Another log on the fire

[ronin]

From S&P this morning:

* We have affirmed our 'AAA/A-1+' sovereign credit ratings on the United
States of America.

*The economy of the U.S. is flexible and highly diversified, the country's
effective monetary policies have supported output growth while containing
inflationary pressures, and a consistent global preference for the U.S.
dollar over all other currencies gives the country unique external
liquidity.

*Because the U.S. has, relative to its 'AAA' peers, what we consider to be
very large budget deficits and rising government indebtedness and the
path to addressing these is not clear to us, we have revised our outlook
on the long-term rating to negative from stable.

*We believe there is a material risk that U.S. policymakers might not
reach an agreement on how to address medium- and long-term budgetary
challenges by 2013; if an agreement is not reached and meaningful
implementation is not begun by then, this would in our view render the
U.S. fiscal profile meaningfully weaker than that of peer 'AAA'
sovereigns.

(full text here: Text of S&P)

So far, the reaction in the bond market seems muted, but equities are taking a bit of beating. Well, I really like Portugal, but...

 

[mystang52]

Maybe, just maybe (alas, I doubt it) this will lead to a genuine bipartisan effort to get our budget issues resolved. If only both sides could just SHUT UP with their scare-mongering hyperbole and actually do something about this.
I wrote to both the RNC and DNC chairpersons and expressed similar sentiments. I even volunteered to become the budget czar. Give me a couple of days, I can get this resolved.

 

[MichaelB]

Didn't S&P give positive credit ratings on all those subprime mortgage CDOs? The ones that led to the financial collapse.

Not sure this will help any credit analysis but it sure will add some jet fuel to the partisan debate in Washington.

 

[MasterBlaster]

Isn't this kind of stating the obvious ?

This is juts one more shot across the bow that we had better get our act together. It's not like we (and those in charge) don't already know all this.

*Because the U.S. has, relative to its 'AAA' peers, what we consider to be
very large budget deficits and rising government indebtedness and the
path to addressing these is not clear to us, we have revised our outlook
on the long-term rating to negative from stable.

I always thought the first pangs of trouble will occur in the bond markets.

 

[samclem]

I always thought the first pangs of trouble will occur in the bond markets.

Our politicians (like military medicine) appear to do a better job in responding to a crisis than to a chronic condition. They (and maybe the public) apparently need a shock in order to prompt any response at all. As far as fixing the US government fiscal situation, the only two "crises" that I can see possibly prompting a response are:
1) Voter outrage at debt or tax rates (present and future). Those who should be most outraged are young voters, who are being strapped to a debt bomb. I don't think this voter backlash is likely to develop as long as politicians can divide the group, convincing the majority that a minority ("the rich"-a bar that will need to be lowered a lot) will be paying the tab. To get the ball rolling would require an exceptionally talented/charismatic person to lead the charge (I don't see one).
2) A crisis of confidence in the market for US government securities that causes a spike in interest rates. This is a lot more likely than the previous option, and will be a lot harder to defuse through clever politics. It also won't be possible to paper it over with accounting tricks or "easy" answers (increasing the money supply, etc). Ironically, the sooner this crisis hits, the better off we'll be in the long run.

 

[LOL!]

The S&P news is just one thing. Over the weekend, China raised capital requirements at banks and Irish Bank debt got downgraded. I think even Republic of Ireland sovereign debt took a hit.

All this will raise interest rates sooner rather than later.

 

[FIREd]

The alarm bells have been going off for a while. Either we do something about it or our creditors will. Given how much hand wringing went on to cut a miserly $39.5B out of the budget, I suspect we will be forced into austerity by the credit market.

 

[Nords]

Funny how everyone in the world now knows that S&P rates bonds. And publishes stuff in the media.

Or else they're still pissed at Congress for saying mean things about their sycophantic ratings of mortgage-backed securities.

 

[GregLee]

Didn't S&P give positive credit ratings on all those subprime mortgage CDOs?

Shouldn't it have given the high ratings? Did any securities with the high ratings default?

 

[Tadpole]

Or maybe they are just goosing them to raise the debt limit and quit playing silly games.

 

[REWahoo]

Or maybe they are just goosing them to raise the debt limit and quit playing silly games.

+1

 

[Gone4Good]

If you read the press release it is clear that the negative outlook reflects uncertainty about the political process, and not about the U.S.'s ability to pay its obligation. That is an important distinction. There is no question in my mind that the U.S. has the resources to manage it's fiscal situation. The real question is, can we muster enough adult leadership to sheppard the necessary compromises? It's not promising when one of the major political parties takes a stand that half of the budget equation is absolutely off the table. Until that changes, a negative outlook is appropriate.

 

[MasterBlaster]

If you read the press release it is clear that the negative outlook reflects uncertainty about the political process, and not about the U.S.'s ability to pay its obligation. That is an important distinction. There is no question in my mind that the U.S. has the resources to manage it's fiscal situation. The real question is, can we muster enough adult leadership to sheppard the necessary compromises? It's not promising when one of the major political parties takes a stand that half of the budget equation is absolutely off the table. Until that changes, a negative outlook is appropriate.

Well, untill there is some certainty that we have the will to do anything about this then a lower credit rating is appropriate indeed.

meanwhile, party on Garth ! Those kids won't mind paying off lots more debt.

 

[travelover]

.........It's not promising when one of the major political parties takes a stand that half of the budget equation is absolutely off the table. Until that changes, a negative outlook is appropriate.

I was hopeful that defunding NPR and Planned Parenthood was gonna do the trick.

 

[tsturbo]

We are on a slippery slope to a 3rd world country. We have too many people expecting the government to take of them, when in fact most of these people did not properly save and prepare for their own future. Heck, 50% of the country does not pay federal taxes.

It irritates me that I have to pay for their mistakes.

 

[samclem]

Words in bold added for accuracy.

Heck, nearly 50% of the country does not pay federal income taxes.

 

[Independent]

If you read the press release it is clear that the negative outlook reflects uncertainty about the political process, and not about the U.S.'s ability to pay its obligation. That is an important distinction. There is no question in my mind that the U.S. has the resources to manage it's fiscal situation. The real question is, can we muster enough adult leadership to sheppard the necessary compromises? It's not promising when one of the major political parties takes a stand that half of the budget equation is absolutely off the table. Until that changes, a negative outlook is appropriate.

+1

 

[jebmke]

I was hopeful that defunding NPR and Planned Parenthood was gonna do the trick.

You didn't hear?

GOP Completely Fixes Economy By Canceling Funding For NPR | The Onion - America's Finest News Source

 

[tsturbo]

Words in bold added for accuracy.

Thanks for the correction, that is what I meant

 

[Gone4Good]

10-year Treasury rates down to 3.35%. Apparently the market doesn't think much of S&P's rating action.

 

[Danmar]

Funny how everyone in the world now knows that S&P rates bonds. And publishes stuff in the media.

Or else they're still pissed at Congress for saying mean things about their sycophantic ratings of mortgage-backed securities.

Sorry I missed your point? Do you think the US has a problem or not?

 

[Danmar]

If you read the press release it is clear that the negative outlook reflects uncertainty about the political process, and not about the U.S.'s ability to pay its obligation. That is an important distinction. There is no question in my mind that the U.S. has the resources to manage it's fiscal situation. The real question is, can we muster enough adult leadership to sheppard the necessary compromises? It's not promising when one of the major political parties takes a stand that half of the budget equation is absolutely off the table. Until that changes, a negative outlook is appropriate.

Well put. Totally agree.

 

[Gearhead Jim]

Fortune magazine (I know...) just had an article about how the expected bond debacle has not happened and probably won't happen for quite a while, if ever.

Hmmm...

 

[REWahoo]

Fortune magazine (I know...) just had an article about how the expected bond debacle has not happened and probably won't happen for quite a while, if ever.

The unsinkable bond market - Street Sweep: Fortune's Wall Street Blog