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United States Loses S&P AAA Credit Rating 1239

Posted by timothy
from the don't-worry-the-next-19-generations-won't-mind dept.
oxide7 writes with this excerpt from the International Business Times: "The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday in an unprecedented reversal of fortune for the world's largest economy. S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about the government's budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers."
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United States Loses S&P AAA Credit Rating

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  • by MorderVonAllem (931645) on Saturday August 06, 2011 @02:47AM (#37004620)
    Just the fact that we were even thinking about defaulting or raising the debt limit should have lowered our credit rating.
    • by Sycraft-fu (314770) on Saturday August 06, 2011 @02:52AM (#37004646)

      I mean for one, these debt limit things always tend to be a "to the wire" affair so nobody takes it that seriously. However the other thing was the executive branch made it clear they wouldn't default on bond payments. That they don't have enough money means they have to choose what not to pay. That could be things like social security payments, and instead pay bond holders which is what they said was likely to happen.

      Makes sense too, not only does the US have an obligation to pay its debts and want to maintain its credit, but doing something like that would piss people off and cause them to put pressure on congress to reach a deal.

      Really I don't think this downgrade should have happened. While there are quite likely to be other problems for the US (spending cuts, tax increases, slow economy) it does not at all look like default is in the cards. Since bond ratings are supposed to be a rating of how likely that is, the rating seems to be incorrect. My opinion is it is politicking. The S&P people in power wanted a different deal and this is their politicking of it.

      • by msobkow (48369) on Saturday August 06, 2011 @03:14AM (#37004774) Homepage Journal

        Given the ever increasing debt load and utter failure to come up with a plan that will even reduce the deficit, much less balance the budget, the US deserves to have it's credit downgraded. Sorry, but you can't keep spending more than you take in without it coming back to bite you -- no matter how self important you are.

        • by Colin Smith (2679) on Saturday August 06, 2011 @05:29AM (#37005476)

          The US government spends, what? 40% (and growing) more than it takes in?

          The US hasn't deserved a AAA rating for years. Hell there are trillions in junk MBS which S&P rated as AAA. All you have to do is look at the direction of the chart to see if it is sustainable. Screw the rating agencies.

      • by WarlockD (623872)

        No it should of happened. This is not a CD here, this is long term, 30 year bond debts we are talking about. S&P ain't saying the US is going to die in 30 years, but what they ARE saying that there is uncertainty on where the US is going to be in 30 years or even 10 for that matter. Its not about paying the bills now, its about, in 10 years, will we just be in MORE debt and have a lesser value currency if we keep down this road.

        I think they wanted something that said "In 10 years we will have x amoun

      • by Interoperable (1651953) on Saturday August 06, 2011 @03:52AM (#37004976)

        It seems to me that S&P, along with the other credit rating agencies, lost a lot of credibility when they were giving AAA ratings to the guys holding bundles of sub-prime mortgages in the lead up to the financial crisis. I don't doubt that they play a useful role in rating smaller organisations but when it comes to rating governments and financial heavyweights they're playing politics more than they're making objective assessments.

      • by TubeSteak (669689) on Saturday August 06, 2011 @05:03AM (#37005362) Journal

        Really I don't think this downgrade should have happened. While there are quite likely to be other problems for the US (spending cuts, tax increases, slow economy) it does not at all look like default is in the cards. Since bond ratings are supposed to be a rating of how likely that is, the rating seems to be incorrect.

        Read Standard & Poor's press relase [standardandpoors.com] (PDF)
        Essentially what triggered this is the Tea Party's ability to completely gum up the works by insisting on no new taxes.

        S&P says that, from what they've observed, they are not certain that this intransigence can be avoided when the Bush Tax Cuts are set to expire.
        They go on to say that if those tax cuts aren't allowed to expire, they'll cut the USA's rating again.
        And without additional "revenue increases" and cuts in spending (entitlements), they won't raise the rating back to AAA.

        My opinion is it is politicking. The S&P people in power wanted a different deal and this is their politicking of it.

        Politicking is what caused this downgrade.
        S&P is advising that we don't let it happen again.

      • by w3woody (44457) on Saturday August 06, 2011 @10:45AM (#37007280) Homepage

        "That could be things like social security payments,..."

        The very fact that you, a thinking and knowledgable adult, believed that social security payments (which are funded by cashing in existing treasuries held by the Social Security Trust Fund, and thus is debt neutral) would have been affected by us hitting the debt ceiling, tells me that one of the real problems here is that the current Administration has completely failed to effectively communicate the current state of financial affairs in Washington D.C.

        (Social Security holds treasuries, so to send out a check for $1, they would cash in one of their debt treasuries for $1--which the Treasury department would then sell to someone else for $1. The total debt stays the same; it's just that the $1 of debt would be transferred from the Social Security Trust Fund to some bank in China. Thus, Social Security payments would not be effected unless someone in the Administration decided to stop paying Social Security as a sort of political "fsck you" to get seniors riled up about whomever (Eastasia, Eurasia) we're at war with.)

        By failing to effectively communicate the current state of financial affairs, this has increased the risk on the economy (because I bet you're not willing to spend $100,000 on new hardware for your plant if you can't figure out what is going to happen tomorrow in Washington D.C. because all our leaders--Democrats and Republicans alike--are acting like spoiled children rather than the dignified leaders of one of the most powerful countries and powerful economic forces in the world today), and this has lowered tax receipts and the non-governmental GDP. And by failing to effectively communicate Administration intentions during a crisis point to the banks and to Wall Street, holders of Treasuries were uncertain if the Administration was even going to be making the latest wave of debt payments on current (income yielding) treasuries, or if they would cashing in existing debt instruments, since rolling those over involves creating new debt. And there was no clear guidance if, in the event there was a defacto balanced budget enforced by the debt ceiling what administration priorities would be when having to choose what to fund and what not to fund.

        In other words, by failing to effectively communicate clearly what Administration intentions are, setting a set of fixed goals, and moving in a deliberate and careful way to those fixed goals, we've lost S&P's confidence that we can even pay the bills like mature adults.

  • by Lanteran (1883836) on Saturday August 06, 2011 @02:47AM (#37004630) Homepage Journal

    ...that this could end the culture of borrowing the US has?

    • Re: (Score:3, Insightful)

      by hedwards (940851)

      I doubt it, as long as the GOP refuses to allow taxes to rise high enough to pay for essential spending and pay off our debts it's not likely to happen.

      • by Jane Q. Public (1010737) on Saturday August 06, 2011 @04:04AM (#37005038)
        "Essential" spending??? I have to ask honestly: are you out of your mind?

        What is "essential" about the government increasing its budget by around 50% in the last 10 years? While at the same time, services have downgraded?

        Get a grip on reality, my friend. Before it bites you in the ass.
      • by ScentCone (795499) on Saturday August 06, 2011 @06:15AM (#37005676)

        the GOP refuses to allow taxes to rise high enough to pay for essential spending and pay off our debts

        Do the math. You could tax everyone who makes $1m or more per year (you know, the evil hated rich people) at a rate of 100% (confiscate all of their earnings for the year), and it wouldn't close the deficit - not even close! - let alone pay down the debt. You want more tax revenue? Do the things that allow the taxable economic activity of a non-stagnant economny to come back to life. Essentially, undo all of the things that this administration has actively done to squelch economic activity, stifle the start-up and growth of businesses/jobs. The key to having a large tax base is to allow the economy to actually work. Taking larger percentages of a diminishing flow of cash is exactly the dis-incentive that prevents that from happening.

        Not that you don't already know these things, of course - you just don't want to call all of this what it actually is: spending wildly more money than is available, and holding the position that the minority of the people in the country who pay income taxes - and the very small minority of them who pay the vast majority of those taxes - are somehow insufficiently taxed, and that's why we're trillions in debt ... completely disengenuous BS.

        • by modmans2ndcoming (929661) on Saturday August 06, 2011 @08:51AM (#37006426)

          I say, lets return to the fiscal policies of January 2001.... remove the bush tax cuts....End Medicare part D....end Medicare Advantage...... remove the oil subsidies..... end the wars over seas...

          With those moves we will be back in black.

        • by El Rey (61125) on Saturday August 06, 2011 @11:15AM (#37007488)

          You want more tax revenue?

          Yes, and less spending. I think S&P was quite clear in their evaluation that this will not be solved by spending cuts alone. Nor will it be solved by more taxes alone.

          Essentially, undo all of the things that this administration has actively done to squelch economic activity, stifle the start-up and growth of businesses/jobs.

          Like what specifically? The businesses have been sending jobs overseas for the last 35 or so years. It's not something new. Oh wait, you probably mean stuff like let companies bring money back into the US at low tax rates so they can stick it in their pocket and not create any new jobs like they did the last time we did that. Maybe you mean less regulation so businesses can come up with more crazy schemes like credit default swaps? The idea that business will act in the best interest of the country has been debunked (go read Greenspan's book). Nobody believes that crap anymore.

          Well yes there are people in this country who are not paying taxes but most of these are rich people with lawyers. It was so helpful when President Bush shut down the part of the IRS that goes after rich tax evaders. Same with corporations. Exxon-Mobile payed $13B in taxes last year. None of it to the United States.

          Yes, the rich are insufficiently taxed. If they are paying 15% by laundering their money through capital gains and I am paying higher than 15% then they are not paying their fair share. Period. All of this "disengenuous BS" stuff about the rich paying the "vast majority of taxes" is understood by anyone who has a general knowledge of elementary school math. So, 15% of 1 million is larger than 20% of 85,000. No shit! That doesn't mean that the guy making a million is paying his fair share if other people are paying a higher percentage of their income.

    • ...that this could end the culture of borrowing the US has?

      I certainly fucking hope so. I'm real real tired of China and Saudi princes getting richer at the expense of American taxpayers.

      A lot of people wanna make noise about how many evil things America does in the pursuit of money. Well where does that money go?

      America is EVERYONE'S WHORE.... But everyone just wants to point the finger at the street corner where she works.

  • by dens (98172) on Saturday August 06, 2011 @02:58AM (#37004676) Homepage

    After all, if the ratings agencies had done their jobs a few years ago, we wouldn't be in a lot of this mess.

  • EXCELLENT news (Score:3, Insightful)

    by Anonymous Coward on Saturday August 06, 2011 @03:02AM (#37004694)

    I hope this will drive into the thick skulls of many americans that the lawyeristic infested, paper based economy is long gone and USA needs to GET BACK TO MAKE THINGS and CUT THE LEGALESE MORASS that thas resulted in too much copyright of basic ideas, red tape for any f...ing simple thing and so on...

    Shit ! I start sounding like them populists, but it is jus THE HARD FACTS...

    Welcome to the brave new world people...

  • Easy solution (Score:3, Insightful)

    by ErikZ (55491) * on Saturday August 06, 2011 @03:13AM (#37004758)

    You don't have to worry about your borrowing costs if you stop borrowing.

    Time to start cutting Federal programs we can no longer afford.

    Income went down 15.2% in 2009 for Americans. Unless you happen to be taxing the other 85% of the people, your taxes will be going down also.

    And unless income bounced back up 115% in 2010, you won't be making enough in taxes to cover your existing programs.

  • by mentil (1748130) on Saturday August 06, 2011 @03:26AM (#37004826)

    How many large entities who regularly invest $billions in bonds or other debt actually look up the grade rating in S&P's investment index when deciding whether or not to buy debt from the U.S. Government? It's not like the U.S.A. is some obscure Elbonia country where your average economist would have to look up what that country's assets and liabilities are, it has an economy larger than the 7 next-richest countries combined and any investor worth his salt has these figures memorized for the U.S.A.

    The reasoning behind the downgrade is of much larger concern to investors -- that the national debt to GDP ratio keeps increasing quickly, and the vast majority of federal government is strongly opposed to either reducing spending or increasing taxes.

    I see this as the financial equivalent to moving the Doomsday Clock one minute forward.

  • S&P Report (Score:4, Informative)

    by Warlord88 (1065794) on Saturday August 06, 2011 @03:29AM (#37004850)
    Link to the S&P report [standardandpoors.com] which contains their rationale for downgrading, future outlook, etc.
  • by copb.phoenix (1976866) <copb.phoenix@gmail.com> on Saturday August 06, 2011 @03:49AM (#37004946)
    What exactly does this mean for the citizens of the United States of America?

    Out here in Middle of Nowhere, West Virginia, the poverty margin is 80% of all households, and it only rises as the economy gets worse. For a quick comparison, in Clinton's era it was "only" about 17% of all households. No jobs, no hope for the government, shops keep closing because they can't make enough to stay open... So what's the next thing those disconnected people in Washington are going to do to Main Street?
    • by SmallFurryCreature (593017) on Saturday August 06, 2011 @04:13AM (#37005092) Journal

      The republicans are pretty damn obvious with their policies, cut back anything that benefits the poor and keep and increase benefits oops tax cuts for the rich. They don't even bother to try to disguise this as trickle down economics anymore.

      Yet West Virigina, which you claim is filled with poor people, colors very red on the election maps I can find.

      But hey, if I am a small shop-keeper why should I pay for medi-care or social security for other people. I AM NOT UN-EMPLOYED, I got my own business, I don't need a handout... why isn't there anyone in my store? People to afraid to spend because if they loose their job they need every penny they got? Oops, now my store has gone bust... I need social security to stay alive!

      Really, the republicans in the recent debt talks insisited openly that a tax cut for people making more then 250.000 dollars introduced by econimic wonder boy Bush was extended. And every single republican making less then 50.000 was in favor through their vote for the republican party. Because when you are on minimum wage, guys making a quarter of a million are your first priority.

      It must be the American dream. Someday I will be rich so I better make sure I vote in the tax cuts for my future self right now.

      In most of the rest of the world people vote in social security should their future self need it.

      At 25 I stopped drinking to save the liver of a 40 year old man. An American commits suicide at 25 to stop a man from dying at 40.

      Washington will take care of Main Street when the people in Main Street stop making it very clear with their votes that the people in Richville are their main concern.

  • by jayveekay (735967) on Saturday August 06, 2011 @03:54AM (#37004986)

    I don't have a master's degree in credit rating, so the mathematical difference between "AAA" and "AA+" eludes me. Why can't they assign a number as a rating, e.g. AAA=100="We expect that you will on average receive 100% of the principal and interest promised by the borrower.", Caa1=40="We expect that you will on average get 40% of the principal and interest promised by the borrower.

    Seems using numbers like that would be simpler, more informative, and less obscure than "We rate this debt Baa2." Or do the raters like obscurity?

    Regardless, I would be interested in knowing how accurate the past ratings have been. We all know the agencies absolutely blew the whole sub-prime "AAA" crap a few years ago.

    • by konekoniku (793686) on Saturday August 06, 2011 @05:05AM (#37005372)
      Two answers to your question.

      First, history plays a key role. The credit rating system started out this way (with letter ratings and modifiers) decades ago, and since then so much national legislation, international regulations, and corporate policies have been crafted around the existing system that it'd be very costly to change. For example, BBB- or higher is the legal definition of "investment-grade", and many financial institutions (insurance companies, pension funds, etc.) are legally barred from investing more than a certain percentage of assets under management in non-investment-grade securities. Similarly, Basel III and national reserve requirements assign different risk weightings to different credit rating levels -- AAA and AA may have a zero weight, for example (no capital is required to be held against the possibility of default for these classes of securities), while high-yield investments below C may have a 50% risk weight.

      There actually is one rating agency that does use a 0-100% scale, but their scale is actually more difficult for the people who actually use the ratings (fund managers, policymakers, chief risk officers, etc.) to understand since it does not correlate as directly to existing regulatory and legal definitions.

      Second, there actually are loss-given-default ratings like you describe, but they are assigned to specific securities rather than to companies as a whole. In fact, there are actually many different types of credit ratings. The one you hear most often is the long-term corporate issuer (or sovereign issuer) credit rating, but there are also short-term ratings, foreign-issuer ratings, loss-given-default ratings, etc.

      A company would typically have many of these ratings simultaneously -- e.g. a Canadian company may have an AA rating for CAD-denominated short-term bonds, a A rating for Canadian-dollar-denominated long-term bonds, and a BBB- rating for US-dollar-denominated long-term bonds. Moreover, although the company's US-dollar-denominated long-term bonds issued last week were rated only BBB-, they have a loss-given-default of only 1% because they are structurally senior in the capital structure to the rest of the company's debt, whereas the loss-given-default rating for its AA-rated short-term debt issued yesterday may actually have a loss-given-default rating of 85% because it is subordinated to ten other bonds.
  • by superposed (308216) on Saturday August 06, 2011 @04:07AM (#37005058)
    It's amazing to me that until September 2008, S&P was giving AIG a AAA rating [economicpopulist.org], even though AIG was taking the bad side of everyone's bets on the mortgage market, but now S&P downgrades U.S. debt over concerns about "budget deficits and rising debt burden." The U.S. government still has plenty of room to raise revenue to pay off Treasury Bills, and may even be Constitutionally obligated to do so.

    It's just hard to believe that the U.S. Treasury is now considered a riskier borrower than AIG was in 2008. It's also ironic, since a good part of the U.S. debt burden was incurred bailing out AIG and the rest of the financial industry (which assumed AIG credit-default swaps would protect them, in part due to S&P's high rating of AIG).
  • by Flambergius (55153) on Saturday August 06, 2011 @04:11AM (#37005084)

    While the credit rating thing is unprecedented and sort of iconic moment, the real test of the credit-worthiness of the USA will take place in the bond market.

  • by assertation (1255714) on Saturday August 06, 2011 @04:49AM (#37005278)

    Michele Bachman and other TEA/Republican party members got on the television last week and told the American people flat out that the U.S. government defaulting on its debts wouldn't hurt anything.

    Now we have this new economic burden as a result of only solving that argument too late.

    I don't expect anyone who is a Republican or a TEA party member to admit that they were wrong about that. People who supported playing chicken with the U.S. economy last week just don't have the character and integrity.

    I hope OTHER people now see what these people are about. They are angry, ignorant and DANGEROUS denialists just like the people who will not vaccinate their children and who believe global warming is a hoax.

  • by assertation (1255714) on Saturday August 06, 2011 @04:59AM (#37005334)

    A lot of Americans will not go to vote for President Obama on election day because they are disappointed in his performance and that he has not lived up to 100% of their hopes.

    Please don't be like that. Please remember this and go out to vote.

    As we have seen the Republicans and the TEA Party are working hard to take things away from you.

    This credit downgrade will make you lose money in your 401K and increase the costs of credit........whether buying a home if you are one of the shrinking middle class that can still hope to do that.....or starting a business.

    Govenor Scott Walker cut people's jobs so he could give a tax cut to the reach and the TEA Party showed up to counterprotest the Americans who were fighting for their jobs.

    Republicans at the state level fought to redefine rape away and to deny coverage for abortions to women as a result of rape.

    That is what these people are about. Trying to take things away from you either by conscious design or ignorance. They are turning the US into a 3rd world country.

    Please go out and vote to keep them out in 2012 elections.

  • AAAAA+ (Score:5, Funny)

    by sakdoctor (1087155) on Saturday August 06, 2011 @06:26AM (#37005722) Homepage

    Would lend to again

  • by rmstar (114746) on Saturday August 06, 2011 @07:21AM (#37005972)

    is here: http://blogs.wsj.com/marketbeat/2011/08/05/sp-downgrades-u-s-debt-rating-press-release/ [wsj.com]

    It is interesting that deficit isn't the only, nor it seems, most important issue. FTA:

    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.

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