In a press release Friday evening, Standard & Poor’s downgraded the U.S. Government’s “AAA” sovereign debt rating Friday evening. S&P lowered the long-term rating to AA+ from AAA and affirmed the country’s A-1+ short-term rating.
The rating agency said “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”
The Press release goes on to say, “More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011. Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us 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 any time soon.”
S&P says that the outlook on the long-term rating remains negative and that the rating could be cut to AA within the next two years if they do not see the reduction in spending that Congress and the White House agreed to. In addition, higher interest rates or new fiscal pressures in the future that result in higher gov’t debt will also likely trigger an additional downgrade.
This is the first time in the country’s history that the U.S. has lost its top-notch credit rating. S&P has maintained the U.S. at AAA for 70 years.
CNBC reports that U.S. Treasury securities, which up until now have been seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.
The downgrade came amid swirling controversy over the math involved with calculating the debt-to-GDP ratio in the U.S. According to Dow Jones, the White House had directly challenged the analysis made by S&P and said the credit rater was “trillions” off in its calculations.
CNBC reports that the error was purported to be in the calculation of the U.S. debt-to-GDP ratio over time and was based on a misreading of the correct congressional baseline numbers.The rumors of the S&P downgrade were part of the massive volatility seen in the stock market on Friday, where the DJIA traded in a 416 point range.
Recall that both Fitch and Moody’s had confirmed their triple-A rating for U.S. debt this week. Although Fitch said that the U.S. rating would likely remain under pressure for some time.
Moody’s kept the rating at triple-A, but slapped a “negative outlook” on U.S. debt. Moody's said there would be a risk of a downgrade if (a) There is a weakening in fiscal discipline in the coming year; (b) If further fiscal consolidation measures are not adopted in 2013; (c) If the economic outlook deteriorates significantly; or (d) There is an appreciable rise in the US government's funding costs over and above what is currently expected."
However, S&P had painted itself into the downgrade corner by publically saying that the U.S. needed to make cuts of at least $4 trillion from the budget over the next 10 years to avoid default. And with the debt-ceiling deal calling for cuts of just $2.4 trillion, S&P apparently had to maintain its credibility with the downgrade.
It is likely that S&P waited until after markets closed Friday to make their announcement so that traders (and their computers) wouldn’t overreact and create even more chaos than was already present.
History shows that an initial downgrade to a country’s sovereign debt rating isn’t the end of the world as rates often fall after the announcement is made. And given that the U.S. may be the “only game in town” for borrowers such as China, many experts are not overly concerned about the impact of the downgrade on interest rates.
However, the move may prove to be problematic to the U.S. consumer, who, according to the recent report on personal consumption, had already pulled back on spending in July. In recent weeks, American consumers have been bombarded with a bloody bi-partisan battle in Washington over the debt-ceiling, a significant blow to their 401(k) plans, increasing talk of recession, and now an embarrassing downgrade of their country’s debt.
With the economy already on shaky ground, a growing number of analysts and economists believe the current flood of bad news may be enough to trigger another recession.
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Comments
Why is it that we continue to let these rogue thieves, liars and worse continue to run our country and our corporations. They will run it until they run it into ruin. Unless we make our voices and our common sense heard loud and clear. I hope it is not too late. Please pray for our country.
and just one more thought In a moment of insanity I resented the fact that Congress has a nice recess until September when I was watching the President tonight speak about the urgency of getting the agenda really going for economic growth and job creation I thought, well maybe he will call a special session for Congress to return and then I thought, geez, I must really be losing it..what the heck good would that do
HOPOEFULLY, THIS WILL GET THE ATTENTION OF THOSE IN WASHINGTON WHO HAVE A PROBLEM UNDERSTANDING THAT YOU CAN NOT CONTINUE TO SPEND FOR GOVERNMENT OPERATIOS & PAYING BACK THOSE WHO PUT YOU IN OFFICE!! THIS GOVERNMENT LIKE ALL THE REST, STATE, COUNTY AND CITY DO NOT HAVE A REVENUE PROBLEM, IT'S A SPENDING PROBLEM STUPID!!! GET RID OF A FEW MILLION WHO HAVE RIDDEN THE GRAVE TRAIN FOR 3-4 GENERATION OFF THE TRAIN WOULD BE A STEP IN THE RIGHT DIRECTION AND WHLE YOU AT GET 10-12 MILLION ILLEGAL OFF THE TRAIN ALSO!!78.0. I COULD GO ON THE REST OF THE EVENING, BUT I'M NOT AN AUTHOR!!!
Hitch, you're a perfect example of what S&P cited as the reason for the downgrade, the inability of the political parties to come to a consensus. You continue to SHOUT your simplistic tea bagger nonsense instead of actually looking for a solution. Look at tax revenues as a percentage of GDP over the entire Bush Administration and you will see we have both a revenue problem AND a spending problem. When the country is in trouble we should ALL band together and share the responsibility, not just punish the least of our brothers. Get a clue.
George , the least of our idiots u mean ! NO ! we need all these morons off the Peoples TIT . NO ! America was built on the FACT that there are those of us who will excel according to their abilities and those who WILL work for them . All will get rewarded according to their attributes and how efficient they become at the use of such. I OWE NO ONE for sitting on their ass only to check their mail box monthly to see if the $'s stolen from ME have arrived enabling them to remain enslaved to the US Gov for another 30 days. Go GET A JOB, and a 2nd or 3rd, I have and could again if the need where to arise. In this country u should not b allowed to survive off the talent and hard work of others ! It's been going on for far to long but I do see the end near ! So, sorry GH but socialism isnt comin to AMERICA no matter how much U want it ! So pull ur boyfriends balls off ur chin , Get out there sharpen ur skills and abilities , learn to fend for urself !
Hess is an example of someone who buys the BS that the liberal progresssive media spews out like Linda Blair did some decades ago in The Excorcist". If we had to your coveted "consensus" The people who actually wanted to make the 4 trillion in cuts, that the S&P specifically demanded from our lawmakers in order to satisfy them that we were indeed serious about cutting SPENDING that is out of control were the new Tea Partiers. Enough of Obama and his colleagues in the Senate sho continue to buy votes with givaways for the supposedly "impoverished" as they also are addicted to regulate every aspect of our lives with new policies and regulations. Obama has spent us into oblivion and has outspent all of the previous presidents combined. Hess, the jackass, thinks we need a balanced approach and tax the only people who actually produce and create jobs in our country. he stats show that over 55% of our citizens have NO FEDERAL TAX LIABILITY. Even in France (a socilaist state who employs 25% of it's population in government) has a 5.5% tax on people who earn over 5,000 Euros per year and an 11% tax on people who make over 11,400 Euros a year. Anyone wonder why 80 percent of the billionaires of the US have left the country over the last 6 years? How's Obama's hope and change working for us? Obama submitted a joke budget that would have bankrupted the nation and increased our debt by another 25 trillion in the next ten years! Guess what? Even in his own liberal Senate, he got 0 votes on it out of 70 of his own people! Hitch is correct..and you know what else? We only collect approximately one trillion in federal Income taxes each year the way it is. Even if we taxed the so called rich (mostly business owners who employ our people) to 100% of their income, we would only collect another $500,000 billion as we were told by the S&P that they needed to see significant SPENDING cuts...if anyone should be taxed more fairly, it should be the half of our population that pay nothing, while at the same time get all kinds of tax credits, welfare checks, food stamps, Medicaid etc..Do you know that out black population has a 50% drop out rate? How much do you think those people contribute...or leech from the rest of us? Hitch is also correct that illegal and legal Mexicans are also leeching our sytems to no end! The Armenians in Los Angeles do the same! Screw the freeloaders who drink cheap wine and smoke mexican ganga, and crack all day, and have them pick the fruit. What kind of job do you think you deserve when you are illiterate after you drop out of high school? How is Ebonics working for the blacks that live in those beautiful hoods all accross the nation? How many Jerry Spirnger show blacks and Mexicans do you see breaking out in brawls every night on the news on buses, train stations, sporting events, weddings, and every other place that thye gather? I say...cut them off, or tax them like the rest of the world or have them be fruit pickers as an example to the others of what happens to illiterate high school, ebonic dropouts! The illegals? Don't even get me started. they suck us dry and degrade out country like no others...Everyone can see their ugly tatooed asses fliging their insults at the very people who privide a decent country for them to live in. God knows, they have ruined what they have down south. I say DEPORT THEM ALL...and lets have work camps for criminal aliens. What else would stop them, unless we make it so miserable to get caught, that it would be a bad gamble to try it! The Tea Party (I am an independent) are masses of people that are saying NO to the evergrowing government and it's wreckless spending! Everyone with a brain knows that if those traitors in the Senate had been up for re-election last year, we would have seen that those liberal progressives that have been parked there, bankruptiong our country, would have been thrown out just like the liberals in the house were! Then the Balances Budget Amendment would have passed along with painful cuts across the board and we would have clearly met the criteria given to us by the S&P to keep our AAA credit rating. Thanks Obama for the change...jackass, do nothing, government freeloader. He couldn't run a lemonade stand...and for Holder...don't even get me started..and that's the way it is...
Thanks DAVE, pretty sure Hess is a teacher from San Fran who has never Owned a vehicle and meets new guys on the socialist eco railway ! Sorry George but time to face reality ! (look around the sach )
Alan Simpson, Senator from Wyoming, co-chair of Obama's deficit commission, calls senior citizens the Greediest Generation as he compared "Social Security" to a Milk Cow with 310 million teats. August, 2010. Here's a response in a letter from an unknown fellow in Montana .... I think he is a little ticked off! He also tells it like it is! "Hey Alan, let's get a few things straight.. 1. As a career politician, you have been on the public tit for FIFTY YEARS. 2. I have been paying Social Security taxes for 48 YEARS (since I was 15 years old. I am now 63). 3. My Social Security payments, and those of millions of other Americans, were safely tucked away in an interest bearing account for decades until you political pukes decided to raid the account and give OUR money to a bunch of zero ambition losers in return for votes, thus bankrupting the system and turning Social Security into a Ponzi scheme that would have made Bernie Madoff proud. 4. Recently, just like Lucy & Charlie Brown, you and your ilk pulled the proverbial football away from millions of American seniors nearing retirement and moved the goalposts for full retirement from age 65 to age 67. NOW, you and your shill commission are proposing to move the goalposts YET AGAIN. 5. I, and millions of other Americans, have been paying into Medicare from Day One, and now you morons propose to change the rules of the game. Why? Because you idiots mismanaged other parts of the economy to such an extent that you need to steal money from Medicare to pay the bills. 6. I, and millions of other Americans, have been paying income taxes our entire lives, and now you propose to increase our taxes yet again. Why? Because you incompetent bastards spent our money so profligately that you just kept on spending even after you ran out of money. Now, you come to the American taxpayers and say you need more to pay off YOUR debt. To add insult to injury, you label us "greedy" for calling "bullshit" on your incompetence. Well, Captain Bullshit, I have a few questions for YOU. 1. How much money have you earned from the American taxpayers during your pathetic 50-year political career? 2. At what age did you retire from your pathetic political career, and how much are you receiving in annual retirement benefits from the American taxpayers? 3. How much do you pay for YOUR government provided health insurance? 4. What cuts in YOUR retirement and healthcare benefits are you proposing in your disgusting deficit reduction proposal or, as usual, have you exempted yourself and your political cronies? It is you, Captain Bullshit, and your political co-conspirators called Congress who are the "greedy" ones. It is you and your fellow nutcases who have bankrupted America and stolen the American dream from millions of loyal, patriotic taxpayers. And for what? Votes. That's right, sir. You and yours have bankrupted America for the sole purpose of advancing your pathetic political careers. You know it, we know it, and you know that we know it. And you can take that to the bank, you miserable son of a bitch.
Oh Yeah Dave, sorry, ur right , couldnt run a lemonade stand cause due to all the restrictions placed on that type of business by the fed , epa and the fda, he couldnt get a permit or the funds required to begin such a venture.
Mark ! K, Ass ! u damd right ! u should recieve ur SS w interest ! Hey, remember there r miserable little ingrates who have 0 future, thanks to our Govmt AND their parents livin off the hard earned $'s uv paid in to secure ur ability to live comfortably when u can retire. For god sake dont leave these destitute little #2 or 3 on the mama welfare income out in the cold, Sorry but I say F EM ALL !!! if u wont let Mark savor his time to relax and enjoy and feel proud of his days at the grindstone y should these others who have NEVER lifted a finger to fight for their own futures benefit from his abilities and work ethic!!!
right on mark .time for the entitled ones to disappear.
thank you elected representatives..you did it on the TARP vote in 2008 and now you have done it again...we can always count on you to make bad situation worse... as a commentator said the other night on public TV, the U.S. Constitution and gov't was intentionally set up to encourage compromise and consensus, not "my way or the highway"....you will argue you act for the "greater long-term good"..I don't think so