Despite Raising Debt Ceiling, U.S. Loses AAA Credit Rating

[mr_pikachu]

Source: The Wall Street Journal (http://online.wsj.com/article/SB10001424053111903366504576490841235575386.html)

A cornerstone of the global financial system was shaken Friday when officials at ratings firm Standard & Poor's said U.S. Treasury debt no longer deserved to be considered among the safest investments in the world.

S&P removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal recently brokered in Washington didn't do enough to address the gloomy long-term picture for America's finances. It downgraded U.S. debt to AA+, a score that ranks below Liechtenstein and more than a dozen other countries, and on par with Belgium and New Zealand.

The unprecedented move came after several hours of high-stakes drama. It began in the morning, when word leaked that a downgrade was imminent and stocks tumbled. Around 1:30 p.m., S&P officials notified the Treasury Department that they planned to downgrade U.S. debt and presented the government with their findings. Treasury officials noticed a $2 trillion error in S&P's math that delayed an announcement for several hours. S&P officials decided to move ahead anyway, and after 8 p.m. they made their downgrade official.

S&P said "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." It also blamed the weakened "effectiveness, stability, and predictability" of U.S. policy making and political institutions at a time when challenges are mounting.

With news of this magnitude, I shouldn't even need to prompt discussion with a bunch of questions about the validity of the decision, the questions it raises about why raising the debt ceiling didn't prevent this as promised, and the ramifications for future investments and policy decisions in the U.S. and abroad. All I shall say is: Discuss.

[RedStarWarrior]

Don't care. It shouldn't really have an effect on much.

Fucking Europe needs to resolve their debt crises.

Also, Dow ended the day up after an abysmal Thursday.

[Becky]

I'm mostly frustrated because I think the credit downscore could have been avoided without raising the debt ceiling. At the same time, I've been saying that maybe this is what we need, a true reality check. Haven't there already been warnings that the score was at risk for being downgraded? I'm not entirely surprised. It's a wake up call. It's disheartening, but it might be a necessity.

I just read an article (http://news.ninemsn.com.au/national/8282168/swan-says-australian-credit-rating-safe) where S&P stated that, on the other hand, Australia's credit rating is far beyond the US's as one of the top Google news stories that came up for me.

[Deadwood_Zen]

*feels like an illiterate fuck since he can't take this in school 'til Senior year and has no idea what's going on*

[Mikachu Yukitatsu]

I understand US politics completely! This means somebody hit his head on Ceiling, so it needed to be raised!

[Heald]

The last thing the US needs to be doing is raising even more debt so the fact it will cost them more to do so from now on isn't really that bad.

However, it is a huge embarrassment for both the government and Congress, whose bickering and indecisiveness on the issue are seen as the primary causes for the US' first downgrade ever since debt ratings began. Furthermore, shareholders in the US stocks and stocks with medium-to-high correlation to the US economy will be jittery. I doubt any more good news will appear before the markets open again on Monday, and I predict even further losses on the stock markets.

[Gavin Luper]

I'm getting nervous. A debt of $14trillion+ is staggering, and the fact that it got so close to the deadline is absurd. Combined with S&P's downgrade, I am quite worried for the US economy, especially with the Eurozone debt crisis getting worse across the pond with now Italy and Spain running the risk of defaulting. It really isn't good news, globally. People are mentioning a "second Global Financial Crisis" or a "double-dip recession", but frankly, I'm not sure the first one was even fully over.

Becky, I was just reading that article before I logged on here. It's true that Australia weathered the GFC exceptionally well, but retail confidence is at extremely low levels - levels that haven't been seen for decades. And anyone in the retail sector will tell you it's been hard going especially this year, even in a country such as ours that seemed to avoid taking too much damage during the GFC. Demand for credit has slumped massively, too. And our stock market plunged on Thursday and Friday.

Locally, none of these indicate any good news. If the world goes back into a recession - or worse, a genuine depression - I am not entirely convinced by Wayne Swan (our treasurer) - in fact, I'm hardly convinced at all - that we are going to be so well-shielded from it. Certainly the current government's economic credentials are a complete joke. The only thing that may prove beneficial to us is our strong economic relationship with China. But that, in itself, has me worried, too.

All in all, I think the next few months, at least, are going to be a bumpy ride for all of us.

[Blademaster]

*feels like an illiterate fuck since he can't take this in school 'til Senior year and has no idea what's going on*

Allow me to clarify.

The country used to have the financial credibility of the AAA - that is, the American Automobile Association, a federation of over 50 million members who know how to handle their money well in the event of an automobile emergency or an environmental crisis.

Now we have the financial credibility of AA - that is, Alcoholics Anonymous. Needless to say, members of AA usually have histories of handling their money poorly and/or having little of it TO handle due to their own personal vices.

Now you know. And knowing is half the battle!

[Heald]

What I find annoying at the moment is all the anti-Coalition people here in the UK calling for the PM and the Chancellor (our finance minister for those not in the know) to return from holiday to deal with the crisis. Yes, the crisis will affect the UK, but the two problems are in the US and in the Eurozone. There is nothing the Chancellor or the Prime Minister has any power to do.

People tend to significantly overestimate the good that any politician can do.

[Roy Karrde]

The only thing that may prove beneficial to us is our strong economic relationship with China. But that, in itself, has me worried, too.

All and all I would be worried about China too, they are a country that survives right now on building massive ghost towns. I don't know how long they can keep it up.


I doubt any more good news will appear before the markets open again on Monday, and I predict even further losses on the stock markets.

Grab the popcorn and turn it on to CNBC on Monday or what ever financial channel you like. It is going to be a wild ride!

[Lady Vulpix]

At least you're not surviving by draining your lands to produce soybean oil. I wonder what will happen once they run out of fertile soil.

But hey, once thing I've learnt from growing up in Argentina is the following: the crisis is there. The economy goes down the drain everyday. But the sun still rises the next day, and we live on. After a while, you become used to it. It's never nice, but it becomes a part of daily life and you learn to live with it.

[Heald]

Grab the popcorn and turn it on to CNBC on Monday or what ever financial channel you like. It is going to be a wild ride!
I work at a stockbrokers, my computer has a direct link to the stock exchanges so I'll be seeing it first hand.

The systems were slow as hell on Friday anyway due to the sheer volume of trading going on, Monday will probably be even worse.

[Roy Karrde]

I work at a stockbrokers, my computer has a direct link to the stock exchanges so I'll be seeing it first hand.

The systems were slow as hell on Friday anyway due to the sheer volume of trading going on, Monday will probably be even worse.

So what do you think? Over/Under that it is worse than Thursday?

[mr_pikachu]

Allow me to clarify.

The country used to have the financial credibility of the AAA - that is, the American Automobile Association, a federation of over 50 million members who know how to handle their money well in the event of an automobile emergency or an environmental crisis.

Now we have the financial credibility of AA - that is, Alcoholics Anonymous. Needless to say, members of AA usually have histories of handling their money poorly and/or having little of it TO handle due to their own personal vices.

Now you know. And knowing is half the battle!

Blademaster, that's the hardest I've laughed at a post in a very long time.

DZ, think of the debt ceiling like a credit card limit and the national debt like the amount of money we owe on that card. When you use a credit card, you can spend money until the point at which you reach your limit. (Of course, you have to pay interest on whatever you owe, and eventually you'll want to pay back that money, or else you'll just be paying interest and draining your own assets forever.)

The difference between the Visa card that you might own and the government's debt ceiling is that we can't choose to raise our credit limit at will to give ourselves more room to spend. But the debt ceiling is the self-imposed limit by the government on how much it is willing to owe, and it can be raised at any time (as long as Congress and the President agree to do so). In the past, any time that we've needed to raise the debt ceiling to avoid defaulting as a country, we've done so. The reason we had such a battle here is that many members of congress said that recent government spending has been too reckless, so they wanted to see significant changes before agreeing to raise the debt ceiling (and some didn't really want to raise it at all).

In any case, I agree with the people who have said that $16T is a completely absurd amount of debt. Who can blame credit rating agencies for the downgrade? Giving ourselves the ability to go even further into the red doesn't improve our ability to actually pay back the debt we currently hold (to get back into the black).

I think the worst part about this whole issue is that many of our fiscal policies over the past five years or so have been geared toward stalling away a true "depression" until after the next election. (Both parties are guilty of this, but the easiest example is the current one: just look at when the Treasury's borrowing needs will no longer be "satisfied (http://money.cnn.com/2011/08/01/news/economy/debt_ceiling_breakdown_of_deal/index.htm).") In the meantime, the unemployment rate is still as high as it's been since the Great Depression, so all these little temporary projects that the government keeps undertaking and the one-year temp jobs that those projects have created (many of which expired quite some time ago) have made it so that neither the people nor the government can pay their bills in the long term.

For now, the debt's only growing larger, and the stalling can't continue forever. Once our nation's leaders lose the ability (or the desire) to continue this irresponsible stalling, a depression is almost inevitable. And the deeper we are in debt at that point -- in other words, the longer we've been stalling -- the worse that depression will be.

[Heald]

So what do you think? Over/Under that it is worse than Thursday?
Initially under. Prices will drop, but then I reckon the week end will give plenty of people to assess what stocks they reckon will be having their prices cut but in the long term will recover to their original levels in a decent timeframe, so it's a very close call. I reckon DJI will be up very slightly, FTSE and NYX down.

[Gavin Luper]

For now, the debt's only growing larger, and the stalling can't continue forever. Once our nation's leaders lose the ability (or the desire) to continue this irresponsible stalling, a depression is almost inevitable. And the deeper we are in debt at that point -- in other words, the longer we've been stalling -- the worse that depression will be.

This. Sadly.

When you're actually taking on more debt to pay your existing debts, you know that sooner or later you're going to be screwed, and basically you're just delaying the inevitable screw-up, and exacerbating how bad it will be, too.

On a microcosmic level, I see this with clients all the time: the ones who are increasing their credit card limit and then cash advancing constantly in order to have money for bills, rent, food, etc. are the ones who have overcommitted and, almost always, the ones who end up defaulting on everything a few months later.

It's a different beast entirely, of course, but the same basic idea applies to global economies, too. If the US doesn't have the funds to service a $14T debt, there's no good reason to suggest that they will have the funds to service an even greater $16T debt.

Nonetheless, raising the debt ceiling last week was obviously a no-brainer (default now and definite, immediate economic chaos results, or put it off and see what happens). But for this stall tactic to prove to be anything but a stall tactic, there would have to be massive cuts in govt spending and somehow a whole heap of revenue-raising. I don't have a huge understanding of economics so I don't know how they are going to do it, but hopefully they can pull something special out of thin air, otherwise I think we're in for a worse situation in the months and years ahead, and quite possibly the lurking prospect of a depression will feel more and more inevitable.

[Drago]

Will this affect the USD at all? I'm trying to hold off on changing my Australian money before my trip...

[mr_pikachu]

Will this affect the USD at all?

Yes. (http://www.businessweek.com/news/2011-08-07/dollar-weakens-to-record-versus-franc-as-s-p-lowers-u-s-rating.html)

[Gavin Luper]

Double yes. AUD was buying about 1.08 USD before last week, now it's at about 1.03. I would expect it to fall further - depending on what happens next, obviously.

[Roy Karrde]

Stocks down 386.48 with a few more hours left to go!

[Heald]

FTSE 100 only performed slightly less worse than it did Thursday. DJI is looking to be a lot worse than it did on Thursday. NYX will probably perform about as badly as it did Thursday.

Performed to the joyous backdrop of the poorest, most ethnic areas of our capital city going up in smoke. Gorgeous.

[Blademaster]

In lieu of massive global debts and other assorted economic problems, I volunteer this proposition:

We should abandon all currency currently in circulation, and switch to a new, single, global currency that all people can access and that there is no existing record for, be it positive or negative.

For the sake of convenience and expedient expenditure, I vote that we use rocks as currency.

[ChobiChibi]

Performed to the joyous backdrop of the poorest, most ethnic areas of our capital city going up in smoke. Gorgeous.

Good luck with that. Don't envy you in the slightest.

[Dark Sage]

Down over six-hundred at the close, Roy. And you're obviously going to blame Obama for it.

Don't make me laugh. You know what caused this? Greed.

Greed from all the fat cats who the GOP won't tax. Greed from the big banks who caused this crisis.

Greed from the five percent of Americans that make up the true Republicans in this country, who decieve everyone else who thinks he's a Republican.

It all comes down to plain old Greed. One of the Seven Deadly Sins, what the Root of All Evil fuels. That's what has caused the problems facing this country today.

[ChobiChibi]

Jumping the gun slightly, aren't we? He hasn't even mentioned Obama yet.

Lol, can't believe I'm defending him.

[Dark Sage]

Sorry, I'm just mad.

[Roy Karrde]

Down over six-hundred at the close, Roy. And you're obviously going to blame Obama for it.

Don't make me laugh. You know what caused this? Greed.

Greed from all the fat cats who the GOP won't tax. Greed from the big banks who caused this crisis.

Greed from the five percent of Americans that make up the true Republicans in this country, who decieve everyone else who thinks he's a Republican.

It all comes down to plain old Greed. One of the Seven Deadly Sins, what the Root of All Evil fuels. That's what has caused the problems facing this country today.

Umm actually I blame the voters in the country, who have such a narrow focus that they will not let any politician touch entitlements even though they are the drivers of our debt and will be our undoing in the future if we do not fix them.

I don't blame one politician, because no one single politician is to blame for a problem that has been building for a long time.

[Dark Sage]

I blame the voters too, Roy.

Last election, they had a "kick the bums out" mentality, and all it got us was a bunch of worse bums.

[Roy Karrde]

I blame the voters too, Roy.

Last election, they had a "kick the bums out" mentality, and all it got us was a bunch of worse bums.

You do realize it is very narrow sighted to blame it on any recent event. We are looking at a entitlement deficit of taking up all of our tax dollars by the next 20 to 30 years. This is something that has been steam rolling since the 50s and 60s. So lets put aside the partisan hackery for a moment, and realize that what happen didn't suddenly happen over the last 6 months, or 3 years. But for the last few decades it has been building and building.

[Asilynne]

OMG, Roy and Dark Sage agreed on something. That should be /thread <3

[The Blue Avenger]

Although even when they're agreeing on something, they're arguing about it.

[Roy Karrde]

Lol well it just seems like Dark Sage thinks the Tea Party is responsible, I believe that the 211 Trillion dollars in unfunded liabilities (http://www.npr.org/2011/08/06/139027615/a-national-debt-of-14-trillion-try-211-trillion?ft=1&f=1001) is responsible.

[DarkestLight]

I believe its the Cold War's fault since they tried to duplicate the nationwide growth that occurred during WWII :/. So everyone from 1946 on is to blame. :/. Damn you James, you fangletoothed mf'er >O!!!

[mr_pikachu]

Two things:

1. The loss of the AAA rating isn't itself a catastrophe, in my opinion; it's more symptomatic of the larger problem. This article (http://finance.yahoo.com/news/Second-Recession-in-US-Could-nytimes-2428475539.html?x=0) pretty well sums up my concerns about the country's economic future, particularly in terms of a more devastating collapse the second time around.

2. In response to Dark Sage's below quote...


I blame the voters too, Roy.

Last election, they had a "kick the bums out" mentality, and all it got us was a bunch of worse bums.

...Poll suggests 2012 change in power in Washington (http://news.yahoo.com/blogs/ticket/poll-suggests-2012-change-power-washington-131541841.html).


Prior to the elections of 1994, 2006 and 2010 when party control changed hands in the House or Senate, many Americans said incumbents didn't deserve re-election.

Now, we're seeing the highest number of Americans in two decades who agree with that sentiment, spelling another potential "wave" election for 2012, USA Today reports.

Only 24 percent of all adults surveyed in the USA Today/Gallup poll said most members of Congress deserve re-election "the lowest percentage since Gallup began asking the question in 1991" the newspaper reports. USA Today notes this is similar to the level of support polled prior to the 1994, 2006 and 2010 elections. In 1994, Republicans won control of both the House and Senate. In 2006, Democrats won control of both the House and Senate. And last fall, Republicans won control of the House.

This is hardly the first story this year about the lack of support for sitting government officials, but yeah. Granted, the numbers may change significantly over the next 15 months, but it's still a big hole for a lot of incumbent candidates. Good to know that the government's still capable of doing the bang-up job to which we've all become accustomed... and at least voters are beginning to realize that trillions of dollars of debt is a problem.

Considering how the conversation's slowly shifting, I sense that we may need an "Election 2012" thread in the near future....

[Leon-IH]

Double yes. AUD was buying about 1.08 USD before last week, now it's at about 1.03. I would expect it to fall further - depending on what happens next, obviously.

The AUD bounces around like a fucking yo-yo, put no faith in it; could easily go back below parity and then jump to 1.10 USD.

[Gavin Luper]

Leon: XD

Brian: What month is the election in? I can't believe it's coming around again already.

[mr_pikachu]

Gavin: The general election is November 2012, but in the meantime there are primary elections to determine the candidates for the two major parties (Democratic and Republican) as well as a ridiculous amount of campaigning. It's really not unusual for the posturing to begin four years in advance, the moment that the previous election is decided. I just choose to wait a little longer than that to start paying close attention.

[Roy Karrde]

Looks like France will be the next country to lose it's AAA rating....

http://www.cnbc.com/id/44084798

[Gavin Luper]

Gavin: The general election is November 2012, but in the meantime there are primary elections to determine the candidates for the two major parties (Democratic and Republican) as well as a ridiculous amount of campaigning. It's really not unusual for the posturing to begin four years in advance, the moment that the previous election is decided. I just choose to wait a little longer than that to start paying close attention.

This is why I am quite a fan of Australia's compulsory voting system. There's less extreme campaigning because people already HAVE to vote no matter what - there's no need to create a fanfare and invoke patriotism to get people engaged. I think it should be introduced in other countries, personally.


Looks like France will be the next country to lose it's AAA rating....

http://www.cnbc.com/id/44084798

That was a rumour that's since been debunked by the ratings agencies. Thankfully!

[Dark Sage]

The elections this year are going to be something to watch. This might actually be a year when I'd find the Republican National Convention entertaining. The GOP has the worst crop of contenders I've ever seen, and seeing them called "hopefuls" makes me laugh.

Bachman is just plain crazy. Pawlenty has proven to be a bigot. I don't want to get started on Gingrich and Palin...

The GOP are working so hard to make sure Obama is a one-term President, but the alternatives that they have offered so far border on hopeless.