USA credit rating

[Gone4Good]

While technically correct, I think that misstates the nature of the debt ceiling debate.

"Technically" is all that matters to the credit rating. "Probability of default" is a pretty straightforward thing. It doesn't care why you might not pay (i.e. don't have the money, or don't have the votes). It is what it is. And what it is, is higher now that we've decided to use the debt ceiling for negotiating leverage. This also means our credit quality is lower.

And if anyone thinks this won't happen again, just listen to Mitch McConnel talking to Larry Kudlow

What we have done, Larry, also is set a new template. In the future, any president, this one or another one, when they request us to raise the debt ceiling, it will not be clean anymore. This is just the first step. This, we anticipate, will take us into 2013. Whoever the new president is, is probably going to be asking us to raise the debt ceiling again. Then we will go through the process again and see what we can continue to achieve in connection with these debt ceiling requests of presidents to get our financial house in order

 

[samclem]

"Technically" is all that matters to the credit rating. "Probability of default" is a pretty straightforward thing. It doesn't care why you might not pay (i.e. don't have the money, or don't have the votes). It is what it is. And what it is, is higher now that we've decided to use the debt ceiling for negotiating leverage.

Maybe I missed the memo where the President said who would and would not be paid if the debt ceiling was not raised. Are bondholders first in line? There's no direct link between failure to raise the debt ceiling and failure to pay interest on bonds. If we show evidence of getting our fiscal house in order (aligning income with expenses while ensuring enough money stays in private hands to foster continued growth of industry) that would seem more likely to put rating agencies at ease than a continuation of reckless borrowing and spending with no real political debate.

So, Sen. McConnell says raising the debt ceiling is going to be painful from now on, subject to lots of conditions, debate, and public angst. Good.

 

[ERD50]

So, Sen. McConnell says raising the debt ceiling is going to be painful from now on, subject to lots of conditions, debate, and public angst. Good.

+1 We gotta face it, that's the best thing. It's going to be painful, that's a given. The alternative is worse.

Maybe I missed the memo where the President said who would and would not be paid if the debt ceiling was not raised. Are bondholders first in line?

Recently, I saw Timothy Geithner asked that direct question in an interview. Geithner danced, and the interviewer asked three times (this is the last time, and then I'll move on), and he got a non-answer each time.

Then I saw the same routine with David Plouffe, but the interviewer only took two non-answers before moving on.

-ERD50

 

[Gone4Good]

Maybe I missed the memo where the President said who would and would not be paid if the debt ceiling was not raised. Are bondholders first in line?

Remember, we're talking about "probability of default." The probability of missing a principal or interest payment rises dramatically if the government is forced to manage it's bills on a cash flow basis with no ability to borrow.

Interest default can happen if cash reciepts come in significantly below projections. 2009 Revenues were actually about $500B short. That's a big miss to make up on the fly.

Principal default can happen if a bond auction fails and the government can't roll paper the same day. With borrowing capacity the government auctions bonds well in advance of pending maturities so they'll have plenty of room to manuver if the markets turn inhospitable. With no borrowing capacity, you have one bite at the apple . . . and every market participant knows how much money you need to raise and how desperate you are to raise it. They have you over a barrel.

Anyway you slice it, you come back to the same conclusion.

Edit to add: If this were a corporation, failure to pay 40% of their bills would generally cause a cross default to bonds and bank loans even if lenders were kept current. The U.S. has been able to borrow without such restrictions because everyone assumes they're good for the money. How quaint.

 

[samclem]

Edit to add: If this were a corporation, failure to pay 40% of their bills would generally cause a cross default to bonds and bank loans even if lenders were kept current. The U.S. has been able to borrow without such restrictions because everyone assumes they're good for the money. How quaint.

If a corporation had needed to borrow money to pay their bills approx 46 of the last 50 years and the pace of borrowing was accelerating, most sources of credit might start to wonder about what was going on. They might want to see some changes. And, it looks like change has started to arrive.

But, of course, the US government isn't a corporation.

 

[Gone4Good]

If a corporation had needed to borrow money to pay their bills approx 46 of the last 50 years and the pace of borrowing was accelerating,

For a growing corporation those facts would be expected and no indication of credit quality at all.

 

[samclem]

For a growing corporation those facts would be expected and no indication of credit quality at all.

Just for grins, can you point out a corporation that has been in the red, and borrowing money, not just selling off assets, for 46 of 50 years? I'd like to meet their creditors.

 

[TromboneAl]

How about a corporation that can print money?

 

[ERD50]

How about a corporation than can print money?

Slow death by inflation. I don't think that will impress the credit rating agencies much.

In a way, corps can print their own money. Isn't that essentially what happens when the 'create' a new issue of stock? As I understand it, they can only get away with that if they are strong.

-ERD50

 

[Dawg52]

Interesting bit of information if true. A big goof if true.

News Headlines

 

[REWahoo]

Interesting bit of information if true. A big goof if true.

News Headlines

Since Dawg posted a blind link (accidentally, I'm sure) giving us no idea what the subject was....

Standard & Poor's told the U.S. government Friday afternoon that it was preparing to downgrade the U.S.'s triple-A credit rating but U.S. officials notified the S&P that they had made a mathematical error that was off by "trillions," an administration source told CNBC.

 

[Dawg52]

Since Dawg posted a blind link (accidentally, I'm sure) giving us no idea what the subject was....

Sorry. Don't know how to change a link title, but knew it was concerning the subject at hand so posted it as is.

 

[Gumby]

Standard & Poor's told the U.S. government Friday afternoon that it was preparing to downgrade the U.S.'s triple-A credit rating

A bit rich for an organization that was right up there in terms of responsibility for our current economic difficulties.

 

[W2R]

Sorry. Don't know how to change a link title, but knew it was concerning the subject at hand so posted it as is.

Here's how you can do it. First, type in what you want for the link title.

Then highlight it (by mousing over the title while holding down the left button on the mouse), click on the little globe-like looking icon on the post entry window, and past the link in the popup box.

Dawg's hopefully interesting link.

Even better, you can just tell us what is in the link and not bother with changing the link title. Like, "this link has some pretty scary information about the downgrading of S&P's rating for the US" or something like that. That is even better. The idea is to let us know what we will find out by clicking on the link, before we click on it.

 

[KingB]

Interesting bit of information if true. A big goof if true.

News Headlines

It is true. I saw the report on CBS news.

S&P downgrades U.S. debt - CBS News

Another sell off this Monday?

 

[FIREd]

Well it's a done deal:

S&P Downgrades US Credit Rating to AA-Plus

S&P downgrades the US credit rating from AAA to AA+. Outlook remains negative.

 

[wanaberetiree]

and here it is - S&P downgrades U.S. credit rating - Aug. 5, 2011

 

[4merKPer]

S&P Downgrades U.S. Debt for First Time

From WSJ: S&P Downgrades U.S. Debt for First Time

S&P removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal recently brokered in Washington didn't do enough to address the gloomy long-term picture for America's finances. It downgraded U.S. debt to AA+, a score that ranks below Liechtenstein and on par with Belgium and New Zealand.

Thoughts on the impact?

 

[samclem]

I predict Congress will address the problem quickly. Citing a need to raise revenues, a new, high tax on "bond rating firms with bearish outlook on US debt" will be passed and signed.

Senator X: "There, we did something about it. How do they like them apples?!"

 

[bbbamI]

Here's a photo if you don't want to look at the link....

 

[DblDoc]

Monday should be interesting. So where were these eagle eyed bond mavens when the MBS's were being rated?

DD

 

[Moemg]

This is great news, about the white flag. Where is that displayed? Do they display it when the ring the bell?

When you start spending freely. I will consider that the white flag and jump back in !

 

[missionfinder]

S&P downgrades U.S. credit rating for first time

S&P downgrades U.S. credit rating for first time - The Washington Post

 

[Brett_Cameron]

Read the report. Obvious vote of no confidence in our current Congress and President.

 

[73ss454]

Look out below!