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377493 tn?1356502149

US Credit Rating Downgraded


  








The U.S. had its AAA credit rating downgraded for the first time by Standard & Poor’s, which slammed the nation’s political process and said lawmakers failed to cut spending enough to reduce record deficits.

S&P dropped the ranking one level to AA+, after warning on July 14 that it would reduce the rating in the absence of a “credible” plan to lower deficits even if the nation’s $14.3 trillion debt limit was lifted. The U.S. was awarded the top credit ranking by New York-based S&P in 1941. It kept the outlook at “negative” amid the failure to end Bush-era tax cuts.

“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,” S&P said in a statement today.

Demand for Treasuries has surged even with the specter of a downgrade as investors saw few alternatives to the traditional refuge during times of risk as concern increased global growth is slowing and Europe’s sovereign debt crisis is spreading.
Downgrade Fallout

The action may still hurt the U.S. economy over time by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries. JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year.

S&P said it may lower the long-term rating to AA within the next two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” during the period result in higher general government debt.

“It’s a reflection of the fact that we haven’t done enough to get our fiscal house in the order,” Anthony Valeri, market strategist in San Diego at LPL Financial, which oversees $340 billion, said in an interview before the downgrade. “Sovereign credit quality is going to remain under pressure for years to come.”

Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day President Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the Treasury to the edge of default. Moody’s and Fitch also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.
S&P’s Assumptions

The measure raised the nation’s debt ceiling until 2013 and threatens automatic spending cuts to enforce $2.4 trillion in spending reductions over the next 10 years.

Even with the agreement, S&P said the nation’s debt may rise to 74 percent of gross domestic product by the end of this year, to 79 percent in 2015 and 85 percent by 2021.

The rating may be lowered further if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt.

S&P also changed its assumption that the 2001 and 2003 tax cuts would expire by the end of 2012 “because the majority of Republicans in Congress continue to resist any measure that would raise revenues.”

“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,” S&P said.
‘Grand Bargain’

S&P put the U.S. government on notice on April 18 that it risks losing its AAA rating unless lawmakers agree on a plan by 2013 to reduce budget deficits and the national debt. S&P indicated last month that anything less than $4 trillion in cuts would jeopardize the rating.

“A grand bargain of that nature would signal the seriousness of policy makers to address the fiscal situation in the U.S.,” John Chambers, chairman of S&P’s sovereign rating committee, said in a video interview distributed by the ratings firm on July 28.

Earlier today the Treasury Department found fundamental flaws in S&P’s analysis, according to a person familiar with the situation who declined to be identified because the talks were private. S&P miscalculated future deficit projections by $2 trillion, said a Treasury spokesman who commented on condition of anonymity.
Consumer Costs

Obama has said a rating cut may hurt the broader economy by increasing consumer borrowing costs tied to Treasury rates. An increase in Treasury yields of 50 basis points would reduce U.S. economic growth by about 0.4 percentage points, JPMorgan said in a report, citing Federal Reserve research and data.

“The hope is that we could keep Treasuries pure, limited to interest rate risk,” Mohamed El-Erian, chief executive and co-chief investment officer at Pacific Investment Management Co., said in a Bloomberg Television interview before the announcement. “The minute you start downgrading away from AAA, you take small steps toward credit risk and that is something any country would like to avoid.”

Treasury yields average about 0.70 percentage point less than the rest of the world’s sovereign debt markets, Bank of America Merrill Lynch indexes show. The difference has expanded from 0.15 percentage point in January.
Foreign Investors

Investors from China to the U.K. are lending money to the U.S. government for a decade at the lowest rates of the year. For many of them, there are few alternatives outside the U.S., no matter what its credit rating.

“Yields are low in the face of a downgrade because there is nowhere else for people to go if they don’t buy Treasuries because they want to be in safe dollar assets,” Carl Lantz, head of interest-rate strategy at Credit Suisse Group AG, one of 20 primary dealers that trade directly with the Federal Reserve, said before the announcement.

Ten-year Treasury yields fell to as low as 2.33 percent in New York today, the least since October. Yields for the nine sovereign borrowers that have lost their AAA ratings since 1998 rose an average of two basis points in the following week, according to JPMorgan.

The committee of bond dealers and investors that advises the U.S. Treasury said the dollar’s status as the world’s reserve currency “appears to be slipping” in quarterly feedback presented to the government on Aug. 3. The U.S. currency’s portion of global currency reserves dropped to 60.7 percent in the period ended March 31, from a peak of 72.7 percent in 2001, International Monetary Fund data show.
Borrowing Committee

“The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’,” page 35 of the presentation made by one member of the Treasury Borrowing Advisory Committee, which includes representatives from firms ranging from Goldman Sachs Group Inc. to Pimco. “The fact that there are not currently viable alternatives to the U.S. dollar is a hollow victory and perhaps portends a deteriorating fate.”

Members of the TBAC, as the committee is known, which met Aug. 2 in Washington, also discussed the implications of a downgrade of the U.S. sovereign credit rating. “None of the members thought that a downgrade was imminent,” according to minutes of the meeting released by the Treasury.

A U.S. credit-rating cut would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 basis points to 70 basis points over the “medium term,” JPMorgan’s Terry Belton said on a July 26 conference call hosted by the Securities Industry and Financial Markets Association. The U.S. spent $414 billion on interest expense in fiscal 2010, or 2.7 percent of gross domestic product, according to Treasury Department data.

“That impact on Treasury rates is significant,” Belton, global head of fixed-income strategy at JPMorgan, said during the call. “That $100 billion a year is money being used for higher interest rates and that’s money being taken away from other goods and services.”
39 Responses
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1310633 tn?1430224091
No children have been produced in the union with my wife (recently, ex-wife).

We both realized, early on, that we were a bit to selfish with our time and our money, besides the fact that both of us have health issues, so we decided against having any rug-rats.

Basically, my family was in the exact same boat as your friends... lived in Calgary, and moved to Houston. The oil & gas industry moved my Dad down here (and subsequently, the family), and I've been buried in the same industry since finishing up with school.

The industry is SO small... I wouldn't doubt it for a second if I knew your friend, or know OF him/her.
Helpful - 0
Avatar universal
It used to be the politicians that freaked me out. Now, not so much, it is more the people done went and took too many pills and are in fairyland. Now if we only had some fairydust!
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377493 tn?1356502149
My casa, your casa...anytime.  Although it isn't that much better here.  Difference is when our politicians start acting like lunatics, it doesn't really make all that much difference..lol.  We don't really have overly extreme right and left wing.  They are all kinda more middle ground.  And when in doubt, you can always vote for the Pirate Party.  Yep, still not kidding...we really do have a Pirate Party.  Still freaks me out....
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Avatar universal
Im seriously gonna take you up on that girlfriend! Things are gettin freaky as all get out over here! lol The nuts are running the asylum! Altho I was just watching the NEW Nostradaumus..... Those predictions make today look like a piece of cake. They are predicting 10-15 dollar a gallon gasoline. Yikes!
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377493 tn?1356502149
I keep telling ya...you can still come here.  You can live in my suite, and I'll sponsor you.  

El, I'm curious as well. My husbands cousin is in the same boat as you, except they haven't been there as long.  He was transferred from Calgary and now lives just outside Houston (he works in Oil & Gas as an Engineer as well actually).  They are not US citizens, but of course do pay taxes there as opposed to here now.  What I am wondering is if you have children?  Their daughter was born there.  They are both Canadians, but their daughter is an American citizen.  It's actually made for some challenges when they cross borders with passports, etc.  Do you have kids?  I am curious if you have the same problem. Might be different though as you married an American..his wife is also Canadian.
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Avatar universal
Interesting. Sorry, I am nosey but you brought it up, not me. Then when you did I was curious. I am really not familiar with how that works. I do no there are some programs between the two countries and I was thinking it might be one of those that apply to your situation. So, you have an out. You can always go back to Canada which right now is not sounding too bad at all. So basically as long as one has a green card, they are privy to all the rights and benefits of one born here? Got it. By the way, it takes one small mind to identify one I guess. emigrated is immigrated I do believe.

OH, NO point! Just curious.
Me, I was just born here.
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1310633 tn?1430224091
I'll answer you, but let's keep the 'personal' details off the board. I'll talk/argue/debate politics with you all day long, but I'd rather keep this high-level and not get too deep into our personal lives... cool?

Why did I never get my citizenship?

Short Answer: I'm lazy.

Plain and simple. I've been eligible for citizenship for over 15 years now, and just "never got around to it". Heck, I'm even married to an american, which automatically entitles me to citizenship, besides the fact that I've been here PLENTY long enough.

Honestly, there's just NO advantage to being an American, besides the fact that you can vote, which as I've said previously, is no big loss for me, as there's no one worth voting for anyway.

I pay taxes, social-security, medicaid, etc, etc, and I'll get to draw on them when I come of age (if there's anything left).

I'm just like an American in EVERY way, except on paper. I have a SS-card and a green-card. I have a British Passport and a Canadian Citizenship Card. When I travel, I use my British Passport when I leave the country, and my US green-card when I come back.

I'm lazy... plain and simple.

Trust me, if there was a SINGLE advantage to becoming American, I'd get in line. Both my parents are (to avoid some of the inheritance taxes they'd incur upon their death, if they weren't citizens), and my sister served in the Air Force and got her's while serving in the Gulf War.
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Avatar universal
So why did you never get citizenship? And how does that work, you getting social security and all? I mean, you partake in that big government? Really... Is your being here part of a government program between the States and Canada?

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1310633 tn?1430224091
Ignorant.

I am a LEGAL Resident Alien and "green card" holder. My family and I emigrated (do you know what that word means?) from Canada to the United States when I was 12 years old, and have been here ever since.

I pay taxes, just the same as all the other tax-paying Americans out there. No more, no less.

From a small mind, comes small conversation.

Bringing up my citizenship? You're REALLY grasping at straws there kiddo!

So what's your point exactly?
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Avatar universal
Diversion tactics, also from Faux. Answer my questions lmno.

tell me how this not being a citizen of the US works when it comes to legally working here and paying taxes again?  I am really really interested in how that works!
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1310633 tn?1430224091
Are you even reading what I'm writing?

I have NO problem with a tax increase. Get rid of the Bush tax-cuts. Go back to paying my "fair share"??? How dare you say that. How dare you.

I've been paying MY fair share, and everyone else's fair share, for a LONG time.

Please understand TEKO, I'm not opposed to a tax increase. READ MY LIPS TEKO... NOT OPPOSED TO A TAX INCREASE.

I'd just like some responsible spending cuts, and spending habits, to go along with my tax increases.

Do you realize how silly you sound, towing the Left party line, and not giving an inch?

"Increase taxes, increase taxes, do away with the Bush tax cuts, increase taxes, It's Bush's fault"... silly girl.

I feel sorry for you.
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Avatar universal
Here is the part you evidently dont get lmno. You blame the poor for leaching off you yet you give the very rich a pass for doing the same thing. And the middle class carry the load as usual and you think that makes sense how?

Damn right! I want those bush tax cuts to expire for everyone. Including you. If you think your squalling now, just wait till you have to go back to paying your fair share! I want the loopholes for the corporations closed, I want the fortune fine hundred companies to pay their share and not the share of their secretary. I want subsidies to big oil done away with. Yessir. I said it! And?

So tell me how this not being a citizen of the US works when it comes to legally working here and paying taxes again? And stop with the fox talking points bs. dont you realize how silly that sounds?
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1310633 tn?1430224091
Phew, adgal...I thought you were suggesting that I get another job!!!

Annoys me to no end, the fact that I bust my hump, 70 hours a week, pay 30%+ in taxes, while there are low-life, worthless idiots out there sucking & leeching off the system, and it's being suggested that I give "just a little bit more" to "help out".

Why is it that those that give the LEAST, are screaming the loudest about me giving MORE???

Been paying into the SS system for a while now, and I'm not stupid enough to believe that the Left will leave anything there for me when I come of age. They'll spend it all, if they have their way, and in the meantime, they're going to be asking me to give them MORE, MORE, MORE in taxes.

When does this "Just give a little bit more" end? When am I going to get to enjoy the money I've made? Why is it a crime, and why am I treated like I'm some sort of criminal, for wanting to enjoy the money that I make?

Just because YOU'RE poor, and didn't go to college, and don't have a job, and don't make decent enough money to go on vacation every once and a while... why should I be punished for that, by having MORE, and MORE, and MORE of my hard-earned money stolen from me each and every paycheck?

This Robin-Hood mentality is a travesty, and not what this country was founded on. This country was founded on the principals of Democracy, capitalism, and a "work hard and get ahead" way of thinking.

All the Left wants to do is TAKE, TAKE, TAKE, and redistribute.
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377493 tn?1356502149
Lol, I didnt' mean YOU should get a second job.  I meant the gov't needs to increase revenues.  And maybe it doesn't even have to be an increase at all.  Perhaps actually making those who get out of taxes pay taxes will be enough.

But yes, I agree...spending needs to be drastically cut.  I heard Barney Frank talk the other day (I know, not the most popular guy, but he did make a good point).  He said that right now the US is still spending a fortune having a military presence in countries where it isn't really necessary any longer ie: Germany, Poland and he named several others.  He said pulling out of those countries would not impact the US's security, and would save a fortune.  It did make sense to me.  I mean, WW 2 has been over for a very long time now, and there is no threat coming from there. I can understand requiring a presence in more volitile areas of the world, but that doesn't seem to be the case in many places.

In any event, yes, spending does have to be drastically cut.  I just don't see how that will completely resolve the issue.  Once again, if both sides of this debate just gave a little, much could probably be fixed.  Maybe they will once the next election is over.
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1310633 tn?1430224091
I don't MIND my taxes being increased (yet again), but I want to see DRASTIC spending cuts.

As for getting a 2nd job... "F" that. I work 60-70 hours a week as it is, and it doesn't sit well with me that I have to get a 2nd job to earn more (so I can pay MORE taxes), while there are people that have ZERO job that are paying ZERO taxes.

Increase taxes... go ahead, but I promise you that it won't ever be enough. You'll come to me, in 6 months, with your hand open, wanting to increase my taxes yet again.

I'll say it again... SPEND LESS.
Helpful - 0
377493 tn?1356502149
Well, I'll say it.  I do think your going to have to increase taxes.  I am a pretty simplistic person, and this is how I see it:

When you are in debt, step 1 is to decrease spending.  I think that has to come first and formost, no argument there.  But if your way in debt, on top of the decreased spending, you might have to get a second job.  Looking at the whole big picture here (based on economists, not me), you guys are in deep.  And it does seem there are many who get away with no taxes at all due to loopholes, offshore investing, etc.  So maybe that should be looked at first.  But I just don't see how decreased spending is the way out.  It's part of it for sure, but do you really think that can resolve the whole issue?  It just seems to me that based on your current structure, the wealthier you are, the less you pay (not everyone, but many).  So it's not even really about them paying more...perhaps just their fair share?
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1310633 tn?1430224091
So if I'm hearing you right, you're saying that you think that increasing taxes on the "wealthiest Americans" will get us out of this financial mess... is that right?

I just want to hear you say, that increasing taxes, is the way out of this...

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Avatar universal
LMNO! In case you have not thought about it! Think about it! The bush tax cuts are spending ! Over a Trillion so far! Helloooooo! And someone didnt inform you? The bush tax cuts went to all americans????? Remember! And they ALL need to expire! Go back to fox and ask them for the truth, the whole truth and nothing but the truth and c what ya get. Or research it and show me where I am wrong.
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1310633 tn?1430224091
Once again... you're making this a taxation problem.

This is a SPENDING issue.

Fine, increase taxes on the "wealthiest Americans". I promise you that it won't be enough. We have to CURB OUR SPENDING.

When you don't have enough money, you can't just keep on taxing, and taxing, and taxing the so-called "rich" (me), you have to curtail the spending.

What part of SPEND LESS MONEY doesn't compute?
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Avatar universal
It is upsetting to say the least, but the people who have been warning of the consequences of not following a balanced approach to controlling the deficit are finally being proven right. This is the start of the decline of a once great country and it is not because a Black man sits in the Oval Office or that Americans who paid into  their retirement plan are collecting benefits, but because of anti-tax dogmata and protection of the wealthiest Americans. The only winners are the extremely wealthy who will buy America when it finally collapses and then charge the American people to live here.IMO
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Avatar universal
One thing you said that I will agree with. It is OUR fault. It sure is. And your solution is?
Do you know how many of the top 500 fortune companies paid any federal tax last year? Did you know that those companies sending our jobs overseas are enjoying the tax breaks and loopholes even tho and fully supported by the pledge the gop signed? Did you know the subsidies to big oil will not be discontinued even tho, the big oil is into record ever profits this year? Yep that is a tax hike as well.

The majority of the people regardless of party agree that a balanced effort of spending cuts and revenue is what it will take to straighten this country out. This is a subject you cannot cover in a paragraph but I think it is time for solutions mybe?
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Avatar universal
You know I am tired as all get out of people whining and complaining about the mess this country is in. It is OUR fault and I have said it over and over again but no one here, like the majority of Americans, don't want to hear or listen. We want cheap stuff and lots of it but want high wages and top notch benefits. We want our 401ks and IRAs to make great rates and cheap mortgages on houses that are beyond our means. We want entitlement programs that feed the poor, as well as those that don't want to work because the jobs that are there are beneath them. We continue to hand money out around the world to buy friends under the guise of humanitarian aid, but how many pictures of bags of grain do you see say France, Germany or China? Nope they say USA!!!! However we are the evil country that so many hate. We have spent ourselves in to oblivion and it is time to STOP, I do believe if you tax the rich the definition of rich keeps dropping. If any of you cared enough you would read the fair tax book and do some research and find out most of our taxes have been initially waged on “the rich” and it proves the trickledown theory works, when the tax and spend liberals need more money they redefine who is wealthy. Enough said have a great day and BUY AMERICAN, even if it hurts.
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1310633 tn?1430224091
I can't wait until my man Brice is in office.

I won't have to pay my mortgage. I won't have to pay my car payment. I'll get free healthcare, free food, free stuff. Man... I can see it now. FREE STUFF FOR EVERYONE!!!

Now all we have to do is figure out who we're going to increase taxes on, in order to pay for all this free stuff... ~scratches head~

I guess we could raise taxes on the wealthy. THAT hasn't been done before. Hell, they're rich. They won't mind giving just a BIT more in order to pay for all of us & our free stuff.

Problem solved... increase taxes on the wealthy.

~What's that you say? Stop spending so much money??? The hell you say! That's no way to balance the budget!!! Increasing taxes is the only way to balance the budget!!!!!!!!!
Helpful - 0
Avatar universal
Getting votes is that easy?  I'm almost a shoe in..... and everybody will get free stuff when I get elected...
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