USA credit rating

[TromboneAl]

Quote:

Originally Posted by Gone4Good It's pretty clear we're no longer worthy of a 'Aaa' rating. Would you consider someone who strenuously debates whether or not to pay their bills a good credit risk?

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

[ERD50]

Quote:

Originally Posted by TromboneAl Quote: Originally Posted by Gone4Good It's pretty clear we're no longer worthy of a 'Aaa' rating. Would you consider someone who strenuously debates whether or not to pay their bills a good credit risk? While technically correct, I think that misstates the nature of the debt ceiling debate.

Agree with T-Al here.

To put it another way, I'd say we deserve a downgrade for passing a budget that exceeds the debt ceiling, w/o addressing the debt ceiling at that time. Either stay within the ceiling, or tackle it at the same time as passing the budget. Doing one w/o the other is irresponsible, IMO.

The debate was more about controlling future deficit spending, not specifically if we should pay our bills in August or not. But that provided the leverage for debate.

-ERD50

[Moemg]

Quote:

Originally Posted by Packman . Will have to do the same now, but being ER'd now versus w*rking back then sure makes a difference.

I was just retired when the last meltdown occurred . It was truly frightening .This time I would get out at a certain point and just sit on the sidelines.until I see a white flag . Sevearl of our members did this and they maybe missed a few big uptick days but they came out ahead .

[eytonxav]

Quote:

Originally Posted by Gone4Good It's pretty clear we're no longer worthy of a 'Aaa' rating. Would you consider someone who strenuously debates whether or not to pay their bills a good credit risk? I don't. But that is the U.S. today. That we narrowly escaped is cold comfort because we've set a precedent that will happen again and again. I don't think it's safe to assume we'll always pull back from the brink. The probability of a U.S. default has skyrocketed because of recent political shenanigans. If I were at Moody's I'd be arguing for a rating to reflect the following risks: Probability of default "BB+" (Junk), Recovery in Default "Aaa", Weighted average Rating: "A"

If U.S. debt should no longer be considered Aaa, I don't know what would be and don't think anyone should be losing sleep over this concern.

[TromboneAl]

Quote:

Originally Posted by Moemg sit on the sidelines until I see a white flag.

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

[Gone4Good]

Quote:

Originally Posted by TromboneAl 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

Quote:

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]

Quote:

Originally Posted by Gone4Good "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]

Quote:

Originally Posted by samclem 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.

Quote:

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]

Quote:

Originally Posted by samclem 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]

Quote:

Originally Posted by Gone4Good 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]

Quote:

Originally Posted by samclem 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]

Quote:

Originally Posted by Gone4Good 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]

Quote:

Originally Posted by TromboneAl 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]

Quote:

Originally Posted by Dawg52 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....

Quote:

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]

Quote:

Originally Posted by REWahoo 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]

Quote:

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]

Quote:

Originally Posted by Dawg52 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]

Quote:

Originally Posted by Dawg52 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?