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USA DOWNGRADED: First Credit Rating Cut in Nation’s History

Saturday, August 6, 2011

us credit rating

Standard & Poor’s announced Friday night that it has downgraded the U.S. credit rating for the first time, dealing a symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system.

Lowering the nation’s rating to one notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.

“It’s always possible the rating will come back, but we don’t think it’s coming back anytime soon,” said David Beers, head of S&P’s government debt rating unit.

The downgrade to AA+ will push the global financial markets into uncharted territory after a volatile week fueled by concerns over a worsening debt crisis in Europe and a faltering economy in the United States.

The AAA rating has made the U.S. Treasury bond one of the world’s safest investments — and has helped the nation borrow at extraordinarily cheap rates to finance its government operations, including two wars and an expensive social safety net for retirees.

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  • Captain PJ

    U.S. government debt and its derivatives (e.g. the $5 trillion of mortgage backed securities issued by Fannie Mae and Freddie Mac) are the backbone of the U.S. financial system and indeed the wrold financial system. If U.S. debt is in fact less creditworthy, then all the banks and financial companies that rely on its value should also be less creditworthy. Yet, I didn’t read in the S&P Report posted online anything of J.P Morgan, Goldman Sachs and the rest being put on the watch list for a downgrade. Why Not? Perhaps this is because S&P doesn’t take its own rating seriously?

    What does the risk of default on U.S. government debt mean? The debt is issued in dollars, right? That means it is payable in dollars. The U.S. government prints dollars. This means that if for some reason the government was unable to tax or borrow to raise the money to pay its debt then it could always print it. Sure, this may carry a risk of inflation, but S&P and the other credit agencies are not in the business of making inflation predicitions, they are in the business of assessing the likelihood that debt will be repaid.

    If they are worried that inflation will erode the value of U.S. debt, S&P would also have to downgrade all debt demoninated in dollars everywhere in the world. All of this could have been avoided if our president and his party had agreed to the Cut, Cap and Balance Act or the Ryan Plan or even Speaker Boehner’s original plan–as all of them met the “budget savings amount” necessary to guarantee a continued AAA Rating. Even still, based on past S&P behavior, I’m not convinced this downgrade was based entirely on economic reasons–I can only speculate about the ture motives.

    • Kurt Englehart

      The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed.

      The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.

      It appears that for now, new revenues have dropped down on the menu of policy options.

      The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them.

      Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 Bush tax cuts, due to expire by the end of 2012, remain in place.

      We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

      excerpt from Standard & Poors downgrade report. way to highjack the world republicans

    • Captain PJ

      Don’t you think it is worth mentioning some important background? S&P, along with other credit rating agencies rated hundreds of billions of dollars of subprime mortgage backed securities as investment grade. They were paid tens of millions of dollars by the investment banks for these ratings. We know that concerns were raised by their own people about the quality of may of these issues. This was at the least astoundingly incompetent–and quite possibly criminal.

      This for me, raises the question whether S&P fears an investigation and possible prosecution. In such circumstances the desire to curry favor with powerful politicians could certainly influence their credit rating decisions. There are also rules affecting the credit rating agencies in the Dodd-Frank financial reform bill. The desire to have these rules written in a favorable way could affect the credit rating agencies decisions. It would be nice if we could just assume that the credit rating agencies make their rulings on an objective assessment of the evidence, but I can’t.

    • John the Libertarian

      hey, kurt, how about the 50+% of the budget that’s dummycrat fostered… THAT COULDN’T HAVE ANYTHING AT ALL TO DO WITH THE MESS WE’RE IN COULD IT o mathematically challenged one…

    • Kurt Englehart

      WOW really, you want to blame democrate congressmen and women when we’ve had Republican jackasses like Bahner in there for 10+years, and others like him who RACKED up all this debt, and now all the sudden dont want to pay for it, you’re fucking insane. All you people are are collective group of fringe lunatics. The majority of the republican base is either blind or indifferent.

    • John Hand

      You, Kurt E., are rendered IRRELEVANT. You can not spell, nor speak without uttering profanities. Go away liberal.

    • John the Libertarian

      That distinction goes to insane republican [rest in peace, insane wherever you are]… i agree with you in pointing to the repubs (best case in point was Bush’s donut hole drug plan WITH NO COMPETITIVE BIDDING)… actually, that was a ‘benefit’ that none expected, but it was an obvious sop to get the elderly vote… actually, i blame BOTH PARTIES AND MY GENERATION (myself included) for not stopping this coming economic DISASTER OF WORLD ECONOMIC HISTORY size… talk about abdicating our responsibility— when we had the political power of the ballot box we DIDN’T DO S*IT WHEN WE KNEW THIS ECONOMIC BUBBLE IN SOCIAL INSECURITY WAS COMING [FOR OVER 30 YEARS WE HAVE KNOWN IT WAS COMING, AND STILL WE DIDN’T DO the s word again]… not only that, but despite knowing it was coming AND DOING NOTHING ABOUT IT, we now want to hand the bill over to our kids and our kids kids who HAD NO POWER TO CHANGE IT… we’ll get the default on social insecurity we so richly deserve for OUR negligence (and i’m NOT talking about their projected exhaustion of our worthless t-bills), but take out the economy with us unless we unselfishly agree to REAL CUTS 1st— i propose 1/3 cut for everybody under 70, since we let this happen on OUR WATCH… so what is it fellow boomers, be selfish now, and sink the economy for our kids AND GET SCREWED LATER ANYWAY… or for once, own up to our responsibility of negligence and take a substantial cut now but save our kids and our kids kids from OUR MISTAKE

    • John the Libertarian

      another blatant point— WE CAN’T PAY FOR IT WHEN WE’RE BORROWING 41c OF EVERY DOLLAR WE SPEND… where do you think all this money will come from— the dummycrat citizens savings & loan… to paraphrase a slick willie rejoiner: IT’S THE SPENDING, STUPID… on that the repubs are right on

    • Kurt Englehart

      Well, you can downgrade my comments, much like the S&P did the united states credit rating, it still doesnt change the truth of thing, which is the republican party has constitently fucked over this country repeatedly over the last 10 years and you masochist bend over and ask for more?

    • John the Libertarian

      and you dim dems have fucked it over since lbj raided the social insecurity ‘trust’ [some trust] funds some almost 45+ yrs ago… so i guess it’s like i said- BOTH parties (and my generation) messed it up… so what we now want to avoid is a zimbabwe here or a repeat of Weimar Germany’s hyperinflation that lead to hitler… of course, brenanke is making a good run for it already (choosing the printing press MUCH BIGGER PROBLEM LATER option) with QE1 & QE2 [otherwise known as running the printing presses] rather than the less painful, but still devastating increase in interest rates done by Paul Volcker during the Reagan years… it would be much more painful now than it was during the Reagan/Volker years, because we have allowed the demographic problem to come up at just the most inconvenient time… but it would be MUCH MUCH WORSE LATER IF WE CONTINUE TO LET THE DEBT BUBBLE GET BIGGER…

    • Captain PJ

      S&P made a major point of citing the fact that the debt deal didn’t go far enough–which is absolutely true if you ask any Tea Party patriot. S&P, however said it did almost nothing to slow the growth of Medicare and other entitlement, obviously alluding to Social Security. S&P surely knows that Medicare’s cost growth is driven by projections of explosive growth in private sector health care costs due to the impending Obamcare implementation.

      Also the projections it relies upon from the CBO show that the cost of providing health care to an average 65-year-old in the private sector will be almost $20,000 (in 2011 dollars) a year by 2030. Of course, this will make Medicare unaffordable if it proves true, but this projected explosion in health care costs will be devastating for the U.S. economy even if we eliminated Medicare and other public sector heath care programs altogether. If S&P were being honest, it would have written about the need to fix the U.S. health care system and eliminate Obamacare. Instead it talked only about the need to cut Medicare.

    • Kurt Englehart

      you are clueless man

    • Kurt Engelhart

      Who is impersonating me?

    • John the Libertarian

      and you are an ideologically blinded hack :-)

    • Kurt Englehart

      this from an active poster on PUD lol

    • John the Libertarian

      and that from one who periodically pulls his cranium out of his rectal aperture for oxygen for his depleted brain cells

    • daves

      I agree with you on this one. Standard and Poor’s gave mortgage backed securities AAA ratings up to and during the mortgage crash.

  • BimBam

    I’ve said it again.

    Negroes do not prosper a country. They do not invent anything. They are the biggest racist. And what do you do? You make him President.

    What is going wrong with America?

    • dumbstruck

      Your comment is racist. You are very wrong in you assessment of Black America. Contributions by Black Americans are historically significant. Grow up you white racist scum. By the way, I am probably whiter than you but my neck is not nearly as red.

    • ARMYOF69

      The most recent benevolent thing 92% of blacks did for America was being ABSOLUTELY RACIST in voting the black piece of crap in the White House, go ahead and deny that.

    • AZ Don

      How do you know Bim Bam is white, there are other races your know. You have just accused him or her of being raciest and you have done the same with your assumption. Furthermore, with your statement you have judged that person a redneck which you obviously look down on. But you do not see yourself as raciest? It is always best to judge by character not race or ethnic group.

    • Mistyinga.

      I love your reply….perfect!

    • John Hand

      AZ Don…Raciest? There is a big difference in meaning between raciest and racist. What are you trying to say?

    • Jackie

      Many other ethnic groups come to America and prosper in a country where they are limited only by their talent and drive and their successes are celebrated by all, yet when blacks use their ingenuity to better themselves they are treated as sellouts and called Uncle Toms buy other blacks. I guess the libs have been telling blacks for so long that they are victims and can’t make it on their own and it has become easier just to accept that premise than work for independence and self respect. Blacks give libs their votes and in exchange libs keep blacks is a state of dependance, kind of like a drug dealer.

    • LorrieK

      I think BimBam and Dumbstruck are both wrong,
      BimBam read your history there have been blacks who have contributed to this country and have had to fight their way through slavery, but the democratic party has high-jacked a whole race of people(blacks)have convinced them that government can do better, can take care of them and unfortunately the majority believes that crap and the result is that we generations of blacks in this country that aren’t productive and take from the government,(us, the taxpayers)but you cannot condemn an entire race of people or I won’t, I blame the government. As for dumbstruck, those comments were just rude and based on what? Do you personally know BimBam, I doubt it and you are doing what the dems do all the time just throwing out things that are negative, explosive and have no basis of fact.
      I strongly disagree with Obama, not because of his race or who his parents were or where he was born, I disagree with his policies that are destroying our great nation, I am disgusted that we as a nation put someone in office who had no experience and if anyone had read his books before voting for him, they could have seen his hatred of this country and his spread the wealth mentality. I am disgusted that people vote for someone just because of their party affiliation and do not judge a candidate on how well he can represent this country. Party partisanship is killing this country and until we get back to the constitution, balance our budget and vote out all radicals, we will continue to decline as a nation.

    • John the Libertarian

      i stand by you, dumbstruck, despite the plurality of minuses… are we all forgetting the sacrifices of such great American heroes as Col. Adam West?… or how about Condolezza Rice? and i could go on, but you get the picture

  • AZ Don

    Now that the debt debacle has become law and we can once again borrow our way into socialism, communism or marxism we should know; Raising the debt ceiling without passing a balanced budget amendment is what has caused the downgrading of our national credit rating. Which in turn may soon raise the interest rates for everyone including the government. It is hard to understand why or perhaps how any government official could think allowing more debt could possibly keep our credit rating secure. Stopping borrowing would, but not continued borrowing.

    An increase in interest rates comparable to those experienced during the Carter administration will send this country into a depression that will make the last one (in the thirty’s) look like a cake walk. The economic atmosphere is just right for it. If it does happen it could cost an untold number of lives mostly the older folks but age will not be the determining factor as to who lives or dies.

    One more thing no one seems to be considering right now, if, or when, Obamacare is fully implemented as planned 15 trillion in additional (borrowed) spending within the next 10 years will not even be a down payment! And this is going to be the thing that puts us over the edge!

    If the interest rates raise to more than four times what they are now, and that may very well be a conservative estimate, will the government be able to pay the debt let alone fund all the so called entitlements? If you say yes explain how! The uncomplicated answer is no, absolutely not! Furthermore, if we experience hyper inflation to just the extent of the Carter administration’s inflation the government will default for sure. Consequently, what have we solved by raising the debt ceiling? Nothing, in fact we have put ourselves into a hole we may never get out of. Consequently, if you are feeling good about the increase in the debt ceiling, enjoy it now for it will be short lived. Taking some cuts now may save the complete loss of the benefits many feel they cannot live without now. It is common knowledge (or should be) now the cuts included in the compromise bill were not actually cuts but reductions in future increased spending. That was not a compromise that was a give away!

    • http://PatriotUpdate Marvin McCardle

      So you would rather the rich pharmaceutical companies and the health insurance companies run the show. Just where does the expense end. I do not know why the regulations were not kept in place instead of Reagan de-regulating and look at the mess we are in. Thank you Republicans.

    • John the Libertarian

      obummercare is just the last boulder the dummycrats have put on the camel’s back… the REAL problem is like the repubs have stated is the ‘entitlements’ AKA socialism & social insecurity… the author of ‘Aftershock’, in a newsmax promo video, has predicted an inflation rate of 10% next year and perhaps as many as 3 years following of 100% each year… considering brenanke’s actions so far with qe1 &qe2 (otherwise known as running the printing presses), that’s probably an accurate call… what that would mean in year 1 is that your dollar denominated assets would be worth 1/2 after that; 1/4 after year 2; and 1/8 after year 3… now the question then for obummer, becomes 1) (for 2012 only): are you better off now than you were 4 years ago [thanks, gipper] and 2) (after that): how’s that change workin’ for ‘ya?

  • James

    What’s the first thing we did when we got more money? One of the democrats gave himself a $17000 dollar birthday party on the tax payers expense. He’s never had it so good. His million dollar Throne comes next. That’s after 2012.

    • http://google ronifer

      Isn’t it appropriate that the first down-rating of Credit has occured during Obama’s term in office as the worst most inept president in our country’s history ! What more proof do we need – or are we going to believe the “it was Bush’s fault” malarkey ?

  • SpiritualMadMan

    And all those “Experts” in washington couldn;t see it coming???

    They are both deaf and blind and treasonous!

  • Nancy Bartlett

    It is a sad sad day for America.

  • Dark Knight

    All happen under the “Yes, we can spread the wealth” watch. And at a time when this country did not need such a failure of an economic experiement.

    • daves

      What has been done to “spread the wealth”?

  • Dodi

    I wonder if lowering our credit rating will wake up obummer and the dummicrats. Lowered because rating agencies have consitently called for at least $4 trillion in cuts.The deal includes only $0.9 trillion in GUARANTEED CUTS and in best case scenario envisions an additional $1.5 trillion in cuts. Also, the new super committee could propose significant new tax hikes. Cut, Cap and Balance is the only way to genuinely solve the problem of out-of-contril Washington spending.

    • John the Libertarian

      no, remember biden’s ‘smart’ (typical for him) remark: “we just have to keep spending and spending some more”… what those yoyos failed to do was to take any economic history (like weimar Germany)… they’ve also been comatose during mugabe’s regime in zimbabwe these days…

    • John Hand

      Dodi, the downgrade WILL NOT WAKE UP Obama and the Democrats. It is EXACTLY what Obama, led by Soros, wants.

    • Rodger in WA

      John’s got it!
      Obama’s supposedly stupid economic policies are achieving the goals of his puppeteer, Geo Soros: Wreck the US economy and turn the US into a second or even third rate power.
      That is what is needed before his ultimate goal, the formation of a worldwide socialistic government, will be achievable.
      Here’s something else to be concerned about. Soros/Obama have aligned themselves with the Islamic stealth jihad (worldwide dominance under Islamic Sharia Law).
      We need to deal with that threat as well.

  • http://verizon Ann Rand

    Did you notice that “HE” is hiding out this weeek-end?Any other time, you couldn’t drag him away from a microphone.Is it a hang over or is he dreaming up a new lie?

  • trvlkids

    Another HISTORIC event by BHO! What a jerk (being polite) he is!

  • stephen russell

    Blame Unions, Dems, Big Govt & Obama & allies.
    They knew this was coming.
    Now China is calling US out & saying Get a Life with our debt.
    Blame them.

    • John the Libertarian

      One very teeny tiny boost to the employment picture: it will take a long time for the fed engravers in DC to engrave the multiple copies of the new $500 and $1000 notes… i won’t give a smiley this time because it’s really not funny

  • American With A Birth Certificate…

    pelosi took over as speaker in 06 and we have been in a down word spiral ever since. obama is the president and he spends like no other president in our history so no its not Bushes fault we got a down grade. obama and his socialist commie agenda is the reason for the down grade so tell the truth. obama is not a leader,he is a community organizer and there is a big difference. obama is more radical than the media lets on because the media is so radical. No more obama and lets stop buying anything advertized on msnbc or cnn or from watching holloywood liberal movies. Lets hit them in the wallet. No more obama.

    • John the Libertarian

      obummer telling the truth is an oxymoron for liar in chief… the only thing i can’t figure out is if he’s the ox or the moron (MAYBE BOTH?) :-)

    • daves

      You can all blame President Obama for our spending problem but the facts do not support you.

      The parties share blame for the current fiscal situation, but federal budget statistics show that Republican policies over the last decade, and the cost of the two wars, added far more to the deficit than initiatives approved by the Democratic Congress since 2006, giving voters reason to be skeptical of campaign promises.

      Calculations by the nonpartisan Congressional Budget Office and other independent fiscal experts show that the $1.1 trillion cost over the next 10 years of the Medicare prescription drug program, which the Republican-controlled Congress adopted in 2003, by itself would add more to the deficit than the combined costs of the bailout, the stimulus and the health care law.

  • John the Libertarian

    yeah, sean… it’s NOT ONLY the increased crushing debt on our kids… it’s ALSO THE INCREASED COST OF BORROWING FOR EVERYONE thanks to the dummycrats intransigence on a balanced budget amendment…

  • nvrpc

    I know you all don’t want to hear this and it’s very likely most of you will not take the time to listen to this but for those who do, you’ll understand that an AA rating is probably going to be a C or a D before this hits bottom around 2016 and then take 20 + more to get out of it.

  • nvrpc
  • John Hand

    Read the Bible, the Christian version? In the end times, when it says that Israel will stand alone against all nations, there is no mention of the USA. I have said for years that is because the USA will have been rendered IRRELEVANT militarily, financially, and morally. Obama has done more towards that rendering in 3 years than any president in history.

    • Rodger in WA

      John is right. A worlfwide war between good and evil is in progress and gaining in intensity. Everything happening today has been prophesied in the Bible.
      Israel is the ceneter of the coming tribulations. Obama has abondoned Israel. Any country that goes against or abandons Israel will incur God’s wrath.
      Wake up America!

    • Rodger in WA

      Oops. Sorry about the typos.