U.S. Loses AAA Credit Rating (Aug 2011)


Bloomberg: U.S. Loses AAA Credit Rating as S&P Slams Debt Levels, Political Process

Notable Excerpts:

Not that the rating agencies’ ratings are accurate or meaningful but it’s really something for the US to lose the prized AAA rating even with a so-so ratings agency.

Standard & Poor’s downgraded the U.S.’s AAA credit rating for the first time, slamming the nation’s political process and criticizing lawmakers for failing to cut spending or raise revenue enough to reduce record budget deficits.

The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said yesterday.

The debt ceiling limit in Feb 2012 is $16.394 trillion. You are piling on more than a trillion dollars of debt per year, what is a plan to reduce $2.4 trillion over the next 10 years??? It’s a joke. And it is a plan at the moment. If politicians do not have what it takes to enforce cuts to social entitlements, we are looking at even higher debt load down the road.

Lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred.

When you have trillion dollars of debt and you have no idea of how to reduce it or how to turn a surplus, how can you be rated as AAA??? What a joke! If only as individuals we can tell financial institutions to loan us money because we are ‘AAA’ rated when we are bankrupt, up to our necks in debt within deficits every month!

And is it possible for the once mightly United States to default? Well, the politicians certainly pushed the country to the ‘edge of default’. A default mind you. Wake up!

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.

The other countries love to buy US Treasuries because they trust that the US will surely pay them back with interest! Wrong!

Policy makers from China to Japan to Southeast Asia are lured to Treasuries as a result of efforts to stem gains in their currencies against the dollar, which would impair export competitiveness. China has accumulated $1.16 trillion in the securities and the nation’s official Xinhua News Agency said in a commentary that the U.S. must cure its “addiction” to borrowing.

The things the US does to their creditors – screwed if you don’t buy Treasuries, screwed if you buy Treasuries. Either way you are screwed.

They won’t be happy about it, but Asian central banks will just have to hold on and stick it out,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “There is pressure on them to hold on to liquid assets and there is nothing more liquid than the Treasury market. At least Treasuries have been doing well and they aren’t holding on to distressed assets.” ”

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.

Because it is math!

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

Obviously, they are not lending the US money just to make money out of it! It’s tit for tat for the US money printing and trying inflating their debt away.

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.

Was there a time when the dollar’s reserve currency status was unquestioned? It’s certainly not now.

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.


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