U.S. credit rating downgraded for the first time in history

Discussion in 'Soap Box' started by Prinnctopher's Belt, Aug 6, 2011.

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  1. Prinnctopher's Belt

    Prinnctopher's Belt Antiquities Friend SF Supporter

    UPDATE 8:19 p.m.: S&P downgrades U.S. credit rating to AA+ with negative outlook, Reuters reports.

    From AP:

    WASHINGTON — The United States has lost its sterling credit rating.

    Credit rating agency Standard & Poor's on Friday lowered the nation's AAA rating for the first time since granting it in 1917. The move came less than a week after a gridlocked Congress finally agreed to spending cuts that would reduce the debt by more than $2 trillion – a tumultuous process that contributed to convulsions in financial markets. The promised cuts were not enough to satisfy S&P.

    The drop in the rating by one notch to AA-plus was telegraphed as a possibility back in April. The three main credit agencies, which also include Moody's Investor Service and Fitch, had warned during the budget fight that if Congress did not cut spending far enough, the country faced a downgrade. Moody's said it was keeping its AAA rating on the nation's debt, but that it might still lower it.

    One of the biggest questions after the downgrade was what impact it would have on already nervous investors. While the downgrade was not a surprise, some selling is expected when stock trading resumes Monday morning. The Dow Jones industrial average fell 699 points this week, the biggest weekly point drop since October 2008.

    "I think we will have a knee-jerk reaction on Monday," said Jack Ablin, chief investment officer at Harris Private Bank.

    But any losses might be short-lived. The threat of a downgrade is likely already reflected in the plunge in stocks this week, said Harvey Neiman, a portfolio manager of the Neiman Large Cap Value Fund.

    "The market's already been shaken out," Neiman said. "It knew it was coming."

    One fear in the market has been that a downgrade would scare buyers away from U.S. debt. If that were to happen, the interest rate paid on U.S. bonds, notes and bills would have to rise to attract buyers. And that could lead to higher borrowing rates for consumers, since the rates on mortgages and other loans are pegged to the yield on Treasury securities.

    However, even without an AAA rating from S&P, U.S. debt is seen as one of the safest investments in the world. And investors clearly weren't scared away this week. While stocks were plunging, investors were buying Treasurys and driving up their prices. The yield on the 10-year Treasury note, which falls when the price rises, fell to a low of 2.39 percent on Thursday from 2.75 percent Monday.

    A study by JPMorgan Chase found that there has been a slight rise in rates when countries lost an AAA rating. In 1998, S&P lowered ratings for Belgium, Italy and Spain. A week later, their 10-year rates had barely moved.

    The government fought the downgrade. Administration sources familiar with the discussions said the S&P analysis was fundamentally flawed. They spoke on condition of anonymity because they weren't authorized to discuss the matter publicly. S&P had sent the administration a draft document in the early afternoon Friday and the administration, after examining the numbers, challenged the analysis.

    S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade, to AA, would occur if the agency sees smaller reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period.

    In its statement, S&P said that it had changed its view "of the difficulties of bridging the gulf between the political parties" over a credible deficit reduction plan.

    S&P said it was now "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 anytime soon."

    The Federal Reserve and other U.S. regulators said in a joint statement that S&P's action should not have any impact on how banks and other financial institutions assess the riskiness of Treasurys or other securities guaranteed by the U.S. government. The statement was issued to make sure banks did not feel that the downgrade would affect the amount of capital that regulators require the banks to hold against possible losses.

    Before leaving for a weekend at Camp David, President Barack Obama met with Treasury Secretary Timothy Geithner in the Oval Office late Friday afternoon.

    The downgrade is likely to have little to no impact on how the United States finances its borrowing, through the sale of Treasury bonds, bills and notes. This week's buying proves that.

    "Investors have voted and are saying the U.S. is going to pay them," said Mark Zandi, chief economist of Moody's Analytics. "U.S. Treasurys are still the gold standard." He noted that neither his parent organization, Moody's, nor Fitch, the other of the three major rating agencies, have downgraded U.S. debt.

    Japan had its ratings cut a decade ago to AA, and it didn't have much lasting impact. The credit ratings of both Canada and Australia have also been downgraded over time, without much lasting damage.

    "I don't think it's going to amount to a lot," said Peter Morici, a University of Maryland business economist.

    Still, he said, "The United States deserves to have this happen," because of its clumsy handling of fiscal policy.

    UPDATE 7:10 p.m.: S&P is reconsidering its position on a potential U.S. credit downgrade after the Obama administration challenged the credit rating agency's economic model, CNN reports, citing a senior Obama Administration official, who said the analysis was off by "trillions" of dollars.

    Politico's Ben White tweets the supposed errors are said to display "incompetence."

    EARLIER: The U.S. government reportedly expects the rating of U.S. debt to be downgraded by credit rating agency Standard and Poor's, according to ABC News. U.S. debt currently holds a triple-A credit rating, the highest possible.

    On Tuesday, President Barack Obama signed an agreement to raise the debt ceiling of the U.S., after a political dispute that lasted for months.

    This is a developing story.

  2. jxdama

    jxdama Staff Member Safety & Support

    obama is destroying the nation
  3. lightbeam

    lightbeam Antiquities Friend

    I hope iot get downgraded further.

    The repubs are having a fit over here, because the democrats are foaming at the mouth. One side against the other. I live in a red state, and see how stupid the rank and file are. The vast majority of the state votes republican, because their church tells them to. They are involved with politics too... heaven forbid anyone stand in the way of the LDS corporation here in Utah.

    I want to see the Dow crumble away to nothing. I want to see it all go under, because hell, even the president can't control it. Doom in 2012? Ha... it'll be another Great Depression.
  4. peacelovingguy

    peacelovingguy Well-Known Member

    Obama pimped the nation - lol

    The man is a community organiser shyster.

    Lets face it - he was chosen to appease the notion black people cannot 'do' that job.

    Er - he failed! Maybe we need an Asian president next, or Mexican.

    He is not the cleverest of presidents. I think there are like 10 million black Americans with their heads together who would do a more honest job.

    Even some rapper - Snoop Dog? Why not - He'd have no wars - legalise drugs and outlaw the MF word with some luck - his mum would outlaw it - why the **** has the USA invented the word mother ******? How vile is it? To sing that? You need shooting really - now we have 12 yr olds in the UK telling us to **** our own mothers

    Even Bush seems - almost with it in comparison. At least he was funny.

    Obama is a conman reading an auto-cue

    EVERY politician is the same.

    Even I would be - If I succumbed to the allure of such a profession.

    More dignity in being a 'crack ho'

    China will rule the USA - in fact it owns you. It could take down the USA army might with ease.

    They have one million fresh faced fit Chinese soldiers just itching to get it on.

    And a missile to down EVERY USA plane and tank and vehicle.

    Asymmetrical warfare - its a killer when you spend a billion designing a tank and some Afghani blows it up with $75 worth of gear.

    Even Mexico seems more civilised to me than the USA

    I'd go to the USA to meet some of the members here - sure.

    But Disneyworld? MacDonald World - lol - closed car factories?

    I've been poor all my life - its great. Nobody I know is with me for money - which takes care of goldhunting chicks who would be doomed trying to wrangle a penny off me. Not because I'm tight - but because

    When you have nothing to lose - you have nothing to lose which makes you a potential winner!!!!!

    Winning! :smile:

    I actually got arrested for running at Ronnie Ray-Guns big armoured car. Got within waving distance and shouted out "Hey, Yank - get ypur nuclear weapons the **** out of our nation!!!!"

    Cop got me and off I went in the cop van with other folk who though it fun to tell a USA president to **** *** or **** *** or alternatively, to **** ** **** and then to **** his own **** and **** ***.

    I guess we did swear a lot back then.

    Ah - the good old days!

    OK - I'm all over the place there - but am I right? or right?



    The dollar is going to crash like the Hindenburg in a decade.

    Third world stuff awaits.
    Last edited by a moderator: Aug 6, 2011
  5. Issaccs

    Issaccs Well-Known Member

    I'm sorry but when exactly did the US loose any of their battletanks to anything but friendly fire? RPG's bounce off em.
  6. peacelovingguy

    peacelovingguy Well-Known Member

    Sure, an RPG is not going to take out an Abrahams Battle Tank - unless it landed in the turret.

    But - many many of America's best and finest battle tanks HAVE been destroyed - by means of a simple 'trick' using physics - and some copper which is shaped so that it punches a hole right into that tank.

    Cost of taking out these tanks? Maybe $25 to average Afghani.

    "When the explosive is activated, the copper transforms into a forceful jetstream of molten metal also known as "plasma". This plasma jet easily perforates an unprotected steel armor, hitting the surface at a speed of 8,000 meters per second and extremely high pressure. If the plasma is not obstructed by a target within few meters, it solidifies into a kinetic slug which is less effective against heavy armor but is still devastating against softer targets. In both cases, the effect inside the target interior can be catastrophic, especially if it ignites unprotected ammunition stores, causing secondary explosions. Anti-tank shaped charges must be employed with utmost accuracy (activation distance, and design accuracy). Therefore, they are used primarily with buried mines, and lightweight anti-tank weapons."

    Not my writing above - some military website.

    Also many tanks have been destroyed by means of just a LOT of explosives buried in the road. One of those bombs hits your best tanks - its a goner.

    China actually builds missiles to destroy EVERY USA military asset.

    The sunburn missile - I am informed - could sink the biggest battle ships and put them out of commission - at the very least.

    You spend a billion

    Your enemies do not need to match tanks for tanks or planes for planes.

    The helicopter that went with the loss of 36 lives? Its possible an RPG could have taken it down. Even a gun.

    America is losing - your economy is sliding - - and I wish you well.

    I don't want to see people die - ever. But - you lift a sword up in this life and it will come back at you one day.
  7. Issaccs

    Issaccs Well-Known Member

    So they've had a handful damaged by IED's and the sky is falling and China's going to invade someday?
  8. Hellfrost

    Hellfrost Well-Known Member

    China doesnt want to take over america, it wants to sell stuff to america. China doesnt have the same drive to colonise that many of the richer countries in europe had and the usa still seems to have. Also, I dont really appriciate the racist comments about your president. Any sane person can see that Obama tried his best but at every turn the teabaggers who got voted in held stuff hostage.
  9. lightbeam

    lightbeam Antiquities Friend

    I have to agree. Obama was handed a sad state of affairs when he took over from Bush. He's been trying. That's one reason I would vote for him again. Because he is trying to put the pieces back together when the entire puzzle is broken, and missing pieces.

    He's doing the best he can. I can only imagine the tremendous pressure he is under.
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