If the government that produces the reserve currency can't hold up a AAA rating, what can? The idea that anything else should have a AAA rating if the US gov't doesn't seems a little ridiculous to me on face value.
United States loses AAA credit rating from S&P
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Re: United States loses AAA credit rating from S&P
#12I wonder if the downgrade is because the US might be unwilling to pay its debts or because they feel the people may be unwilling to bailout the banks again?
Re: United States loses AAA credit rating from S&P
#13One thing to keep in mind is that many institutional investors, including those in Europe, are required to invest exclusively into triple-A instruments. This downgrade means a major sell-off of US bonds and whatnots currently held by such investors, and that could have an interesting avalanche effect.
Re: United States loses AAA credit rating from S&P
#14from the press release: "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. "
This really should be a call for both parties to start working together but it will most likely turbo charge the blame game.
We can expect this to not impact how the parties work against each in the least. The ratings agencies said up front what they were expecting to see in the debt deal and congress didn't come close.
Re: United States loses AAA credit rating from S&P
#15from the press release: "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. "
This really should be a call for both parties to start working together but it will most likely turbo charge the blame game.
Correct, and it's already begun:
http://tpmdc.talkingpointsmemo.com/2011/08/gop-tries-to-shif...
Re: United States loses AAA credit rating from S&P
#16One thing to keep in mind is that many institutional investors, including those in Europe, are required to invest exclusively into triple-A instruments. This downgrade means a major sell-off of US bonds and whatnots currently held by such investors, and that could have an interesting avalanche effect.
This is by far the biggest problem. I don't think anybody realizes how huge a sell-off that's going to be if the institutions apply their rules about AAA debt to US bonds (a big if, as others have noted).
A sell-off of bonds would make it more expensive for the government to borrow money, which would further accelerate the expansion of the deficit. The deficit is the primary driver of the downgrade, so an acceleration would trigger further downgrades.
Re: United States loses AAA credit rating from S&P
#17One thing to keep in mind is that many institutional investors, including those in Europe, are required to invest exclusively into triple-A instruments. This downgrade means a major sell-off of US bonds and whatnots currently held by such investors, and that could have an interesting avalanche effect.
It would be interesting if they make a financial vehicle that turns US AA+ debt (along with something else) into AAA.
Re: United States loses AAA credit rating from S&P
#18Didn't S&P maintain that Lehman Brothers had a favorable rating up until they collapsed? And in the subsequent congressional hearings the rating agencies simply responded that the rating is their opinion. Why do people put so much faith in these ratings when they have proven to be not very useful in evaluating the risk associated with investing in an institution?
Re: United States loses AAA credit rating from S&P
#19One thing to keep in mind is that many institutional investors, including those in Europe, are required to invest exclusively into triple-A instruments. This downgrade means a major sell-off of US bonds and whatnots currently held by such investors, and that could have an interesting avalanche effect.
Does it? Many institutional investors don't treat U.S. Treasuries as ratable bonds, but a separate category (they aren't lumped in with AAA corporates in investment strategies, for the good reason that they have quite different characteristics).
Based on the slim case studies we have so far, the S&P downgrade of Japan in 2002 had approximately zero impact on Japanese bond rates. It doesn't even show up as a small blip on the 10-year graph; was just completely ignored.
Re: United States loses AAA credit rating from S&P
#20This illustrates one of the risks of hostage-taking and the mistaken assumption of Republican leadership that the "hostage" (their words, not mine) wouldn't be harmed
see quote from Senate minority leader below
From http://www.washingtonpost.com/politics/in-debt-deal-the-triu...
But at the Capitol, behind the four doors and the three receptionists and the police guard, McConnell said he could imagine doing this again. "I think some of our members may have thought the default issue was a hostage you might take a chance at shooting," he said. "Most of us didn’t think that. What we did learn is this - it’s a hostage that’s worth ransoming. And it focuses the Congress on something that must be done."
[edit]: Interesting to see all the downvotes, but my comment had a direct quote from the GOP senate leader. Can anyone explain why they downvoted it.
As for temphn's point below. Has any Nobel laureate defended the "hostage taking" ?
Congress already controls both spending and taxation. So they can start fixing the deficit problem by cutting down on pork, cutting tax loopholes etc. Threatening to force a default is not the answer.