WHAT MAKES A SOCIALIST HAPPY? NEWS: S&P DOWNGRADES US AAA Rating

August 5, 2011
By CMAC


1.  United States of America Long-Term Rating Lowered To ‘AA+’ Due To Political Risks, Rising Debt Burden; Outlook Negative

2.  S&P Cuts U.S. Debt, Should You Care? The Fed Doesn’t

Joe Weisenthal and Zeke Miller

UPDATE: Standard & Poor’s downgrade U.S. debt to ‘AA+’ from ‘AAA’ Friday night.

A source familiar with matter, said the ratings agency’s analysis estimated about $2 trillion in extra discretionary spending over the coming years.

3.  S&P Downgrades US Credit to AA+, With a Negative Outlook

4.  Treasury: S&P’s move based on $2T error

The source said there was shift in the S&P rationale from numerical analysis early in the day Friday to a political one in the final version, adding that it raises doubts about the agency’s credibility.

The source said the ratings agency seems bent on making the downgrade, despite the numerical discrepancy, because the media was expecting an announcement.

The source said S&P is not basing its decision on any information that is not in the markets — and that the agency reached a different conclusion than Moody’s and Fitch based off the same information.

The source said discussions with S&P over the debt rating involved the Treasury Department only, not The White House.

The source added that because of the top ratings from Fitch and Moody’s, Treasuries should still qualify as collateral in market situations.

The following is a press release from Standard & Poor’s:

– We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.

– We have also removed both the short- and long-term ratings from CreditWatch negative.

– 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.

– 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.

– The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Previous Post:

A senior administration official confirms to Business Insider that S&P gave notice to the White House that it intended to downgrade the US AAA rating today.

The official confirmed that the White House pushed back hard, claiming that S&P’s analysis was off by “trillions,” adding that S&P is “reconsidering.”

According to WSJ, After the Treasury pointed out the math error to S&P, which re-checked its math and confirmed the error. However this doesn’t mean that S&P will change its mind.

The news was first reported by CNBCABCCNN, and POLITICO earlier this evening.

Now to step back for a second, Remember, during the debt ceiling fight, S&P warned that there was a 50/50 chance of a downgrade if spending weren’t cut by at least $4 trillion dollars. Both Fitch and Moody’s have both come out affirming the US AAA.

The popular thinking on this is that its impact on markets would be less significant than the political impact to Obama.

This summary from CNN Producer Vaughn Sterling, cites John King, and was confirmed by the White House source:

A senior Obama administration official tells CNN tonight that the ratings agency Standard & Poors served notice Friday afternoon it planned to downgrade the US government’s AAA credit rating. But the official said the agency is reconsidering after the administration challenged S&P’s analysis of the government’s revenue and deficit picture.

The source, a senior official involved in the discussions, insisted the agency was off by “trillions” in its economic model.

Update: CNBC confirms that S&P acknowledged its math error, but may downgrade anyway by “revising its rationale”

Senate Majority Leader Harry Reid:

“The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners. This makes the work of the joint committee all the more important, and shows why leaders should appoint members who will approach the committee’s work with an open mind – instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding.”

GOP Presidential Candidate Jon Huntsman:

“Out-of-control spending and a lack of leadership in Washington have resulted in President Obama presiding over the first downgrade of the United States credit rating in our history. For far too long we have let reckless government spending go unchecked and the cancerous debt afflicting our nation has spread. We need new leadership in Washington committed to fiscal responsibility, a balanced budget, and job-friendly policies to get America working again.”

GOP Presidential Candidate Mitt Romney:

“America’s creditworthiness just became the latest casualty of President Obama’s failed leadership on the economy.”

Debt deal ‘falls short’: S&P downgrades US credit rating

‘No risk’ the US will lose its top credit rating, says Treasury’s Geithner

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4 Aug


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