US Credit Rating Downgraded

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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.”

[el_em_en_oh]

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.

[teko]

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?

[el_em_en_oh]

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?

[teko]

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!

[el_em_en_oh]

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.

[teko]

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?