[eXpat]

US AAA credit rating downgraded

One of the top credit rating agencies, Standard & Poor's, has downgraded the United States' top-notch AAA rating.

S&P cut the long-term US credit rating by one notch to AA+ with a negative outllook, citing concerns about growing budget deficits.

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

Washington was locked in months of acrimonious partisan bickering over a bill to raise the US debt ceiling.

As rumours swirled earlier about the downgrade, unnamed US officials had told US media that S&P's analysis of the US economic situation was deeply flawed.

Correspondents say a downgrade could further erode global investors' confidence in the US economy, which is already struggling with huge debts and unemployment of 9.1%.

S&P said in its report issued late on Friday: "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 stabilise the government's medium-term debt dynamics.

"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges."

http://www.bbc.co.uk/news/world-us-canada-14428930

[Daniel_Plainview]

Standard & Poor's Downgrades US Credit Rating From AAA to AA+

The ratings agency Standard & Poor's has reduced the United States' credit rating from AAA to AA+ with a negative outlook, the company announced late Friday.

"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," Standard & Poor's said in a statement announcing the move.

"More broadly," the agency added, "the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

"Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us 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 any time soon," S&P added.

The federal government had been expecting and preparing for Standard & Poor's to downgrade the rating of U.S. debt, government officials told ABC News before the reduction was formally announced.

However, another government official said S&P's analysis was "based on flawed math and assumptions" to the tune of roughly $2 trillion and "S&P has acknowledged its numbers are wrong," so the Obama administration pushed back. S&P refused to comment at the time on the alleged numerical error.

Why it took this long to recognize the obvious ... but it finally happened:

[eXpat]

All sort of nasty consequences
Analysis: U.S. downgrade could accelerate dollar decline

(Reuters) - A downgrade to the U.S. sovereign credit rating could open up a new world of pain for the dollar.

Already reeling from low interest rates, slow economic growth, and foreign investors eager to diversify away from U.S. assets, the loss of AAA status could cement the view the dollar is no longer the safest harbor in a troubled world.

The risk of a downgrade remains real even after Washington's $2.1 trillion budget savings deal, since it fell well short of the $4 trillion Standard & Poor's said would be enough to support the AAA rating with a stable outlook.

That it took so much drama to produce such a limited round of cuts has disappointed investors who had grown weary of fiscal weakness during budget crises in the euro zone countries.

"A debt ceiling raised plus downgrade equals weak dollar," said Jonathan Lewis, founding principal of Samson Capital Advisors in New York, which manages assets of $7 billion.

"Not only would a double AA rating be a concern for international investors, but the fiscal imbalances would not be a good reason to buy the dollar."

For years, the dollar has acted as the world's reserve currency, an international store of value for central banks.

However, the fact the other safe-haven currencies are gaining at the expense of the dollar suggests investors' views may already be changing, perhaps in anticipation of a downgrade or at least a tough fight to hang on to AAA.

http://www.reuters.com/article/2011/08/03/us-markets-forex-downgrade-idUSTRE7725ZK20110803

[eXpat]

And more consequences:

The U.S. is downgraded. Now what?
By Dyan Matthews

S&P announced that it downgraded the U.S. debt from AAA to AA+ tonight. Commentators are split as to whether this would have major negative consequences for both the US and world economy, or whether it would be basically meaningless. Here’s the case for each position.

Why It Might Matter: If the US debt gets downgraded, many other debt instruments will likely get downgraded as well. When Moody’s put US debt on review for downgrade during the debt ceiling standoff, if also put on notice 7,000 other bonds, worth a total of $130 billion, that rely directly on revenue from federal government payments, such as certain kinds of municipal bonds. Bonds that are indirectly dependent on the federal government, such as those issued by hospitals that receive Medicare payments, or defense firms reliant on Pentagon contracts, could get downgraded as well. In addition, many everyday interest rates - such as those for mortgages, car loans, and credit cards - are pegged to US Treasuries, meaning that if a downgrade forces up interest rates on US debt (which is likely, but will depend on how the markets react) interest rates for those will shoot up as well. This would raise the cost of borrowing across the system, depressing the economy.

It would also lead to widespread uncertainty. As the Post’s Ezra Klein wrote the debt ceiling standoff threatened to force a downgrade, “The cornerstone of the global financial economy is the idea that Treasuries are risk-free.” A downgrade would mean Treasuries are no longer risk-free, and thus shake up the whole system. The last time AAA debt lost its luster in such a dramatic fashion was 2008, when AAA-rated subprime securities were discovered not to be sound. The result was the current financial crisis.

Additionally, many institutional investors - such as pension or money market funds - are required to hold a certain amount of AAA debt, meaning that some might be forced to sell off US debt in the event of a downgrade. Given that money market funds hold about $338 billion in US debt, or almost half of short-term holdings, this would be an enormous selloff, which would raise interest rates still higher and greatly amplify the economic damage incurred due to a downgrade.

http://www.washingtonpost.com/blogs/ezra-klein/post/what-would-happen-if-us-debt-gets-downgraded/2011/08/05/gIQAx4NKxI_blog.html

[Sixstrings]

Oh crap..

Now I have to start prepping. Because I said like two years ago this is my canary, if we ever get a downgrade then I'll start prepping.

Now I have to prep. What a pain in the ass, what do I do.. plant potatoes.. #10 cans.. ramen noodles..

[Fishman]

Another first for BH Obama. Aren't we so proud. Hows that Hope and Change working out for you?

[eXpat]

Oh crap..

Now I have to start prepping. Because I said like two years ago this is my canary, if we ever get a downgrade then I'll start prepping.

Now I have to prep. What a pain in the ass, what do I do.. plant potatoes.. #10 cans.. ramen noodles..

You haven´t been prepping Six???? Shame on you!


Just joking

[careinke]

Oh crap..

Now I have to start prepping. Because I said like two years ago this is my canary, if we ever get a downgrade then I'll start prepping.

Now I have to prep. What a pain in the ass, what do I do.. plant potatoes.. #10 cans.. ramen noodles..

I know you already prep. But is this going to cause you to dramatically increase your preparations, or are you going to rationalize it away, like a boiling frog?

I'm curious as my canary was almost hit with the debt ceiling debate, (stop paying military retirement). If it had happened, I'm not sure which way I would have gone. One of my plans was to cash out liquid assets and buy stuff.

[Sixstrings]

You haven´t been prepping Six???? Shame on you!

That's quite a pantry. I don't want to derail the thread onto me and preps or lack thereof, just wanted to note that here is my canary KABOOOOM what was unthinkable a year and two years ago has now happened.

This is truly historic.

This is big, big, big.

I never really wanted to prep, but I'm a man of my word. I set this canary for a reason, so I know I'm not suddenly flipping out because of a news event -- this is a canary I set two years ago I think, at a time when this was way off the radar and not considered possible. So now I know I'm not over-reacting, I've already planned what my point for action would be.

I'll think about what to do, pay more attention to planning for the future forum. I'll start small, thinking cooking oil and cuban yellow rice (I love that stuff anyway).

Ok back to downgrade discussion.

Now I have to prep.

I've been financially responsible. No equity loans. Stuff like that.. but nope I don't own gold (I really can't afford it) and I don't have food preps.

Don't give me sh*t about it, I've always been a fence sitter. Credit downgrade pushes me off the fence.

[Cid_Yama]

"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges."

Laying it right in the lap of the Republicans, because of their taking the full faith and credit of the US hostage and turning it into political theater.

When one party, instead of quietly doing the the responsible thing and raising the debt ceiling as part of normal housekeeping, as it always has been, decides to use it instead to extort concessions from the other party on the threat of destroying the full faith and credit of the US, .... oops, the gun accidently went off and shot the hostage anyway!

Imagine that.

Hostage taking doesn't usually work out the way the hostage takers hope.

Friggin' Morons. Tons of financial instruments and pensions worldwide require that they only hold AAA rated securities. So the dumping will now begin.

[eXpat]

USA credit is now lower than that of UK, France, Germany, Singapore and Canada (but still ahead of Estonia ).
I wonder how the markets are going to react to this on Monday?

[Sixstrings]

Teevee news says the Obama administration is accusing S&P of making trillion dollar errors in their calculations. Barney Frank interviewed on MSNBC, says "don't even listen to these guys."

Interesting, CNN and MSNBC both attacking S&P.

Anyhow.. the downgrade is justified. We all know that, if anything the agencies are slow to act. And, Chinese rating agencies already downgraded us.

EDIT: About the pension funds.. don't forget that Fitch and Moody's still have the US at AAA. As long as even one agency has us AAA the institutional investors can still buy treasuries.

[timmac]

Oh crap..

Now I have to start prepping. Because I said like two years ago this is my canary, if we ever get a downgrade then I'll start prepping.

Now I have to prep. What a pain in the ass, what do I do.. plant potatoes.. #10 cans.. ramen noodles..

Don't panic and over buy yet, yes its a downgrade but not falling off a cliff tomorrow, I still think we have a few months till SHTF, only prep food you eat now, can soups can last beyound 2 years if kept cool..

[Cid_Yama]

The Dagong Global Credit Rating agency cut the credit rating on U.S. sovereign debt to A from A+, 5 notches below AAA. And since the Chinese are the biggest foreign buyer of Treasuries, their opinion counts.

You know that little advantage that allows us to run the printing presses at the Treasury without fear, the dollar being the world's reserve currency?

You can kiss that goodbye. They were already rebelling and talking about a change to a basket of currencies. With the global situation as it is, fiat currencies may now go the way of the Dodo.

Expect a switch to a basket of currencies that are all backed by gold or oil. Fiat currencies worldwide are about to go worthless.

Dollar "exceptionalism" has come to an end. And that will be the final nail in the coffin. Like the fall of the Britsh Empire before it, the age of US supremacy has passed.

[vision-master]

gold or oil-> Living In The Past 1969

[Anvil]

Any thoughts on the knock on effects on everything of whats looking like a new great recession in light of recent events.

[vision-master]

GET OUT OF DEBT!

[rangerone314]

I look forward to the stock market tanking a little more.

I was kind of hoping for more today in the S&P, like maybe a 15 point drop or something.

(I'm investing in shorts on it all)

There's always Monday...

Anyone else think the DOW will go to about 9,600 and the S&P about 1012?

[Daniel_Plainview]

USA credit is now lower than that of UK, France, Germany, Singapore and Canada

There are many systemic reasons the US will always have major debt/deficit problems; here are the top 10:

1. Utterly dysfunctional Congress
2. Congress and President who like to spend ... spend ... spend ...
3. The political pressure to minimize or reduce taxation (esp. income taxes)
4. The inevitable lowering of GDP due to peak oil, peak resources, off-shoring, etc.
5. The govt's BAILOUT mentality
6. The belief that the govt should ALWAYS counter a recession with stimulus
7. Systemic issues with US employment (which worsen over time)
8. Tens-of-trillions in off-balance sheet liabilities (this perhaps exceeds $100 Trillion)
9. Systemic issues with a MASSIVE WELFARE STATE that extols huge govt pensions & salaries
10. The US is BY FAR the largest consumer and importer of fossil fuels

[Cid_Yama]

Although the Yuan is not fully convertible yet, Asian markets are moving in the direction of making the Yuan their reserve currency in the next decade. This could speed up the process.

There is a back door in that is available. Chinese corporate bonds traded on the Hong Kong exchange are Yuan priced. Sometimes called Dim Sum bonds, it allows you to purchase Yuan priced securities.