Possible US downgrade today?

Sierra Oscar

Lucky that this happened when the markets are closed for the weekend. If this happened during trading you would be looking at a 1K drop during a trading session I reckon.

Its still going to be one hell of a roller-coaster ride next week.

jobeenfitz

can they just print a few trillion dollars?

later12

Well we don't know what influence S&P's silence had on equities over the past few days, after Moodys and Fitch both came out to affirm the standing rating.

To add insult to injury, it's an AA+ with a negative outlook for downgrade.

I mean seriously S&P, that's just coming back to piss in their eye socket.

later12

jobeenfitz wrote: »

can they just print a few trillion dollars?

Likely that's part of the problem. Haven't seen anything from S&P yet, there was rumours after the White house intervention, pre announcement, that S&P shifted some blame to Republicans.

edit: s&p website appears to be down! Perhaps that is what Mr Obama calls affirmative action.

jobeenfitz

Things always seem worse when we are in the midst of them. When ya look back you wonder what all the fuss was about. If India or the US(or any country) fired a few nuclear missiles, now dat'd be a real crises. Its not ideal, world leaders and the markets need to work together to contain the situation but the earth will keep on turning.

later12

The statement from S&P, whose website is extremely slow, and is intermittently crashing with the attention.

– We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.

– We have also removed both the short- and long-term ratings from CreditWatch negative.

– 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.

– 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 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.

– The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

PDF of the downgrade

http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DUS_Downgraded_AA%2B.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243942957443&blobheadervalue3=UTF-8

thebman

Not really a surprise when you have what is essentially an extremist, uncompromising group like the tea party having such a influence in important matters like the debt ceiling.

The US ended up with something nobody was happy with and that didn't solve any problems much like the Euro crisis. The rating agencies are just factoring in politician inaction and misjudgement which both America and the Euro nations have no shortage of.

And since they are the guys holding the reigns, it does really have any impact on their credibility when looking at their bonds.

GSF

thebman wrote: »

Not really a surprise when you have what is essentially an extremist, uncompromising group like the tea party having such a influence in important matters like the debt ceiling.

Ridiculous statement. Its the deficit (and spending particularly) that is the problem. The tea party wanted $4trillion in cuts (as did S&P). The Monday deal is only realising half (at best) of that. Why? Because that was all the Democrats could swallow.

irishh_bob

GSF wrote: »

Ridiculous statement. Its the deficit (and spending particularly) that is the problem. The tea party wanted $4trillion in cuts (as did S&P). The Monday deal is only realising half (at best) of that. Why? Because that was all the Democrats could swallow.

party before country , where have we heard that before , obama is unfortunate that he was the one at the helm when the chickens came home to roost , numerous goverments in western countrys have engaged in an orge of spending this past thirty years and with a diminishing hard assett base , the illusion of wealth creation which is the city of london and wall street is becoming apparent to everyone , up untill now america had the good name of its dollar , who will lend to it now , how will it pay its increased borrowing costs , will those with money into gold etc instead of US treasurys, hard to see how a rescession can now be avoided in america , ireland will feel the effects of this hugely and our export sector will be hit for six , im extremly pessimistic about the future

later12

GSF wrote: »

Ridiculous statement. Its the deficit (and spending particularly) that is the problem. The tea party wanted $4trillion in cuts (as did S&P).

That's a ridiculous statement.

Firstly, the ratings agencies are publishers not promoters (court cases have been fought to establish this), they don't "want" specific policies.

Secondly, have you read the news? Have you read the S&P's downgrade report? They are highly critical of the political process that failed to engage with fiscal reform; from S&P:

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.

Sierra Oscar

GSF wrote: »

Ridiculous statement. Its the deficit (and spending particularly) that is the problem. The tea party wanted $4trillion in cuts (as did S&P). The Monday deal is only realising half (at best) of that. Why? Because that was all the Democrats could swallow.

One of the main factors behind the downgrade is the fact that S&P believe much needed revenue raising measures (tax increases) are now seemingly off the table.

later12

"A clean debt ceiling increase like you did 70 times before would have averted this attention."-- S&P chairman on CNN tonight.

http://www.huffingtonpost.com/social/CubfanBudman/downgrade-us-standard-and-poors_n_919867_101266830.html

steve9859

I honestly think the supposed impact of the downgrade is way overdone. Firstly everyone knew it was coming, so the sell off that would be associated with a major surprise in the markets won't be there. Secondly many market participants will see it as a positive as it will put more pressure on the politicians to sort out the finances. There will be an associated correction in prices, sure, but I would think most of that is already done - investors would not want long positions over a weekend when a downgrade was possible, hence a sell off in anticipation. AA+ is the new AAA and there isn't much more to it than that IMO

irishh_bob

steve9859 wrote: »

I honestly think the supposed impact of the downgrade is way overdone. Firstly everyone knew it was coming, so the sell off that would be associated with a major surprise in the markets won't be there. Secondly many market participants will see it as a positive as it will put more pressure on the politicians to sort out the finances. There will be an associated correction in prices, sure, but I would think most of that is already done - investors would not want long positions over a weekend when a downgrade was possible, hence a sell off in anticipation. AA+ is the new AAA and there isn't much more to it than that IMO

what can the goverment do to fix the finances other than cut spending or raise taxes or both , either way , the markets will suffer , with less money around , stocks take a tumble , the recent 18 mth rally was backed by nothing but stimulus and that stimulus has gotten us nowhere

steve9859

irishh_bob wrote: »

steve9859 wrote: »

I honestly think the supposed impact of the downgrade is way overdone. Firstly everyone knew it was coming, so the sell off that would be associated with a major surprise in the markets won't be there. Secondly many market participants will see it as a positive as it will put more pressure on the politicians to sort out the finances. There will be an associated correction in prices, sure, but I would think most of that is already done - investors would not want long positions over a weekend when a downgrade was possible, hence a sell off in anticipation. AA+ is the new AAA and there isn't much more to it than that IMO

what can the goverment do to fix the finances other than cut spending or raise taxes or both , either way , the markets will suffer , with less money around , stocks take a tumble , the recent 18 mth rally was backed by nothing but stimulus

Exactly. That's what investors are worried about. Not a ratings move that everyone knew was coming anyway. Market dynamics through the medium term will reflect the real issues. I don't expect a big sell off on Monday due to the rating change - more likely the continuance of a long term slide with the occasional bounce due to investors closing out short positions.

irishh_bob

steve9859 wrote: »

Exactly. That's what investors are worried about. Not a ratings move that everyone knew was coming anyway. Market dynamics through the medium term will reflect the real issues. I don't expect a big sell off on Monday due to the rating change - more likely the continuance of a long term slide with the occasional bounce due to investors closing out short positions.

id also like to add , the notion that all the money will now rush into gold is perhaps short sighted , while their will be an inevitable dive to the refuge of the metal , with a tightening of the money supply through a likely raise in interest rates , tougher austerity and baschically less money in the economy , people will choose to buy bread rather than metal

thebman

GSF wrote: »

Ridiculous statement. Its the deficit (and spending particularly) that is the problem. The tea party wanted $4trillion in cuts (as did S&P). The Monday deal is only realising half (at best) of that. Why? Because that was all the Democrats could swallow.

Except cuts on that level are said to be large enough to push the American economy back into recession.

The tea party doesn't know what it is doing. Republicans couldn't even get their sums right according to some articles. Ruling out tax increases that were only reduced recently is idiotic at best.

The tea party is an extremist group and a threat to America IMO. Even the rating agencies cite this nonsense as part of the reason why they downgraded the debt saying if they had just raised the debt ceiling like they normally do, it wouldn't have happened.

SamHarris

thebman wrote: »

Except cuts on that level are said to be large enough to push the American economy back into recession.

The tea party doesn't know what it is doing. Republicans couldn't even get their sums right according to some articles. Ruling out tax increases that were only reduced recently is idiotic at best.

The tea party is an extremist group and a threat to America IMO. Even the rating agencies cite this nonsense as part of the reason why they downgraded the debt saying if they had just raised the debt ceiling like they normally do, it wouldn't have happened.

There has been some good cartoons illustrating this in the Economist reacantly. The Republicans need to throw those loonies off the back of the sled. Dont get me wrong, Im no far left nut job, my views often allign with the more mild Republicans with respect to the economy, however to allow an ideology of that nature to rule fiscal policy is madness. Might as well take your economic ques from the bible.

SamHarris

GSF wrote: »

Ridiculous statement. Its the deficit (and spending particularly) that is the problem. The tea party wanted $4trillion in cuts (as did S&P). The Monday deal is only realising half (at best) of that. Why? Because that was all the Democrats could swallow.

My understanding is that S + P wanted a cut in the defecit by 4 trillion, not in spending per se. I could be wrong here, but it seems to me almost a complete consensus by economists that tax hikes need to be part of any balancing of the budgets, especially given the economic situation right now. Do correct if Im wrong.

thebman

SamHarris wrote: »

My understanding is that S + P wanted a cut in the defecit by 4 trillion, not in spending per se. I could be wrong here, but it seems to me almost a complete consensus by economists that tax hikes need to be part of any balancing of the budgets, especially given the economic situation right now. Do correct if Im wrong.

Not only that but the tax increases proposed were really just reversals of tax cuts given only a few years previously during the Bush administration from what I was reading on the situation.

Not exactly massive draconian tax increases we were talking about.