Friday, August 5, 2011

US downgraded?!

S&P Downgrades US To AA+, Outlook Negative - Full Text

Bond Congressional Budget Office Debt Ceiling default Demographics France Germany Gross Domestic Product Medicare Monetary Policy ratings Recession recovery Reserve Currency Sovereigns Structured Finance Well, so much for the conspiracies. S&P has just released a scathing critique of the total chaos that this country's government has become. "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. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability." What to expect on Monday: " it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021." And why all those who have said the downgrade will have no impact on markets will be tested as soon as Monday: "On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors." Translation: unpredictable consequences: you are welcome!


Of course this should have happened a long time ago. After all its fiscal situation is not a lot different to Greece which is rated JUNK.
Whether they will actually have the guts to carry this through though I do not know. IF they do it means they have finally started doing their job.
If it goes through it will mean much higher interest rates , and thus more
foreclosures and more bank bailouts.
The end game for the Keynesian experiment is approaching.

Lets remind ourselves what little Timmy Geitner had to say a while back.
All you need to know (from April 2011):
Peter Barnes “Is there a risk that the United States could lose its AAA credit rating? Yes or no?”

Geithner’s response: “No risk of that.”

“No risk?” Barnes asked.

“No risk,” Geithner said.

Personally I wouldn't lend the United states so much as a Mars bar as long as cretins like this are in charge

No comments:

Post a Comment