U.S. ‘AAA’ credit rated downgraded by S&P, let the disaster scenarios begin.
You would have had to been living with your head buried deep in the sand over the last month not to have heard about the “debt ceiling” crisis facing the United States that was only averted at the last moment by both parties and the White House.
However one of the other big fears to arise out of this debt ceiling crisis was whether or not the United States’ credit rating would be downgraded by the various credit rating agencies like Standard & Poor’s (S&P), with many worried that if it was downgraded the effect on the U.S. could be really bad.
Well that scenario has come about as S&P issued a press release late on Friday announcing that they were downgrading the credit rating for the U.S.
From their press release
– 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.
Members of the Tea Party in the United States believed that nothing bad would happen if the US defaulted on their debt payments or if the country’s credit rating got downgraded. Well I guess we’ll get to see whether they were right or if in fact this downgrading will indeed hit the country hard, causing further hardship.
Tags : credit rating S&P, financial crisis, money, United States
Posted: August 5, 2011
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Aug 7, 2011
Appalling. Thanx Teahadists!
Aug 7, 2011
Dont blame the tea party – they were the only ones to come up with a plan to stop the downgrade …. the Dems in the Senate voted it down …. and pushed this last minute plan upon us which didnt actually cut any spending ….. and you wonder why this happened ?!
Aug 7, 2011
You ARE kidding, right?
Aug 7, 2011
No Im not …. go look at the Cut Cap & Balance bill that the Dems shot down in the Senate.
Aug 7, 2011
Robert, I think that we'll both see the other as having blinders on. CC&B would have caused our credit rating to drop even further. By holding their collective breath until they turned blue the TP has done a great disservice to ALL Americans.
Aug 7, 2011
Something else to think about – The Tea Party (which isnt a political party but a movement) has been around about a year – The Tea Party politicians have been in office a hot 7 months.
How long have we been building up this debt ? Since the mid 60's ? Yep , blame it on the tea party …. and ignore the fact that both the Dems and the GOP spent us into oblivion ….
Aug 7, 2011
I'd rather have defaulted on the debt completely myself …. but blaming the tea party for this credit rating drop is crazy. The Dems control both the Senate and White House – where was their plan.
In fact , where's Obama's plan – He has never once put forth a budget. Neither have the Dems in the House or Senate. Its been over two years since the Dems did put forth a budget and that one didnt pass.
Aug 7, 2011
Utter false equivalency- Bush inherited a $236 billion budget surplus, and we can't pretend Obama racked it up buying rims.
Aug 7, 2011
The Tea Party Caucus had some ideas that I liked as they arose. But the proof is in the putting (or pudding…. can't remember which is correct). If you 'Google" 'Tea Party Pork' you'll see the hypocracy that I'm talking about. As to the Dems and GOP…. well, I think that they're entrenched in their own specific ideologies and are part of the problem too. The age of free thinking seems to have died.
Aug 7, 2011
Dems are absolutely part of the problem, but there was no need for this kind of dramatic outburst that hurt America. You can't save America by ruining it.
Aug 7, 2011
Lets be blunt here -the reason for the downgrade was not the failure to reach a "compromise" or to adopt a "balanced approach" in the debt ceiling negotiations.
The reason for the downgrade is because the US has borrowed excessively and it has failed to take adequate steps to reduce its debt and its deficits.
Aug 7, 2011
S&P "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."
Aug 7, 2011
Historically speaking , a downgrade isnt such a big deal …. When Canada lost its AAA rating in April 1993, the country's stocks gained more than 15% in the subsequent year. The Tokyo stock market climbed more than 25% in the 12 months after Moody's downgraded Japan in November 1998.
Aug 7, 2011
S&P "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."
Aug 7, 2011
Good exchange of ideas folks! Thank you!