S&P Downgrades U.S. Credit Outlook To Negative


Down it goes:

Standard & Poor’s on Monday downgraded the outlook for the United States to negative, saying it believes there’s a risk U.S. policymakers may not reach agreement on how to address the country’s long-term fiscal pressures.

“Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable,” the agency said in a statement.

In an interview with CNBC, David Beers, S&P’s global head of sovereign ratings, said the agency has been “struck increasingly by the difference in how other governments are dealing with fiscal consolidation.”

“The U.S. to us looks to be an increasing outlier in that context,” Beers added.

Obama Plays Down S&P Outlook Change

The White House strategy:

1) Pan S&P.

“I don’t think that we should make too much out of that,” top White House economist Austan Goolsbee said on MSNBC, referring to the S&P downgrade.

“What the S&P is doing is making a political judgment and it is one that we don’t agree with,” he said on CNBC.

2) Praise Moody’s.

The rival ratings agency said it viewed the direction of U.S. fiscal policy as “credit positive.”

“It appears to me that Moody’s and some others did not agree with that judgment,” Goolsbee said.

3) Express optimism.

White House and U.S. Treasury officials said they believed lawmakers would be able to come up with an agreement to reduce the U.S. deficit. S&P’s skepticism of that influenced its decision on the downgrade.

“We think that there has never been more momentum to try to get to fiscal consolidation, so we think that we should give that process its due,” a Treasury official said.

4) Buy time.

Obama administration officials said it would take some time to get a solution, and S&P should have waited to allow that to happen.

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The obama plan will be higher taxes and gutting the defense budget

Kevin Williamson, the guy who wrote ”The Politically Incorrect Guide to Socialism,” writes this about Credit-rating agencies (CRAs) such as S&P and Moody’s:

CRAs are a government-chartered cartel, with constraints on competition and a customer base guaranteed by statute.
They are the sleepy backwaters of the financial world — and they are always the last to know.
As one investment strategist put it to me this morning: We’ve been watching this train go by for a while now, and this is the caboose.

The ratings agencies aren’t the opening act — they’re the fat lady sweating out the final aria in our national fiscal Götterdämmerung.

He adds:

[S]mart money gets gone long before credit downgrades start hitting the headlines.
As noted in this column, PIMCO, the world’s largest bond fund, got clear of U.S. Treasuries some time ago, following the lead of a number of hedge funds.
The oil-exporting countries are dumping U.S. debt, too.
Perhaps they know something we don’t?


Washington has the power to tax, the power to print money, and an executive able to resist financial realities for a remarkably long period of time.
Thus we have Obama administration officials lashing out at S&P today — as though it were the agency’s fault that Obama delivered an entirely implausible speech about deficit-control last week.
Look for more kill-the-messenger rhetoric from the Obama administration as the meltdown heats up.

He concludes:

Here’s the thing to watch: Nobody really knows what interest rate the bond market is going to demand to finance U.S. debt in the future.
Right now, the Fed is buying most of the bonds Treasury puts up for sale, and simply printing money to do that.
This “quantitative easing” is scheduled to end this summer, at which point Washington will find out what it is really going to cost to finance its debt.
We already know that we cannot afford the new debt that Obama would have us endure, but the real crisis will come when we find out that we cannot afford the debt we already have.

His blog is here.

I looked for flaws in Kevin W’s analysis but couldn’t find any.
He was totally right when he warned us that PIMCO and OPEC dumped of US Treasuries for good reason.
Hope others listened.

Hello Weimar Republic, long time no see…

Kick BO OUT!

Obama: “Who you gonna believe? Me or your own lying interest rates?”

Obama is like the ROTC cadet (Kevin Bacon?) in the riot/melee toward the end of ANIMAL HOUSE, hollering, “All is well!!!”

We can only assume that he will apply his Massive Intellect and find an innovative solution to our fiscal woes.