S&P Downgrades US Debt

What's An S&P Sovereign Debt Rating Worth? We are about to find out:

The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday, in a dramatic reversal of fortune for the world's largest economy. S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

S&P stands alone here, as Moody's and Fitch did not downgrade US debt. I think we will see that no one cares what S&P thinks about sovereign debt.

Speaking for me only

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    Watching Bloomberg now (5.00 / 1) (#2)
    by Addison on Fri Aug 05, 2011 at 08:07:55 PM EST
    Roubini feels S&P jumped the gun, and didn't take into account the fact that the debt ceiling did get raised. Barry Ritholtz feels S&P acted unprofessionally, were not acting as analysts or credit rating agencies in this, and this is political opportunism. He says if you look at the ordering of the ratings they make NO sense -- these other countries should not be above the US. Roubini notes that potential growth in US is higher than Europe and Japan, and wonders if other nations can credibly maintain their S&P ratings.

    Vincent Truglia (former Moody's Sovereign Debt Ratings Head) just on Bloomberg noting that (a) it likely won't matter too much, (b) there's no reason for the USA to be worried about debt or deficit in the near-time, and (c) this may actually free up the United States to do things it had previously been unable/afraid to do regarding stimulus measures.

    We'll see.

    Many confused about the statutory effect (how many inter-institutional financial rules are written assuming US Gov't at AAA?).

    More... (5.00 / 1) (#3)
    by Addison on Fri Aug 05, 2011 at 08:13:12 PM EST
    Ritholtz notes the absolute absurdity of downgrading the Federal Reserve, which can print its own money. Roubini notes that values of the Fed might be lower than before because it holds downgraded assets, but agrees that downgrading the Fed makes no sense. The two of them going back and forth about how silly this is gets entertaining at times because they seem about to laugh at how ridiculous the downgrade is. For some reason Bloomberg has an old owlish looking man asking them questions from the studio about whether the US is a banana republic now. Roubini and Ritholtz answer, "no".

    A couple more quotes (none / 0) (#7)
    by Addison on Fri Aug 05, 2011 at 08:31:16 PM EST
    On Bloomberg, Dan Alpert:

    "Nothing changes on Monday".

    "Meaningless gesture" by S&P.

    "This is priced into the market" and "at the end of the day we saw such a demand for Treasuries this week that people believe will be repaid" and so it's ridiculous to think a downgrade would change that.

    Tom Keene asks if this is the "gift that keeps on giving for the White House" (because of the text of S&P's announcement letter regarding revenues and acrimony).

    Disagreement between John Herrmann and Alpert about whether downgrade was priced in to the markets or not.

    Roubini says US downgrade increases global uncertainty amidst instability in Eurozone, UK, Japan. Roubini says Treasury yields will go down, not up. On Monday stock market might go down because of uncertainty, but yields might paradoxically go down.

    Federal Reserve saying risk weights for agency debt unchanged.


    I seriously say (5.00 / 2) (#9)
    by jeffinalabama on Fri Aug 05, 2011 at 08:36:25 PM EST
    corral all of them as "home grown enemy combatants." Let the secretaries, the cleaners, the mail-room people, the flunkies, in other words, go quickly, but impose Guantanamo conditions on the rest.

    You can ignore them (none / 0) (#11)
    by Warren Terrer on Fri Aug 05, 2011 at 08:42:18 PM EST
    with far less effort.

    Warren, I look at this as Casus Belli. (5.00 / 3) (#17)
    by jeffinalabama on Fri Aug 05, 2011 at 08:49:45 PM EST
    Just like the attack on the USS Cole.

    Maybe it's time to break Bankster power, along with the parasites that enable that power.


    Haha (5.00 / 3) (#15)
    by Addison on Fri Aug 05, 2011 at 08:46:47 PM EST
    Haha, a definite bright spot tonight as I'm reminded again how much I like watching interviews with Nouriel Roubini. Always very clear in his points, free of obfuscatory jargon, and generally right.

    Also, Bloomberg is with a literal boatload of economists because they're all at the annual Kotok fishing trip in Maine. So they keep dragging sleepy-looking economists out onto this dock to interview them in their rumpled, casual fishing clothes. Roubini hasn't moved (other economists have come and gone) and just waits silently on the dock for the next question. A hilarious, near-parodical scene.


    CURRENCY WARS! (5.00 / 3) (#19)
    by Addison on Fri Aug 05, 2011 at 08:51:00 PM EST
    Roubini says everyone wants their currency to depreciate so they can grow their way out of the problem. This will lead to currency wars which will lead to trade wars.

    John Mauldin agrees. Wonders why France isn't downgraded, and if France isn't downgraded it seems clear S&P's decision was a political one (which it was).


    Joseph Stiglitz attempted (none / 0) (#49)
    by Militarytracy on Sat Aug 06, 2011 at 09:49:02 AM EST
    to warn about currency wars last year as it pertained to using quantitative easing.  Here is a video I found this morning on the issues surrounding quantitative easing where he speaks on it.



    Where else (none / 0) (#14)
    by Warren Terrer on Fri Aug 05, 2011 at 08:45:02 PM EST
    are the very wealthy going to park their money in this economy? Is there a safer place, somewhere, than US treasuries?

    Nowhere... (5.00 / 1) (#16)
    by Addison on Fri Aug 05, 2011 at 08:48:09 PM EST
    According to every economist on Bloomberg, they will now buy MORE treasuries because this will make the international environment more unstable and the least-risky investment is still US Treasuries. If that comes to pass, S&P's reputation is blown.

    If the mortgage backed securities (5.00 / 3) (#18)
    by Warren Terrer on Fri Aug 05, 2011 at 08:50:57 PM EST
    crisis didn't already blow their reputation, nothing else will. But there is a difference - no one buys US debt based on what ratings agencies say about it.

    Most of the economists on Bloomberg... (5.00 / 2) (#20)
    by Addison on Fri Aug 05, 2011 at 08:53:22 PM EST
    ...are either incredulous at S&P's downgrade (why not France or any other AAA nation?) or on the verge of laughter about it, since it's so ridiculous. If Obama and Geithner can go on the offensive and not deliver some mealy-mouthed defensive apologia I think S&P will be very much on their heels next week. I think a mealy-mouthed defensive apologia is exactly what we'll get from Obama or Geithner. Instead of fighting they'll wave away conflict and say we need more vacuous happy-talk in DC. We'll see.

    I agree that Obama and Geithner (5.00 / 4) (#22)
    by Warren Terrer on Fri Aug 05, 2011 at 08:57:28 PM EST
    won't laugh at S&P the way they should. Obama will more than likely use this as proof of why the US needs, even more now than ever, to "get its house in order" and reduce the deficit. But Obama is no more to be taken seriously on the economy than is S&P.

    Well, initial pushback from (none / 0) (#37)
    by gyrfalcon on Sat Aug 06, 2011 at 12:22:04 AM EST
    the White House on this is said by reporters to be absolutely furious.  We'll see how it washes out, but their first instinct, at least, seems to be to fight-- for once.

    to fight... (none / 0) (#53)
    by Mr Natural on Sat Aug 06, 2011 at 10:09:12 AM EST
    ... perchance, to dream.

    They should be (none / 0) (#61)
    by Warren Terrer on Sat Aug 06, 2011 at 11:42:54 AM EST
    ridiculing them, not getting angry with them. The anger just shows that they take these ratings seriously. I still have little doubt that, in spite of their anger, the administration will use this downgrade in the future as an argument for further austerity.

    I am very curious to see how the downgrade will affect the markets come Monday. I will definitely be keeping an eye on that. I think it will have little affect at all, however, and that interest rates on long term bonds will continue to come down. The bench mark is Japan, whose long bonds sell at 2% interest. I think that's where US long term debt is headed.

    I agree with other commenters that an investigation needs to be launched into these bond agencies and legislation is necessary to clarify their roll in the economy and eliminate their obvious conflicts of interest. Fat chance of that happening under this administration and congress, however.


    Ridiculing them is (none / 0) (#77)
    by gyrfalcon on Sat Aug 06, 2011 at 06:32:15 PM EST
    largely what they're doing, from the comments I've heard about, pointing to the $2 trillion math error included in the S&P report.

    But I note they're not, as we wish they would, sending the pres, or other high muckety-mucks out to loudly and pointedly ridicule them in high-profile speeches or interviews.  Maybe on the Sunday shows...


    Obama and Geithner now have (none / 0) (#57)
    by MO Blue on Sat Aug 06, 2011 at 10:35:54 AM EST
    2 excuses to do what they want to do on cutting domestic and safety net programs and cutting corporate taxes and lowering marginal tax rates so that the uber-wealthy get even more of the pie. S&P downgrade = excuse #1. China statement = excuse #2.

    In a stinging commentary, the official Xinhua news agency said China, the largest holder of US Treasuries, now had "every right" to demand Washington address its structural debt problems and safeguard Chinese dollar assets.

    It is the first time the US has suffered a downgrade and Xinhua said Washington needed to "come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone".

    "China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets," the English-language commentary said.

    "To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means."link

    Well someone got a lot wealthier (none / 0) (#44)
    by MO Blue on Sat Aug 06, 2011 at 07:14:16 AM EST
    The first question I have is which hedge fund managers stand to profit. That's an answer I want right now. Not ten months from now. NOW. On July 25th, someone placed a ONE BILLION dollar bet that our credit rating would drop. It's time for them to be identified. link

    Another transfer of wealth (5.00 / 1) (#46)
    by Stellaaa on Sat Aug 06, 2011 at 09:30:30 AM EST
    Look, the holders of US debt were sick of getting so little for their "investment", the Tea Party/GOP helped to get the downgrade and the higher interest rates.  Is anyone gonna investigate?  No.  

    In fact this was a jiujitsu maneuver.  Now the makers of the economic calamity will regulate the states.  No talk of financial market regulations.  The only problem is that they have lost the possibility of more bail outs.  

    I think this is the new style coup d'etas.  Now social/political decisions will be from the lenders to the states.  Further erosion of the nation state and social democracy.  It had a run of 60 years, but alas.  There it goes.  


    I would like to see (none / 0) (#47)
    by jimakaPPJ on Sat Aug 06, 2011 at 09:33:10 AM EST
    that myself. If this was a set up then a bunch of people need to go to jail for a very long time.

    But Crooks and Liars comment that Tea Party people are rejoicing over this is just despicable.

    I have spoken with about a half dozen avid Tea Party members this morning and they are all very unhappy over what has happened.

    But, they do point out that they were right.

    And, based on what I heard last night from S&P on CNN, I have to say they were right.

    Perhaps that is why C&L said what they said.


    Did they read the SP analysis? (5.00 / 2) (#50)
    by Stellaaa on Sat Aug 06, 2011 at 09:54:13 AM EST
    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 ... [This] weakens the government's ability to manage public finances ...

    This says to me that it's not the deficit so much as the brinkmanship brought to us by the Tea Party.  But, no one will read.  Anyway, the SP numbers are gibberish and they have a 2 trillion error that they admitted but still they go with the downgrade.  

    The world perception is that whatever happens, Americans, the good capitalists, will pay their debt and behave.  What the Tea Party did shake up the world that believes in the end Americans are good capitalists.  It took the veil off and the world saw that some guys are willing to take it to that point.  

    The Tea Party/GOP was wrong on all counts.  There is a process, the budget process.  You fight those fights there.  This was the act of people who hate government and don't understand government.  Very destructive.  This is why Obama had to smack them down.  He chose to be reasonable.  Brinkmanship needs to be confronted with leadership.  


    It was the President and members (none / 0) (#62)
    by jimakaPPJ on Sat Aug 06, 2011 at 11:46:52 AM EST
    of his cabinet who were on TV screaming "default! default!"

    I think they had more influence that Aunt Jane and Uncle Joe down at the American Legion saying that spending needs to be cut.

    As for budgets.... why didn't the Democrats pass one when the had a majority??


    What channel are you watching? (none / 0) (#69)
    by gyrfalcon on Sat Aug 06, 2011 at 01:53:03 PM EST
    Not one on this planet, I don't think.

    They weren't on television "screaming default default."  They repeatedly said, very firmly, that there was no chance in you-know-what that the U.S. would default.

    You watching some Martian channel or something?

    What they did say was that if the DC wasn't passed in time, they'd have considerable trouble figuring out which checks to send out and when since all the $$ coming in would have to go to prevent default by paying off bondholders.



    now, now, (none / 0) (#71)
    by cpinva on Sat Aug 06, 2011 at 03:45:26 PM EST
    jim has been on a different planet than the rest of us for years now, no need to be harsh.

    that the tea party members of the house were adamant in their demands to not raise taxes, and decrease spending, to somehow lower the debt/deficit, before they would agree to raise the debt ceiling, should not be taken as the actual fact that it is.

    or something like that.


    Grrrrrrr (none / 0) (#75)
    by gyrfalcon on Sat Aug 06, 2011 at 06:26:49 PM EST
    <sound of teeth grinding>

    Grotesquely misrepresenting stuff is one thing, making sh!t up out of nothing more than your imagination is another thing.

    I respond to this nonsense only out of the worry that some people here who maybe don't watch much TV news might think he/she was talking about something that had actually happened in the reality-based world.


    You folks didn't hear (none / 0) (#78)
    by jimakaPPJ on Sat Aug 06, 2011 at 08:20:09 PM EST
    them talking about default, Medicare collapsing? Social security checks not arriving.

    Then we aren't on the same planet.


    No. (none / 0) (#79)
    by gyrfalcon on Mon Aug 08, 2011 at 09:00:46 AM EST
    I did hear them, as I think I said above, talking about not being sure SS would go out in time.

    But that ain't "default," dude.

    Maybe you need to look up these terms so you'll understand what's being talked about.


    What major hedge fund manager recently (none / 0) (#66)
    by BTAL on Sat Aug 06, 2011 at 12:39:41 PM EST
    (like 7-14 days ago) got out of the business due to new reporting requirements?  

    Which hedge fund manager placed bets and almost brought down the GBP in the past?


    Do tell (none / 0) (#74)
    by BackFromOhio on Sat Aug 06, 2011 at 04:51:54 PM EST
    Thanks, Addison (none / 0) (#36)
    by gyrfalcon on Sat Aug 06, 2011 at 12:20:16 AM EST
    for sort of live-blogging the discussion on Bloomberg, which I sure don't get.

    Here's the (none / 0) (#4)
    by Ga6thDem on Fri Aug 05, 2011 at 08:20:12 PM EST
    thing that a lot of people don't realize about these rating agencies--a lot of the information that they use to give out ratings is flawed. I mean some of the ratings they gave out prior to the mortgage meltdown should prove this and I'm sure they were completely fooled by companies that had cooked the books like Enron.

    I don't think (5.00 / 2) (#28)
    by cal1942 on Fri Aug 05, 2011 at 09:55:52 PM EST
    they were fooled.  I think they were in cahoots.

    The relationship between investment banks and the ratings agencies is a congenital corruption.


    I'll take the middle position (none / 0) (#38)
    by gyrfalcon on Sat Aug 06, 2011 at 12:34:06 AM EST
    I think they averted their eyes.  What's that saying about the futility of convincing people of things they get paid not to believe?  Or however it goes.

    The plain fact is they were unable to evaluate the satanically complex stuff they were tasked with rating (not was anybody else).  Reminds me of Merlin's owl in "The Sword in the Stone" closing his eyes and saying, "There is no boy" when confronted by the young Arthur.

    IOW, I think it was misfeasance and nonfeasance more than malfeasance.

    Just IMO.


    It's not a trick Michael, it's an illusion... (5.00 / 4) (#39)
    by Addison on Sat Aug 06, 2011 at 01:09:58 AM EST
    The plain fact is they were unable to evaluate the satanically complex stuff they were tasked with rating

    Analyzing that stuff is what they do, though! If they can't handle the complexity, they need to stop pretending like their continued existence is justified. Now, I don't know what "feasance" covers taking gobs of money and wrecking economies based on an expertise you don't actually have, but it seems like non-legal, common English "fraud" to me.


    Well, there's "that stuff" (none / 0) (#40)
    by gyrfalcon on Sat Aug 06, 2011 at 01:19:40 AM EST
    and "that stuff," if ya know what I mean.  These instruments, if you ask me, were deliberately created in part to make it impossible to value them.

    You'll get no argument from me on the idea that the ratings agencies had no business slapping ratings on stuff they didn't understand.

    I'm just saying I don't buy the conspiracy theory that they deliberately rated AAA stuff they knew perfectly well was garbage. When you delve into it, it seems pretty much nobody other than a handful of hedge fund guys understood how rank the smell was of these things.

    What gets me is that ratings agencies are paid by the sellers to rate the stuff, and there hasn't been the slighest move to change that.

    (Although who pays S&P to rate sovereign funds?  Clearly not the governments themselves.)


    Well it's not garbage (none / 0) (#70)
    by cal1942 on Sat Aug 06, 2011 at 02:42:37 PM EST
    The investment bank chooses the ratings firm and pays for the rating.

    How long do you think a ratings firm will get business from the bank if the firm's analysts down rate the bank's securities, securities they want to sell?

    That's why I said the relationship was congenitally corrupt.

    Watch "Inside Job."  An exec from one of the ratings agencies is interviewed and pins it on the underlings saying their analysts like to get cozy with Wall Street in hopes of landing a high paying job on the Street.


    "Congenitally corrupt" (none / 0) (#76)
    by gyrfalcon on Sat Aug 06, 2011 at 06:28:41 PM EST
    I agree with wholeheartedly.

    This just in.... .... .... (5.00 / 1) (#23)
    by Mr Natural on Fri Aug 05, 2011 at 08:59:32 PM EST
    Predator Drones spotted circling 55 Water Street, New York City.  

    (just kidding)

    Thanks for the levity. (none / 0) (#25)
    by jeffinalabama on Fri Aug 05, 2011 at 09:07:24 PM EST
    Let me tell you, I have no dog in this fight. One has to have money, wealth, capital, and/or income to be affected.

    But now's the time to break this sick system, and S&P just gave the reason. Plenty of laws on the books to examine them in detail.

    Geez. As I said earlier, I don't like bullies pushing little people around.


    Bait and switch. (5.00 / 3) (#27)
    by lentinel on Fri Aug 05, 2011 at 09:50:21 PM EST
    Supposedly, this latest "deal" was necessary lest we have a stock market crash and a downgrading of our credit rating.

    So Obama signed something that will end unemployment benefits and let the very rich keep their tax cuts.

    And the market crashed and our credit rating was downgraded anyway.

    S & P did this ... (none / 0) (#59)
    by Robot Porter on Sat Aug 06, 2011 at 10:42:19 AM EST
    to remind Obama who's the boss.

    S & P Has some nerve (5.00 / 5) (#29)
    by cal1942 on Fri Aug 05, 2011 at 10:02:15 PM EST
    When called to task before Congress regarding the insane ratings of crap securities they said they shouldn't be held responsible, that the ratings were just an opinion and if they got it wrong then the people who trusted the ratings were at fault for listening to them.

    Along with whacking the banks the ratings agencies should also be whacked.

    Late to this party, but my first, (5.00 / 5) (#34)
    by Anne on Fri Aug 05, 2011 at 10:51:12 PM EST
    cynical, thought was, "I wonder who's going to make money on this?"

    Because you know someone is, right?

    See comment 44 (5.00 / 1) (#52)
    by MO Blue on Sat Aug 06, 2011 at 10:04:03 AM EST
    Someone placed a ONE BILLION dollar bet that our credit rating would drop.

    I remembered that after I had posted (none / 0) (#55)
    by Anne on Sat Aug 06, 2011 at 10:17:11 AM EST
    my comment...

    I have no idea why any of these agencies have any credibility; maybe it is we who should be downgrading the agencies - or maybe the Congress/DOJ who should be interested in investigating the nexis between what they do and who really benefits.

    Now, there's a laugh for a Saturday morning, eh?


    I had not thought about this (5.00 / 1) (#56)
    by Militarytracy on Sat Aug 06, 2011 at 10:27:50 AM EST
    possibility because no sane country would submit willfully to terrorism, and it would be unethical I would think to allow this type of "betting" to be legal.  I keep forgetting I have different ethical standards than those in power right now and if the price is right anyone can do anything they want.

    yep, just remembered that (none / 0) (#65)
    by Dadler on Sat Aug 06, 2011 at 12:16:15 PM EST

    my first thought, too (none / 0) (#51)
    by Dadler on Sat Aug 06, 2011 at 09:57:36 AM EST
    Some S&P friend/crony/insider(s) made a few sure-thing bets, I can't help but consider it a given.  That and the threatening aspect of it to save their own hides.  

    I fear the segment of our population (5.00 / 1) (#45)
    by samsguy18 on Sat Aug 06, 2011 at 09:05:10 AM EST
    Who will be hit the hardest by the downgrade are those who are already hanging by a thread. I am refering to those individuals who have been unemployed for one or more years and those who are trying to make ends meet while being underemployed.

    Time for the US SEC (4.00 / 4) (#6)
    by jeffinalabama on Fri Aug 05, 2011 at 08:28:34 PM EST
    to pull an Italy. Let's grab the records and lock the doors until an investigation into this downrating has occurred.

    Use The Patriot Act, darn it, for "Economic Terrorism."

    If they bring a knife, you bring a gun.
    If they put one of yours in the hospital, you put one of theirs in the morgue.

    Chicago Rules.

    Let the Justice Department and the Department of Homeland Security do something OTHER than worry about who buys ammonium nitrate.

    No, I'm not drunk. I'm disgusted and mad as hell.

    I'd have a BATTALION of pissed off ADAs and US Marshalls and hell, ATF, DEA, FBI, SEC...

    If I were the president I would order the doors broken in tonight with armed agents seizing Every.G0ddamned.Hard drive. Every.G0ddamned.shred of paper. Every.G0ddamned.employee. Kick their a$$es out of bed, whether it is Queens or The Hamptons.

    We've got a frikkin' Patriot Act. Use it.

    Close these agencies until the investigation concludes. Let people live without these arrogant, self-serving, craven, sociopathic sons and daughters of b!itches. Stick them in Riker's, and let the nonviolent 'honest' grifters go home. Keep the thugs, though.

    Downrating on a friday evening after closing and after the deals that have been made? I don't have to like the deals to recognize economic terrorism.

    I would hope both houses of Congress (5.00 / 3) (#8)
    by jeffinalabama on Fri Aug 05, 2011 at 08:34:05 PM EST
    and ALL flavors of representation would agree with me, except for some of the mighty corporatists in the senate.

    I can equate this downrating as perhaps Pearl Harbor, more than the Zimmerman Telegram.

    Maybe it is the first shot at Fort Sumter.

    I haven't felt this level of rage in some time.

    Corporate Criminals playing with lives.


    Please explain the 1 rating... (5.00 / 1) (#10)
    by jeffinalabama on Fri Aug 05, 2011 at 08:37:32 PM EST
    I don't mind getting it, but I'd like to know why.

    S&P Press Release (none / 0) (#1)
    by Stellaaa on Fri Aug 05, 2011 at 07:55:13 PM EST
    Well, irrespective of their financial analysis, (none / 0) (#5)
    by NYShooter on Fri Aug 05, 2011 at 08:27:24 PM EST
    You have to admit that the country vested with the responsibility of hosting the world's reserve currency
    and that is being run by a President who has abdicated his responsibilities as the confident steward of our economy and an opposing political party whose members can only be described as insane political terrorists doesn't exactly exude an abundance of confidence  

    AAA is topnotch (none / 0) (#12)
    by diogenes on Fri Aug 05, 2011 at 08:43:33 PM EST
    Is US debt REALLY as safe as German debt?  If foreigners hold US debt and we print money, we devalue the dollar and screw the foreigners.  If the rating agencies had started doing their jobs sooner (i.e. before the dodgy mortgage mess), we would have been a lot better off.

    Safer (none / 0) (#48)
    by Big Tent Democrat on Sat Aug 06, 2011 at 09:43:22 AM EST
    Germany has Europe going in the crapper debt wise.

    It surprises me that you (5.00 / 1) (#54)
    by Militarytracy on Sat Aug 06, 2011 at 10:12:39 AM EST
    seem so sure our debt is safest because I perceive you as someone who has always understood that if the household spreadsheets are a mess our economy can't be anything but a mess.  Stiglitz wrote about it earlier this year, that the ossification (his word) of Europe is more a rumor than a fact if you look at the hard data.  Many of the engines of their economy have not been destroyed, and their people aren't financially wiped out at this early stage in all this.  Their ability in black and white fundamentals to pay their debt looks better than ours.

    The key difference (none / 0) (#63)
    by Warren Terrer on Sat Aug 06, 2011 at 11:50:00 AM EST
    is that Germany is on the euro, which is a currency that it doesn't create, whereas US debt is denominated in US dollars, a currency over which the US government has full monopoly control. Consequently, no matter how safe German debt is (and it is the safest of all euro debt) it should still be rated as less safe than US debt.

    This doesn't mean that US govt debt is the safest in the world. All countries that have their own fiat currency have the same default risk on debts denominated in that currency, which is zero.

    Even if congress had failed to raise the debt ceiling there was still no risk of default on US debt. Why? Because all that had to happen was the Fed could buy debt and coupons on debt as they came due, and the default would be between the US Treasury and the Fed, which is meaningless since they are both part of the federal government. Hence S&P's downgrade is nonsensical.


    I realize that the U.S. has full (none / 0) (#64)
    by Militarytracy on Sat Aug 06, 2011 at 12:00:58 PM EST
    monopoly control.  I'm just wondering when "the intellectuals" on a scale larger than Joseph Stiglitz are going to notice and then admit that that "monopoly control" has been used to gut the engine and destroy the people because it could be done so easily, and everyone in power thought that was what was best even though many esteemed economists kept pointing out they were only making things worse down the road.  And later down the road came about, and they had indeed made things worse.

    You can't just gut the people and their household spreadsheets and all the economic health that goes with that in the EU countries with a few pen strokes and a couple of meetings.  I also find it funny that the U.S. seems to be the only one really showing horrifying damage to its people on the ground due to ossification problems of a different sort, and  nobody seems able or willing to admit that :)


    The ratings agencies were doing their jobs (none / 0) (#73)
    by FreakyBeaky on Sat Aug 06, 2011 at 04:26:47 PM EST
    They are paid by issuers of securities to give as favorable a rating as the issuers can afford. This was a change in the ratings agencies business that took place in the 1990s.

    Jane Hamsher: Is S&P using rating to leverage (none / 0) (#13)
    by jawbone on Fri Aug 05, 2011 at 08:44:40 PM EST
    for protection against law suits, perhaps prosecution, for its clearly erroneous ratings of the mortgage junk CDOs?


    Jawbone, Jane's story (5.00 / 1) (#21)
    by jeffinalabama on Fri Aug 05, 2011 at 08:55:14 PM EST
    lends support to my demand for immediate criminal/terrorism action.

    I'm sick of 'big guys' picking on 'little people.' Let's put some pressure. Not simply deregulate, but seize assets based on commingling, etc. etc. Heck, use the tried-and-true RICO laws.

    SOMEBODY or SOME PEOPLE need to be punished for this outrage.


    Question (none / 0) (#24)
    by NYShooter on Fri Aug 05, 2011 at 09:04:44 PM EST
    What if the debt ceiling wasn't raised and the U.S. actually defaulted on paying their debt obligations wouldn't S & P be guilty of malfeasance for not lowering their credit rating? i.e. not scoring them correctly?

    But that didn't happen, did it? (5.00 / 1) (#26)
    by jeffinalabama on Fri Aug 05, 2011 at 09:10:33 PM EST
    You're the business guy, let me ask you... if your company just got a huge loan, and S&P downrated you for the loan, what would you think?

    I'm not trying to ask a loaded question, I need more info.

    I still think this is RICO level at the least, though. Waiting to read from you and other folks in business and the economy...


    Well, the answer is...... (5.00 / 1) (#30)
    by NYShooter on Fri Aug 05, 2011 at 10:15:38 PM EST
    this is way too complicated a situation to give a quick response to. You're dealing with a SuperPower country and one of the largest credit rating agencies in the world. In my opinion all the comments I've seen so far, including those from the economists at Bloomberg are just silly. My God, Man, some trials take many months, even years, to analyze and examine, and cross examine all the evidence before coming to a conclusion. But something this important, this profound, and this complicated, they can render their verdicts with a momentary, cursory glance at the report. Simply irresponsible.

    I've read the document once, and naturally, I now have more questions than answers. I'll let others grab the rope, and hunt for a tree to hang'em high. But this is a lawyer's blog, and out of respect for that, I'll need a little more study before giving my opinion.

    Sorry, my friend; best I could do.


    p.s. (5.00 / 1) (#31)
    by NYShooter on Fri Aug 05, 2011 at 10:21:26 PM EST
    I have no sympathy for S & P. Moody's, or any of the others. I think they, along with the banks, should be indicted, and brought to trial (maybe under the RICO statutes) for their conspiracies in the financial meltdown. But that was another situation, and this is  something different altogether. We can all speculate as to motives and legalities, but that's all it would be....speculation.

    It will all come out in the next few days, and then we'll know what we're talking about.


    you have more faith than i do (none / 0) (#32)
    by The Addams Family on Fri Aug 05, 2011 at 10:38:38 PM EST
    It will all come out in the next few days

    thanks-- your take is far better (none / 0) (#33)
    by jeffinalabama on Fri Aug 05, 2011 at 10:41:51 PM EST
    than nothing, or even the statement by s&p.

    I still hope to see RICO used... let's wait till we hear more, but I can continue to castigate these folks.


    RICO used by this President against business? (5.00 / 1) (#41)
    by klassicheart on Sat Aug 06, 2011 at 02:24:12 AM EST
    You must  be joking.  There isn't even an investigation.  And what would that do to his re-election money?  

    Don't crush my dreams! (none / 0) (#67)
    by jeffinalabama on Sat Aug 06, 2011 at 12:48:31 PM EST
    It was about (5.00 / 1) (#35)
    by Madeline on Fri Aug 05, 2011 at 11:12:40 PM EST
    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.

    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."

    S@P statement

    Guess it is about politics.  However, if I were watching last week and worked for S@P, I would have downgraded too. We have a weak President
    and a dysfunctional Congress that is deadlocked and no end in site..  

    Might not mean much except to those running for office against the Democrats.


    This hurts Obama (none / 0) (#42)
    by klassicheart on Sat Aug 06, 2011 at 02:43:09 AM EST
    in terms of narrative.  But Bernanke is the Fed Reserve Chair and his credibility globally is about as high as one can get. So Bernanke is a net positive...same cannot be said for the ECB chair. Europe is a mess with their various and sundry sovereign junk bonds...No question this rocks the uncertainty boat...Europe is in trouble.  The Chinese better step up to the plate..

    Hmmm, not to be conspiratorial but (none / 0) (#43)
    by BTAL on Sat Aug 06, 2011 at 06:28:31 AM EST
    There is a heated and urgent argument in Europe on issuing new/more ECB bonds to deal with Italy and Spain.  This is in advance and being rushed ahead of the upcoming super stability fund that was initiated.

    If US is downgraded and Euro Bonds are not, where then does the money flow?

    Seems to me that the (none / 0) (#58)
    by KeysDan on Sat Aug 06, 2011 at 10:41:16 AM EST
    elephant in the room is the over-extension of military involvement and the beyond our means impact on the budget and deficit.  President Obama appointed a new Secretary of Defense, one who previously served the administration as CIA Director, who tells a revelatory story with his out-of-the-gate warning on the debt ceiling debacle.

    Secretary Panetta fires across the bow with admonition that deeper cuts in the defense budget risk a "hollowing out of the military and would hamper efforts to deal with rising powers such as China, North Korea and Iran."  And, not mentioned was the existing adventures/misadventures in Iraq (now pressuring Iraq for us to stay longer), Afghanistan (a mess), Pakistan and Yemen. The non-hostility in Libya is also not without cost.

    The Pentagon simply can't abide going beyond the $400 billion in cuts.  Rather, he says, we need to cut Medicare and Social Security.    I do not know the real motive of S&P's downgrade, but I do think that our non-prioritized military interventions along with a 70 percent increase in military budget since 200l, off budget wars and the expansive use of our credit cards does not support a continued favorable credit rating.

    The military buys so much that is useless (none / 0) (#60)
    by Militarytracy on Sat Aug 06, 2011 at 11:07:44 AM EST
    I think if leaders had to really be accountable there could be a huge savings there and that would be the only thing that would have changed.  There was a commenter in my last diary that made such a good observation, someone working inside the military structure obviously.  I noticed this same person commented in a diary about cutting military spending too and they talked about the enormous money wasted on furniture systems.  And it was strange because of all the things I've noticed that has to be one of the #1 in face wastes.

    Leaders get discretionary budgets and I can't believe the stuff they just blow money on.  The real eyesore are all these different office creation furniture systems that are incompatible with each other.  You have people moving in and out of here constantly, and when someone leaves those who remain raid that abandoned office trying to cobble together something better for themselves. The new people coming in run all over the building trying to cobble their office together picking through what remains.  It is sort of fun and funny in a way too.  What your office looks like in the military is not important, it is what you have done and what you can do that matters.

    But commanders are forever blowing tons and tons of money on office furniture "systems" that don't work with anything else but other components of that system. And deserted offices are stacked with nothing but that crap....and the new commander comes in and wants to buy some office furniture that is a system as they point to the room that is stacked with mostly unusable office furniture because it too is all from an office system.  It's so stupid you couldn't even make it up.


    Cutting military spending, (none / 0) (#72)
    by NYShooter on Sat Aug 06, 2011 at 04:14:27 PM EST
    Unfortunately means cutting jobs.

    It's the same problem over and over again. Appraisers are paid by the banks that that profit from "good" appraisals. Rating agencies are paid by institutions that profit by "good" ratings.

    Every proposed Cut to military spending has a Congressman/Senator in whose State/District the factory/supplier is located.

    A dog will catch its own tail before these problems are solved under the current symbiotic survival system.


    Panetta and the other terrorists in D.C. (none / 0) (#68)
    by MO Blue on Sat Aug 06, 2011 at 12:57:22 PM EST
    are more of a threat to me than any foreign born terrorist.

    Their slogan should be:

    We will kill you first to keep you safe from the terrorists.

    A good thing we elected an anti-war and Nobel Peace Prize winner for president. {excuse me while I barf}