6/1/2012 6:53 PM ET|
What if US gets downgraded again?
The rating agencies have put the US on notice -- again. Experts offer advice on how investors can prepare.
The rating agencies have put the U.S. on notice, as Forrest Gump might say, again: Come up with a credible plan to deal with the budget deficit or face yet another downgrade. And that warning has investors wondering what, if any, moves to make with their money should Uncle Sam's credit rating get dinged -- again.
We've been down this road before. A little less than a year ago, the rating agencies, after issuing a similar warning, did in fact downgrade the U.S. credit rating (in the case of Standard & Poor's, by one notch from triple-A to double-A), and nothing all that bad happened to most of our investments. Yes, there was a good deal of volatility last August. But, ultimately, with few exceptions, the sky didn't fall. Stocks, bonds and commodities didn't collapse.
There was no "rapid re-pricing" as some money managers said would happen when the credit agencies followed through on their warnings. "Medium- to long-term, it has not appeared to have any substantive impact, said Greg Gocek, a financial analyst and independent investor in the Chicago area.
Now, many experts don't expect history to repeat itself. Investment professionals and others think lawmakers will reach a temporary agreement on the debt limit and avert another downgrade.
4 reasons a downgrade won't happen
What's more, the probability of a major budget deal being reached in early 2013 is higher than usual for at least four reasons, according Jeffrey Kleintop, a financial analyst and the chief market strategist with LPL Financial.
One, the economic impact of the many scheduled tax increases and spending cuts is already set to begin in 2013, he said. The fiscal head wind comprising both tax increases and spending cuts under current policy totals more than $500 billion, or 3.5% of the gross domestic product. The 2013 budget changes, primarily consisting of tax increases, are already in the law and would need to be changed to mitigate or restructure them to be less of an economic drag. If not, a return to recession may be looming in 2013.
Two, the debt ceiling will be hit again in early 2013 and require legislative action to approve an increase.
Three, the rating agencies have warned that they will be watching in 2013 for the U.S. to take actions to return to a path of fiscal sustainability.
And four, President Barack Obama and a newly elected Congress will have maximum political capital to make it happen in early 2013.
"The most likely outcome is a fiscal tightening that exceeds 1% of GDP is likely next year," said Kleintop. In fact, he predicts a fiscal tightening of more than $200 billion -- with about half from tax increases -- totaling about 1.3% to 1.5% of GDP. From his perspective, the $200 billion is made up of the likely expiration of the payroll tax cut ($110 billion), a reduction in discretionary spending (of about $80 to $90 billion), and the imposition of the 3.8% surtax on investment income from high earners ($21 billion).
"This combination of about $100 billion in tax increases and $100 billion in spending cuts may be the sweet spot for markets," Kleintop said. "It is significant but not enough, by itself, to cause a recession; it may allay the immediate concerns of the rating agencies and avert a downgrade of our debt, and it may boost confidence that we can address our long-term fiscal imbalances and return to the path of fiscal sustainability. This is why the makeup of Congress is so important as Washington attempts to avert the budget bombshell from going off and taking the economy and markets with it."
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Question: What if the credit rating is down graded for the United States of America ?
Answer: Build more Prisons to house all of the Legislative, Executive, and Judicial branches.
Lets use democrat logic... Since the last downgrade interest rates on government debt is at record lows. Another downgraqde should propel them even lower. So we should welcome the downgrades. We should SPEND, BORROW and DEBASE even more to get rates even lower...
Welcome to Obamanomics
Think of Verison wireless. Not only did they not pay taxes the last few years, but they received almost a billion in refunds. BTW, they cut around 30,000 jobs during that period and made employees take furloughs, while there CEO got big bonuses and 10's of millions of dollars which he probably didn't pay taxes on.
If that huge corporation payed it's fair share in taxes and did not get huge refunds, that money could be spent redoing our roads, giving 100,000 people a 30,000 a year job WORKING, so they can support their families and make our country better.Our government cuts things we really need, give tax breaks to corps that ship jobs overseas then blame the people they raped and shame them for not "wanting" to work. Typical.
I can't stand Obama, if anything he's Ronald Reagon Jr., a guy who bows to the big banks that collapsed the world economy and yet have no regulations anymore. Yet he's painted as a socialist naxi by brain washed neo-cons and conspiracy peeps. Why don't we talk about Bush, he's the one who took a balanced budget and decimated it. Collapsed the job market and left this country in financial ruin.
Perfect plan by the republicans to get a half black guy elected to pawn off all of Bush's mistakes on to him. BTW, I know people will cry, "don't bring race into this", but I'm white with 3 white right wing brothers. They aren't stupid, but they are racist, I've heard, "I ain't paying for no lazy n***er in Milwaukee's insurance!!" from a couple of em. The neo-cons know this, I'm sure they weren't really upset when Obama won the last election so they could pawn it off on him and get all the closet racists going. Now they can bring in another corporatist like "pay no taxes elitist Romney" so he can win and keep up all the BS corrupt policies that have been going on for decades.
What were some of Bush's mistakes? Well he lowered taxes on the rich so much that they don't even pay now. He spent and spent and spent, from tax breaks for his buddies in oil and military machine makers. O the war in Iraq so he could hand it to his oil buddies. How many lives and dollars did that cost our country??
If Obama is reelected, expect to see him attempt to make private ownership of Gold illegal, a la Roosevelt.
We need to build more nuclear plants along the Great Lakes where there is plenty of water, low earthquake risk and no tsunami risk. This area desperately needs more jobs & nuclear plants provide lots of construction & technology-related jobs to build & sustain. The cost of living is also much more affordable meaning workers do not need the huge salaries as coastal cities to have a comfortable way of life. As this is being done we need to improve our electrical grid across the country & our ability to fix it quickly/reroute if key points in the grid are attacked by terrorists.
IMO we should have spent stimulus money on these improvements rather than bailing out banks. Bush, Obama & Congress were idiots for giving banks more money. Let Wall Street fail. Let the banks fail. Smaller, solid companies will rise in their wake. I just found-out the owner of my mortgage company, GMAC, is filing for bankruptcy. Too big, powerful & greedy for their own good. Fools and their money are quickly parted. We need to stop electing foolish people into office who cannot see past their own re-elections... We need LONG TERM plans NOW! Vote out incumbents until they get the picture that we want solutions not just pre-election hype. I am no longer Democrat or Republican... I will keep voting out incumbents until they start keeping their campaign promises.
We can also bring our troops home and hire them to protect our energy plants (namely nuclear). Between nuclear power, natural gas, coal & our own oil reserves we can be self-sustaining. The Middle East can blow itself to pieces & we can survive just fine. Let China spend the big bucks to patrol the Middle East. China will need a lot more resources than us as 1 Billion people gradually move into the lower middle class and start using more energy.
Your article makes a big assumption "And four, President Barack Obama and a newly elected Congress will have maximum political capital to make it happen in early 2013." This isn't news, it is Proproganda. Shame on MSN for trying to make voters believe that this whole situation is hopeless with another 4 years of the most incompetent president in my lifetime. Obama knows how to campaign but is way over his head when it comes to ideas on how to fix any of the problems plaguing the country.
"Fool me once, shame on you. Fool me twice, shame on me." You won't fool me again Obama, we have seen you for what you are, a slick, corrupt, Chicago machine politician.
If it were to happen again, it would serve the politicians right! They are responsible for the mess we're in now. The public doesn't make the decisions about how many millions and billions are spent for buying friendship of other countries. It really hurts to have to say this,
This mess isn't all Obamas fault, or even Bushes fault.
The stupid CONGRESS has to approve most high-dollar spending.
There definitely needs to be some depts merged in state and federal depts., and employee cuts in both.
Why do we keep throwing good money after bad?!
If that solution prevents the credit agencies from downgrading, then those agencies are pretty much useless. And if the author thinks that such a solution ought to be enough to prevent a downgrade, then he's an idiot.
And yes...assuming that Obama will be the president after the November elections, or assuming that he will work hard to get something done before inauguration day, is very irresponsible journalism and quite naive, respectively.
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