S&P Cuts US Credit Rating For First Time In Modern History

[Jeff]

AUGUST 5, 2011, 8:22 P.M. ET

NEW YORK (Dow Jones)--Standard & Poor's took the unprecedented step of downgrading the U.S. government's "AAA" sovereign credit rating Friday in a move that could send shock waves through global financial markets and potentially undermine world economic growth.

In a press release, S&P, cut its top-notch long-term credit rating for the U.S. Treasury's debt to AA+ with a negative outlook. It is the first time in modern history that one of the three main ratings firms has stripped the U.S. of its coveted AAA rating.

S&P warned last month that if the U.S. government didn't approve a credible medium-term plan to shrink its fiscal shortfall, it would downgrade the rating even if Congress approved a debt deal that raised the Treasury's borrowing limit. On Tuesday, just in time for a deadline to avoid default, U.S. lawmakers passed a bill increasing the U.S. debt ceiling by $2.1 trillion. However, the amount of planned quid-pro-quo deficit cuts ran to $2.4 trillion, well short of the $4 trillion that S&P had suggested was needed to put the nation's fiscal house in order.

Some market participants have warned that the tepid pace of economic recovery means that even deeper fiscal cuts may be needed to reduce the share of public debt to U.S. gross domestic product, a closely watched gauge of a nation's fiscal health.

...

http://online.wsj.com/article/BT-CO-201 ... 18118.html

[seemslikeadream]

This is the agency that took money from junk bonds

Trying to revamp their reputation

Rational people should not take S&P seriously


Barney Frank

[Elihu]

Standard & Poor's. still think nation states are sovereign? let us bow to the higher power (intended as friendlysarcasm)...

[Elihu]

"Bankers own the earth. Take it away from them, but leave them the power to create money and control credit, and with a flick of a pen they will create enough to buy it back."
–Sir Josiah Stamp, former President, Bank of England

"Money is not an invention of the state. It is not the product of a legislative act. The sanction of political authority is not necessary for its existence."
– Carl Menger

[barracuda]

S&P hates us for our freedoms.

United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative

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.

Full text of the downgrade statement here.

[barracuda]

More at link...

America's Sovereign Debt Credit Rating and Interest Rate Imponderables

We can expect continued credit market volatility. The recent debt limit increase did nothing to correct the basic problem. The U. S. government spends more than it takes in, so its residual payments are growing, inexorably. As this insanity continues, at some point U.S. Treasury paper will lose its AAA luster. that will initiate a very ugly chain of events that will play out something like this:

1.One of the major credit rating agencies will drop the credit rating, most likely to the AA+ level.
2.All of the other rating agencies will immediately follow suit.
3.Subsequent Treasury auctions may fail, or more likely rates will have to jump by 100 basis points (1%), or more.
4.This higher rate will ripple through the global credit market.
5.As the cost of borrowing money goes up, several things happen:

•Global credit shrinks to the point where a full-blown liquidity crisis could develop.
•Marginal enterprises fail.
•Economies slow.
•Stocks tumble.
•Municipalities begin to declare bankruptcy.
•Commercial and residential real estate both take another leg down and more foreclosures will hit the market. This will lengthen the duration of the housing slump.
•Notes are called. This can cause a secondary squeeze, as everyone begins calling as many notes of their own as possible, to cover their creditor's calls.

The next phase is difficult to predict, but there are several possible outcomes:

There could be more failed public debt auctions, followed by further credit rating cuts. If that happens, the interest rates will rise repeatedly, as the cleansing of the debt market continues: "Lather, rinse, repeat." In the long run, all of the bad debt will be driven out of the system, but it will be a slow, agonizing process. Government meddling will only prolong the agony. Meanwhile, precious metals prices will rise. If there are repeated ratings cuts of U.S. Treasury paper, then I would not be surprised to see $90 per ounce silver and $1,950 per ounce gold.

Credit spreads will eventually adjust, as the yield curve stabilizes. But in the short term, some of the currency carry traders will suffer huge losses. (Since they depend on stable Forex rates, and stable interest rates.) Presently, the U.S. Dollar is drifting downward (at 73.955, the last time I checked the USDI), but it will likely plummet when there is a credit downgrade. You can also expect to hear about huge derivatives losses, and here we're talking about trillion dollar losses.

There will also be lots of hedge funds going under. As I explained in SurvivalBlog back in 2007, hedge funds make their money by "borrowing short and lending long." That works magnificently in a stable credit market, and investors make piles of money. But when interest rates spike, hedge funds often suffer huge losses. Mark my words: The big hedge fund collapses will be preceded by announcements of redemption suspensions. Beware.

[JackRiddler]

http://www.democraticunderground.com/di ... 39x1674972

This is what happens when you allow criminals to stay free and be rewarded.


Edited on Fri Aug-05-11 11:12 PM by JackRiddler
(With respect to the downgrading of US debt by S&P.)


The ratings agencies were the indispensable, perhaps most important participants in the greatest financial fraud in all history: the packaging of bad mortgage debt for sale to naive investors around the world. The banksters could have never perpetrated their fraud, with losses to investors in the trillions, without relying on the ratings agencies to confer AAA ratings on their fraudulent paper. It was the magic word of Moody's and Co. that sold the shit to the patsies.

In 2008 and in 2009, the United States had a chance to round up the banksters for their fraud. Instead, they were rewarded with many trillions of dollars in bailouts from the Treasury and the Federal Reserve. As a result, the same criminals remain on top of the world financial system today, now more powerful than ever. They control all of the relevant institutions of government.

One of the first moves in a prosecution of the criminal class would have been to seize Moody's, S&P and Fitch for their central role in the fraud. Instead, these particular criminals were allowed to continue sitting in judgement over the governments of the world. It didn't matter that public debts of governments, states and localities skyrocketed as a direct result of the private sector bankster fraud, and the resulting global economic disasters.

Now these monsters are allowed to give the signal to squeeze ever-higher interest rates out of the world's taxpayers, and at the same time you can be certain that they will continue to enable further bankster frauds in the future.

Why not? All they've learned is that crime pays. No one is held responsible. After the crash, bonuses go up.

And bearing the primary fault for the situation today is the Democratic chief executive and his team of advisers: banksters themselves. The Obama administration didn't create this mess, but by allowing the criminals to be rewarded, they allowed its perpetuation.

The same of course applies to the failure to prosecute the criminals of the Bush regime: the planners and wagers of wars of aggression, of torture, of the new global surveillance and police state, of incalculable taxpayer plunder and the resulting public deficits. They too have been rewarded for their crimes, both by immunity from prosecution, and by continuation of their policies by the new government.

Now, because the Democratic leadership did not show the courage to pursue justice, the Republicans will return to commit even worse crimes. However, Obama and his corporatist coterie did not blow it. Their loyalties, as with the Republican leaders, are to the corporatists and the warfare state, not the people.

Let us hope there are enough Democrats left to fight for this party's restoration to the ideals of political and economic justice. It's not about who Obama is, but what he has done, by which he must be judged -- and, if we win the damned lottery, primaried before his extremely likely 2012 general election loss.

Those who support the renomination of Obama after these awesome failures to do the right thing, and the resulting continuation of Bush's economic disasters, are precisely those who will enable the election of the Republicans in 2012.

[Nordic]

http://www.nakedcapitalism.com/2011/07/ ... d-and-poor’s-manipulating-us-debt-rating-to-escape-liability-for-the-mortgage-crisis.html

[ninakat]

Kevin @ Cryptogon has this to say:

http://cryptogon.com/?p=23955

Remember those Wait For The Weekends To Do It days from 2008? *chortle*

I’m not sure how this is going to go. On the one hand, only a fall down dipshit believes that the U.S. actually deserved a AAA rating, or even the new AA+ rating. The U.S. had already been downgraded by other American and foreign ratings organizations. So, to some extent, maybe the effects of this are “baked into the cake” already.

On the other hand, raising money should become more expensive for the U.S. as a result of this. Since the U.S. has so much debt, this might represent a sort of wildcard, de-stabalizing event.

What do you think?

(see link above for poll questions and results)

In any event, the thing to watch, going into Monday, will be FOREX. The logical, by the book, reaction to this should mean a lower dollar. Everyone reading this should know about the 70.792 level on the U.S. Dollar Index. If the dollar tanks, we will be watching to see if 72.696 holds; this is the short term support. If it doesn’t, that sets up a try for 70.792.

[ninakat]

Full text of the S&P decision @ Zero Hedge: http://www.zerohedge.com/news/sp-downgr ... -full-text

[Simulist]

I'd like to be wrong about this, because billions are about to suffer terribly if I'm not, but it seems to me that what we're really beginning to witness now is the effects of an entire civilization coming completely undone.

And it was bound to happen — seriously. (Indeed I think planning for this has been underway in earnest since at least the mid-1970s.) Remember that "American way of life" we've all been taught is so important to "preserve"? Well, it was never ever sustainable — and I think the "brains" of this (Rube Goldberg-like) operation have known that for one helluva long time.

[82_28]

I'd like to be wrong about this, because billions are about to suffer terribly if I'm not, but it seems to me that what we're really beginning to witness now is the effects of an entire civilization coming completely undone.

And it was bound to happen — seriously. (Indeed I think planning for this has been underway in earnest since at least the mid-1970s.) Remember that "American way of life" we've all been taught is so important to "preserve"? Well, it was never ever sustainable — and I think the "brains" of this (Rube Goldberg-like) operation have known that for one helluva long time.

Indeed. Imagine the geniuses that this grover norquist cocksucker had to stand on the shoulders of.
Twasn't born in a vacuum that all these rightist congressional assholes had to sign some pledge promising to "drown the baby in the bathtub" as foretold by norquist. This is all as planned with many, many assets with built in plausible deniability (think a Ted Haggard, for example) and a certain set institution that will always be able to extract wealth and power and exact misery when needed at will -- the MIC which has always hidden behind its peaceful religious psychopaths and pathological organizations (the vatican) in order to perpetuate the deadly myth that there are some things that only experts in the making up the invisible sky god stories can understand.

[Stephen Morgan]

"Money is not an invention of the state. It is not the product of a legislative act. The sanction of political authority is not necessary for its existence."
– Carl Menger

That's the propaganda, but it's not true. Sovereign rights are imbued in the state, whether they choose to use them or not. Money is worthless in itself and relies entirely on government enforcement, government being little more than an enforcement mechanism for the ownership of property.

[Peachtree Pam]

Now this is an interesting development. At least Italy is fighting back!

Italian authorities raid Milan offices of S&P, Moody’s

http://www.blacklistednews.com/Italian_ ... 8/Y/M.html

August 5, 2011


Source: All Headline News

Italian authorities seized documents from the Milan offices of ratings agencies Standard & Poor’s and Moody’s Investors Service on Thursday. The seizure was part of an investigation that the two agencies were allegedly engaged in dubious movements in domestic share prices.

Carlo Maria Capistro, head of the prosecutor’s office in Trani which led the raid, said the action sought to verify if the two agencies followed Italian regulations in carrying out their business.

S&P and Moody’s said the probe has no basis. The raid is seen as the eurozone government’s way of getting back at ratings agencies, which recently downgraded the credit rating of Greece, Portugal and Ireland.

The political angle of the Italian raid becomes apparent since Italy and Spain are said to be on the list of nations due for a downgrade.

The Center for Economics and Business Research, a British think tank, forecast on Thursday that Italy would likely default on its debt, unless Rome registers an unexpected hike in its economic growth.

The center estimated Italy’s debt would reach 150 percent of the country’s yearly output by 2017 from the current 128 percent if the bond yields would be above the present 6 percent and growth remains flat. However, Italian Prime Minister Silvio Berlusconi told the Parliament on Wednesday that the nation’s economy is strong and its banks are solvent.

The center had a better outlook for Spain, which it said would likely avoid a default, unless Madrid would be dragged by the eurozone debt contagion.


[Elihu]

"Money is not an invention of the state. It is not the product of a legislative act. The sanction of political authority is not necessary for its existence."
– Carl Menger

That's the propaganda, but it's not true. Sovereign rights are imbued in the state, whether they choose to use them or not. Money is worthless in itself and relies entirely on government enforcement, government being little more than an enforcement mechanism for the ownership of property.

there is a school of thought out there that says there is a prevailing generational mis-education and societal ignorance with regard to money. ie, that it's an immutable economic phenomena, like gravity. the two possible economic systems are: barter (nasty, brutish & short) and indirect exchange (money & civilization). the bedrock of civil society in the latter is founded upon a non-elastic incorruptible monetary unit. the monetary unit has to do with marginal utility and cascading marketability. an accounting unit that is incapable of being manipulated.

"Whoever controls the volume of money in any country is absolute master of all industry and commerce."
– James A. Garfield

some article links:
http://www.bullionbasis.com/web_documen ... nomics.pdf
http://professorfekete.com/articles%5CA ... search.pdf
http://www.goldstandardinstitute.net/20 ... roduction/

it's no accident that there is a metallic monetary standard clause in the Constitution. It's also no accident that it's been discarded.

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked: 'Account Overdrawn.'"
– Ayn Rand

"Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." The Economic Consequences of the Peace by John Maynard Keynes, 1919. pp. 235-248.

this post is lenghtly, thanks for bearing with me. but i feel indebted to our own american maestro (even if he has been knighted by the queen for service to the british crown)

"In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society......In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. ..... The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
###
Alan Greenspan
1966

i think this whole issue needs to be looked into as the lifeblood of neverending deficits, war spending, overproduction, overconsumption, increasing authoritarianism, double standards, etc, etc, etc. i'm as outraged as the next guy but when are we going to throw a punch and mean it?