the United States. One of the largest natural gas fields in the world is situated near Slochteren. Exploitation of this field resulted in a total revenue of €159 billion since the mid 1970s. With just over half of the reserves used up and an expected continued rise in oil prices, the revenues over the next few decades are expected to be at least that much. Makes sense.

 

Norwegians enjoy the second highest GDP per-capita (after Luxembourg) and fourth highest GDP (PPP) per-capita in the world. Today, Norway ranks as the second wealthiest country in the world in monetary value, with the largest capital reserve per capita of any nation. The standard of living in Norway is among the highest in the world. Foreign Policy Magazine ranks Norway last in its Failed States Index for 2009, judging Norway to be the world's most well-functioning and stable country. Continued oil and gas exports coupled with a healthy economy and substantial accumulated wealth lead to a conclusion that Norway will remain among the richest countries in the world in the foreseeable future. orway has obtained one of the highest standards of living in the world in part by having a large amount of natural resources compared to the size of the population. In 2011, 28% of state revenues were generated from the petroleum industry. Makes sense.

 

Singapore has a highly developed market-based economy, based historically on extended entrepôt trade. Along with Hong Kong, South Korea and Republic of China (Taiwan), Singapore is one of the Four Asian Tigers. The economy depends heavily on exports and refining imported goods, especially in manufacturing, which constituted 27.2% of Singapore's GDP in 2010 and includes significant electronics, petroleum refining, chemicals, mechanical engineering and biomedical sciences sectors. In 2006 Singapore produced about 10% of the world's foundry wafer output. The country is the world's fourth leading financial centre. Singapore has one of the busiest ports in the world and is the world's fourth largest foreign-exchange trading centre after London, New York and Tokyo. The World Bank ranks Singapore as the world's top logistics hub. Makes sense.

 

The UK has a partially regulated market economy. Based on market exchange rates the UK is today the sixth-largest economy in the world and the third-largest in Europe after Germany and France, having fallen behind France for the first time in over a decade in 2008. Pound sterling is the world's third-largest reserve currency (after the U.S. Dollar and the Euro). In the final quarter of 2008 the UK economy officially entered recession for the first time since 1991. Unemployment increased from 5.2% in May 2008 to 7.6% in May 2009 and by January 2011 the unemployment rate among 18 to 24-year-olds had risen from 11.9% to 20.3%, the highest since current records began in 1992. Total UK government debt rose from 44.5% of GDP in December 2007 to 76.1% of GDP in December 2010. Makes no sense.

[Guest Blue Dog]

I do not think private rating agencies like S&P should be permitted to pass judgement on countries, because after all its a private organization, subject to the same weaknesses like corruption and insider trading, that they should be in a position to hold global markets to such ransom.

[Guest Blue Dog]

Actual release

 

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Standard & Poor's Ratings Services said today that it lowered its long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA'. Standard & Poor's also said that the outlook on the long-term rating is negative. At the same time, Standard & Poor's affirmed its 'A-1+' short-term rating on the U.S. In addition, Standard & Poor's removed both ratings from CreditWatch, where they were placed on July 14, 2011, with negative implications.

 

The transfer and convertibility (T&C) assessment of the U.S.--our assessment of the likelihood of official interference in the ability of U.S.-based public- and private-sector issuers to secure foreign exchange for debt service--remains 'AAA'.

 

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

 

Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see "Sovereign Government Rating Methodology and Assumptions," June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government's other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.

 

We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government's debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years.

 

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

 

Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating and with 'AAA' rated sovereign peers (see Sovereign Government Rating Methodology and Assumptions," June 30, 2011, especially Paragraphs 36-41). In our view, the difficulty in framing a consensus on fiscal policy weakens the government's ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher, the needed medium-term fiscal adjustment potentially greater, and the inflection point on the U.S. population's demographics and other age-related spending drivers closer at hand (see "Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even More Green, Now," June 21, 2011). Standard & Poor's takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.'s finances on a sustainable footing.

 

The act calls for as much as $2.4 trillion of reductions in expenditure growth over the 10 years through 2021. These cuts will be implemented in two steps: the $917 billion agreed to initially, followed by an additional $1.5 trillion that the newly formed Congressional Joint Select Committee on Deficit Reduction is supposed to recommend by November 2011. The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them.

 

The act further provides that if Congress does not enact the committee's recommendations, cuts of $1.2 trillion will be implemented over the same time period. The reductions would mainly affect outlays for civilian discretionary spending, defense, and Medicare. We understand that this fall-back mechanism is designed to encourage Congress to embrace a more balanced mix of expenditure savings, as the committee might recommend.

 

We note that in a letter to Congress on Aug. 1, 2011, the Congressional Budget Office (CBO) estimated total budgetary savings under the act to be at least $2.1 trillion over the next 10 years relative to its baseline assumptions. In updating our own fiscal projections, with certain modifications outlined below, we have relied on the CBO's latest "Alternate Fiscal Scenario" of June 2011, updated to include the CBO assumptions contained in its Aug. 1 letter to Congress. In general, the CBO's "Alternate Fiscal Scenario" assumes a continuation of recent Congressional action overriding existing law.

 

We view the act's measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future. Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow. Under our revised base case fiscal scenario--which we consider to be consistent with a 'AA+' long-term rating and a negative outlook--we now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is high in relation to those of peer credits and, as noted, would continue to rise under the act's revised policy settings.

 

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. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade. Our revised upside scenario--which, other things being equal, we view as consistent with the outlook on the 'AA+' long-term rating being revised to stable--retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.

 

Our revised downside scenario--which, other things being equal, we view as being consistent with a possible further downgrade to a 'AA' long-term rating--features less-favorable macroeconomic assumptions, as outlined below and also assumes that the second round of spending cuts (at least $1.2 trillion) that the act calls for does not occur. This scenario also assumes somewhat higher nominal interest rates for U.S. Treasuries. We still believe that the role of the U.S. dollar as the key reserve currency confers a government funding advantage, one that could change only slowly over time, and that Fed policy might lean toward continued loose monetary policy at a time of fiscal tightening. Nonetheless, it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021.

 

Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. From our perspective, the effect of these revisions underscores two related points when evaluating the likely debt trajectory of the U.S. government. First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher. Second, the revised data highlight the sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions. We believe the sluggish pace of the current economic recovery could be consistent with the experiences of countries that have had financial crises in which the slow process of debt deleveraging in the private sector leads to a persistent drag on demand. As a result, our downside case scenario assumes relatively modest real trend GDP growth of 2.5% and inflation of near 1.5% annually going forward.

 

When comparing the U.S. to sovereigns with 'AAA' long-term ratings that we view as relevant peers--Canada, France, Germany, and the U.K.--we also observe, based on our base case scenarios for each, that the trajectory of the U.S.'s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.

 

Standard & Poor's transfer T&C assessment of the U.S. remains 'AAA'. Our T&C assessment reflects our view of the likelihood of the sovereign restricting other public and private issuers' access to foreign exchange needed to meet debt service. Although in our view the credit standing of the U.S. government has deteriorated modestly, we see little indication that official interference of this kind is entering onto the policy agenda of either Congress or the Administration. Consequently, we continue to view this risk as being highly remote. The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction--independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners--lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics, the long-term rating could stabilize at 'AA+'.

 

On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors. RELATED CRITERIA AND RESEARCH

• United States of America 'AAA/A-1+' Ratings Placed On CreditWatch Negative On Rising Risk Of Policy Stalemate, July 14, 2011
• U.S. Weekly Financial Notes: Soft Patch Or Quicksand?, Aug. 5, 2011
• Sovereign Government Rating Methodology And Assumptions, June 30, 2011
• 2011 Midyear Credit Outlook: Unresolved Economic And Regulatory Issues Loom Large, June 22, 2011
• Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even More Green, Now, June 21, 2011
• United States of America 'AAA/A-1+' Rating Affirmed; Outlook Revised To Negative, April 18, 2011
• Fiscal Challenges Weighing On The 'AAA' Sovereign Credit Rating On The Government Of The United States, April 18, 2011
• A Closer Look At The Revision Of The Outlook On The U.S. Government Rating, April 18, 2011
• Banking Industry Country Risk Assessments, March 8, 2011
• Behind The Political Brinkmanship Of Raising The U.S. Debt Ceiling, Jan. 18, 2011
• U.S. Government Cost To Resolve And Relaunch Fannie Mae And Freddie Mac Could Approach $700 Billion, Nov. 4, 2010
• Global Aging 2010: In The U.S., Going Gray Will Cost A Lot More Green, Oct. 25, 2010,
• Apr?s Le Deluge, The U.S. Dollar Remains The Key International Currency," March 10, 2010
• Banking Industry Country Risk Assessment: United States of America, Feb. 1, 2010

This unsolicited rating(s) was initiated by Standard & Poor's. It may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor's has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy but does not guarantee the accuracy, adequacy, or completeness of any information used.

 

Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

 

Primary Credit Analyst:

 

Nikola G Swann, CFA, FRM, Toronto

(1) 416-507-2582;

nikola_swann@standardandpoors.com

 

Secondary Contacts:

 

John Chambers, CFA, New York

(1) 212-438-7344;

john_chambers@standardandpoors.com

 

David T Beers, London

(44) 20-7176-7101;

david_beers@standardandpoors.com

[Guest TreadFree]

S&P, where were you when Goldman Sachs was selling those shitty deals to their clients? Oh that's right, under the table rating it all AAA

[Luke_Wilbur]

I found the Oracle of Omaha statement pretty revealing.

 

Billionaire Warren Buffett said Standard & Poor’s erred when it lowered the U.S. credit rating and reiterated his view that the economy will avoid its second recession in three years.

 

The U.S., which was cut Aug. 5 to AA+ from AAA at S&P, merits a “quadruple A” rating, Buffett, 80, said yesterday in an interview with Betty Liu at Bloomberg Television. The downgrade followed the biggest weekly selloff in U.S. stocks in 32 months, with the S&P 500 slumping 7.2 percent to its lowest level since November.

 

“Financial markets create their own dynamics, but I don’t think we’re facing a double dip recession,” said Buffett, chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A) “Clearly what stock markets do have is an effect on confidence, and this selloff can create a lack of confidence.”

 

http://www.bloomberg.com/news/2011-08-06/buffett-says-s-p-s-downgrade-mistaken-still-doesn-t-see-another-recession.html

 

I want to know who benefits from a major selloff. Did all the big players know it was coming?

[Guest Songbird]

Asian shares opened Monday rickety, Japan and South Korea shares fell deep.

[Luke_Wilbur]

A friend of mine sent me this...

 

The cut in U.S. Debt Rating was justified when "The Too Bigs To Fail", "The Corrupt FED", U.S. Congress, "The Military Complex---Pentagon", & "Inside-The-Beltway Pathology" Rotted into One--- & and Plastic replaced money.

Edited August 8, 2011 by Luke_Wilbur

[Guest Weiss Ratings]

Weiss Ratings, the nation’s leading independent rating agency of U.S. financial institutions, credits Standard & Poor’s for taking an important first step in the right direction, while renewing its public challenge to Moody’s and Fitch to downgrade the long-term debt of the U.S. government.

 

The Weiss Ratings Challenge, reissued today, was initially made to all three credit rating agencies on May 10, 2010, or 15 months before S&P announced its downgrade of U.S. debt from AAA to AA+ last Friday.

 

Weiss Ratings president Dr. Martin D. Weiss commented: “S&P deserves credit for breaking with nearly a century of precedent and focusing the world’s attention on the urgency of this problem. However, we do not believe a one-notch downgrade adequately reflects the rapid deterioration of the nation’s finances since the debt crisis of 2008.”

 

Although a downgrade can have negative short-term repercussions, Weiss believes the consequences of procrastination can be far more serious, while an honest rating can be constructive for the country in the long term. Addressing the major credit rating agencies, he wrote:

 

“To the degree that you continue to reaffirm stellar ratings for U.S. debt, you help entice millions of hard-working citizens, retirees, and their intermediaries to pour more money into a potential debt trap; or at best, to be severely underpaid for the actual risks they are taking. You give policymakers a green light to perpetuate their fiscal follies, further degrading our government's ability to meet future obligations. And you help create a false sense of security overall — the recipe for a possible meltdown in the market for U.S. sovereign debts.”

 

On April 28, 2011, 15 months after issuing its initial challenge to the major ratings agencies, Weiss Ratings introduced the Weiss Sovereign Debt Ratings, giving the United States a grade of C, and subsequently, with its release of July 15, 2011, Weiss Ratings downgraded U.S. debt to C- (approximately equivalent to a BBB- at S&P).

 

Weiss Ratings senior financial analyst Gavin Magor commented: “The U.S. is facing some of its greatest financial challenges of modern times, while global investors continue to take very substantial risks when buying medium- and long-term U.S. government securities. These include the risks of currency devaluation, reduced bond market liquidity, bond price declines, and rapidly escalating costs of insuring against a possible future default.”

 

Today, Weiss Ratings reaffirmed its C- rating of U.S. medium- and long-term debt. Among the 49 sovereign nations covered, the United States continues to score very low in terms of its debt burdens, macro-economic trends, and international stability, while still getting a relatively high grade for the broad acceptance and marketability of its debt securities.

[Guest BigBlue]

Standard & Poor's is fraking joke. The more I read about them, the more I realize they are a great example of a Wall Street fixed game.

 

Having Standard & Poor's downgrade the creditworthiness of the U.S., and warn the country about further downgrades, is a little like having the Catholic Church lecture Scout leaders on the proper behavior toward boys. The moral authority seems to be wanting. S&P, you may recall, is one of the ratings agencies (the others being Moody's and Fitch) that greased the skids of the financial crisis by awarding AAA ratings to tranche after tranche of mortgage bonds called collaterized debt obligations, or CDOs. Recall that, unlike U.S. Treasuries, backed by the full faith and credit of the U.S., CDOs were underwritten by garbage mortgages — that is, backed by no-documentation “liar loans” and other Alt-A subprime pond scum handed to borrowers who otherwise couldn't get a nickel's worth of credit at their local dry cleaner.

 

Read more: http://curiouscapitalist.blogs.time.com/2011/08/08/why-congress-and-sp-deserve-each-other/#ixzz1USnfcJ60

[Luke_Wilbur]

Great article. I have another good read that was just sent to me.

 

http://www.guardian.co.uk/world/2011/aug/04/police-raid-milan-moodys-standard-poors

Carlo Maria Capistro – chief prosecutor of Trani, a small Adriatic port – told Reuters that his office was checking to see whether the rating agencies "respect regulations as they carry out their work". The raids took place on Wednesday as Italy's prime minister, Silvio Berlusconi, addressed parliament on the mounting crisis.

 

He and other leading Italian politicians often cite speculation as a cause of market storms that involve a run on the country's shares or bonds. And the media habitually depicts sell-offs as attacks on Italy.

 

S&P, which along with other rating agencies has been strongly criticised in Europe for downgrading countries such as Greece, said in a statement it believed the Trani inquiry "has no foundation". It added: "We shall strenuously defend our work, our reputation and that of our analysts."

 

Moody's said it took "its responsibilities surrounding the dissemination of market-sensitive information very seriously", and was co-operating with the authorities.

 

The Trani prosecutors began investigating Moody's in May last year after a complaint by two consumer associations about a report from the ratings agency which said the Italian banking system was at risk from the crisis in Greece. It sparked a round of selling on the Milan bourse.

 

 

[Guest LAW]

Tax reform and Medicare cuts are coming close to compromise.

 

Remarks by the President

State Dining Room

 

1:52 P.M. EDT

 

THE PRESIDENT: Good afternoon, everybody. On Friday, we learned that the United States received a downgrade by one of the credit rating agencies -- not so much because they doubt our ability to pay our debt if we make good decisions, but because after witnessing a month of wrangling over raising the debt ceiling, they doubted our political system’s ability to act. The markets, on the other hand, continue to believe our credit status is AAA. In fact, Warren Buffett, who knows a thing or two about good investments, said, “If there were a quadruple-A rating, I’d give the United States that.” I, and most of the world’s investors, agree.

 

That doesn’t mean we don’t have a problem. The fact is, we didn’t need a rating agency to tell us that we need a balanced, long-term approach to deficit reduction. That was true last week. That was true last year. That was true the day I took office. And we didn’t need a rating agency to tell us that the gridlock in Washington over the last several months has not been constructive, to say the least. We knew from the outset that a prolonged debate over the debt ceiling -- a debate where the threat of default was used as a bargaining chip -- could do enormous damage to our economy and the world’s. That threat, coming after a string of economic disruptions in Europe, Japan and the Middle East, has now roiled the markets and dampened consumer confidence and slowed the pace of recovery.

 

So all of this is a legitimate source of concern. But here’s the good news: Our problems are eminently solvable.* And we know what we have to do to solve them. With respect to debt, our problem is not confidence in our credit -- the markets continue to reaffirm our credit as among the world’s safest. Our challenge is the need to tackle our deficits over the long term.

 

Last week, we reached an agreement that will make historic cuts to defense and domestic spending. But there’s not much further we can cut in either of those categories. What we need to do now is combine those spending cuts with two additional steps: tax reform that will ask those who can afford it to pay their fair share and modest adjustments to health care programs like Medicare.

 

Making these reforms doesn’t require any radical steps. What it does require is common sense and compromise. There are plenty of good ideas about how to achieve long-term deficit reduction that doesn’t hamper economic growth right now. Republicans and Democrats on the bipartisan fiscal commission that I set up put forth good proposals. Republicans and Democrats in the Senate’s Gang of Six came up with some good proposals. John Boehner and I came up with some good proposals when we came close to agreeing on a grand bargain.

 

So it’s not a lack of plans or policies that’s the problem here. It’s a lack of political will in Washington. It’s the insistence on drawing lines in the sand, a refusal to put what’s best for the country ahead of self-interest or party or ideology. And that’s what we need to change.

 

I realize that after what we just went through, there’s some skepticism that Republicans and Democrats on the so-called super committee, this joint committee that’s been set up, will be able to reach a compromise, but my hope is that Friday’s news will give us a renewed sense of urgency. I intend to present my own recommendations over the coming weeks on how we should proceed. And that committee will have this administration’s full cooperation. And I assure you, we will stay on it until we get the job done.

 

Of course, as worrisome as the issues of debt and deficits may be, the most immediate concern of most Americans, and of concern to the marketplace as well, is the issue of jobs and the slow pace of recovery coming out of the worst recession in our lifetimes.

 

And the good news here is that by coming together to deal with the long-term debt challenge, we would have more room to implement key proposals that can get the economy to grow faster. Specifically, we should extend the payroll tax cut as soon as possible, so that workers have more money in their paychecks next year and businesses have more customers next year.

 

We should continue to make sure that if you’re one of the millions of Americans who’s out there looking for a job, you can get the unemployment insurance that your tax dollars contributed to. That will also put money in people’s pockets and more customers in stores.

 

In fact, if Congress fails to extend the payroll tax cut and the unemployment insurance benefits that I’ve called for, it could mean 1 million fewer jobs and half a percent less growth. This is something we can do immediately, something we can do as soon as Congress gets back.

 

We should also help companies that want to repair our roads and bridges and airports, so that thousands of construction workers who’ve been without a job for the last few years can get a paycheck again. That will also help to spur economic growth.

 

These aren’t Democratic proposals. These aren’t big government proposals. These are all ideas that traditionally Republicans have agreed to, have agreed to countless times in the past. There’s no reason we shouldn’t act on them now. None.

 

I know we’re going through a tough time right now. We’ve been going through a tough time for the last two and a half years. And I know a lot of people are worried about the future. But here’s what I also know: There will always be economic factors that we can’t control –- earthquakes, spikes in oil prices, slowdowns in other parts of the world. But how we respond to those tests -- that’s entirely up to us.

 

Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we’ve always been and always will be a AAA country. For all of the challenges we face, we continue to have the best universities, some of the most productive workers, the most innovative companies, the most adventurous entrepreneurs on Earth. What sets us apart is that we’ve always not just had the capacity, but also the will to act -- the determination to shape our future; the willingness in our democracy to work out our differences in a sensible way and to move forward, not just for this generation but for the next generation.

 

And we’re going to need to summon that spirit today. The American people have been through so much over the last few years, dealing with the worst recession, the biggest financial crisis since the 1930s, and they’ve done it with grace. And they’re working so hard to raise their families, and all they ask is that we work just as hard, here in this town, to make their lives a little easier. That’s not too much to ask. And ultimately, the reason I am so hopeful about our future -- the reason I have faith in these United States of America -- is because of the American people. It’s because of their perseverance, and their courage, and their willingness to shoulder the burdens we face -– together, as one nation.

 

One last thing. There is no one who embodies the qualities I mentioned more than the men and women of the United States Armed Forces. And this weekend, we lost 30 of them when their helicopter crashed during a mission in Afghanistan. And their loss is a stark reminder of the risks that our men and women in uniform take every single day on behalf of their county. Day after day, night after night, they carry out missions like this in the face of enemy fire and grave danger. And in this mission –- as in so many others -– they were also joined by Afghan troops, seven of whom lost their lives as well.

 

So I’ve spoken to our generals in the field, as well as President Karzai. And I know that our troops will continue the hard work of transitioning to a stronger Afghan government and ensuring that Afghanistan is not a safe haven for terrorists. We will press on. And we will succeed.

 

But now is also a time to reflect on those we lost, and the sacrifices of all who serve, as well as their families. These men and women put their lives on the line for the values that bind us together as a nation. They come from different places, and their backgrounds and beliefs reflect the rich diversity of America.

 

But no matter what differences they might have as individuals, they serve this nation as a team. They meet their responsibilities together. And some of them -- like the 30 Americans who were lost this weekend –- give their lives for their country. Our responsibility is to ensure that their legacy is an America that reflects their courage, their commitment, and their sense of common purpose.

 

Thank you very much.

 

END 2:03 P.M. EDT

[Guest Paradise]

So incredibly PROUD of our President. His strength of character and continued efforts to put country before politics sets him apart from the Reps. His efforts will be rewarded! God Bless our Barack Obama, our Country, and Our Military.

[Guest Enron Ex]

Everyone loves a good mystery

 

A mystery investor or hedge fund reportedly made a bet of almost $1billion at odds of 10/1 last month that the U.S. would lose its AAA credit rating.

 

Now questions are being asked of whether the trader had inside information before placing the $850million bet in the futures market, or if the bet happened at all.

 

There were mounting rumours that investor George Soros, 80, famously known as ‘the man who broke the Bank of England’, could be involved.

 

Read more: http://www.dailymail.co.uk/news/article-2023809/Did-George-Soros-win-10-1-return-S-Ps-US-credit-rating-downgrade.html

[Luke_Wilbur]

What we all should worry about from downgrade is the steady shrinkage of the purchasing power of our dollars. People with fixed income will be hurting the most.

[Guest Indaylia]

You're right Luke about people living on fixed incomes, absolutely.

In order to save a 3 percent tax cut for the wealthiest one percent of Americans to lower the deficit, they want to take money from Medicare, Social Security and other social programs.

It's insane.

 

The GOP's slogan aught to be "Of the 1%, by the 1%, for the 1%" Because that's the absolute truth.

 

The top one percent of rich people are the "job creators?" Hahaha. Come up with a new lie, Republicans - this one's played out. Speaking of which, where are all these jobs supposedly being created? They're non-existent, that's where they are.

[joycerimes]

There are many failures that U.S face nowadays and there should be a solution for this.