America gets downgraded
Standard & Poor's cuts the US credit rating from AAA for the first time in history on political bickering and budget largess.
We knew it was coming. But it was still a shock. Late Friday night, credit analysts at Standard & Poor's downgraded the U.S. sovereign debt rating to AA+ and warned that a cut to AA is possible within the next two years. The cut means that instead of ranking with most of the world's strongest economies -- those of Austria, Norway, Germany, Australia and others -- we now join AA credit risks including China, Bermuda, Kuwait, Slovenia, Spain and Qatar.
The problem was the debacle that was the debt ceiling debate. As part of the deal, analysts at Standard & Poor's were looking for $4 trillion in cuts over 10 years. Congress gave them a little more than half of that through gimmickry, untested "committees" and a political sideshow that didn't exactly instill confidence.
After S&P analysts took such a specific public position on the budget debate, I didn't see how they could walk away from their threats now. Not after the bugling of the rating agencies during the housing bust. Not after their poor performance heading into the eurozone crisis. And while competitors Moody's and Fitch reaffirmed their AAA ratings this week, S&P did the inevitable: It called us out.
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The S&P team cited a "contentious" political process and a fiscal consolidation plan that "falls short" as the primary reasons for the downgrade.
In their words: "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."
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The problem, which has been the focus of my recent commentary, is that politicians are simply making a mess of things at a time of extreme economic fragility. I said this earlier Friday in response to the harrowing market losses seen over the past few days:
The sell-off that started with the realization that politicians, harboring a toxic mix of immense naivete and undeserved self-assuredness, were willing to toy with the very foundations of the global financial system: U.S. Treasury bonds. These are the "risk-free" assets by which all other securities are judged, the oxygen that sustains the world of high finance.
This has shaken confidence and fueled a mini-financial panic not unlike what happened in fall 2008 when the Bush administration's first bank bailout proposal was defeated in the House of Representatives and Lehman Bros. was allowed to fail.
With the economy just trying to recover from a painful one-two punch of Japanese supply chain disruptions and an energy price spike, the political games in Washington, D.C., and the nervous "what if" debt default scenarios were too much. Whatever positive momentum we had in June and early July faded.
It's not just about tackling the debt problem. It's about doing it in a way that doesn't sink the economy. That was the focus of a blog post from July 29 ("Is the Tea Party ruining the economy -- again?") in which I outlined a three-step solution:
It took a long time to get us into this mess, and it's going to take a long time to get out. The first priority is ending the debt crisis before we have a repeat of the 2008 nightmare. The time for compromise is now. Second, we need a credible medium-term fiscal consolidation plan. Third, we need to look at ways to get the economy and the jobs market back on track. I suggested two ideas a few weeks ago.
And the thing is, the extreme position of the Tea Party -- massive spending cuts now with no tax reform -- is out of touch with where most Americans are, based on recent polling. This crisis isn't necessary. And the people don't want it.
Now, after one of the worst runs in stock market history, traders will spend an entire weekend reviewing and considering the implications of Friday's historic credit downgrade. They won't be good. And that sets the stage for another difficult day for stocks when the market reopens on Monday.
My newsletter subscribers have been well positioned for the market chaos with targeted short positions and are up 4.5% for the month vs. a 7.2% loss for the S&P 500. Highlights include short positions in Saks (SKS) and CarMax (KMX), which have been posted to my Edge Letter sample portfolio to track recommendations for my MSN Money readers in real time.
Disclosure: Anthony has recommended KMX and SKS short to his newsletter subscribers.
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Don't forget to thank the rest of the buffoons up on Capitol Hill. They all share the blame in this mess. They need to quit acting like a bunch of kindergarteners and put on their big boy/girl pants. Not one of them gives a rat's **** about what's best for the citizens of this country. All they care about is pissing off the other party. They all disgust me.
Wasn't it S&P and Moody's that were rating all of those derivatives made up of pieces of junk mortgages AAA? So what does this rating really mean? My guess is we should follow the money. Some people who are very wealthy are going to get wealthier. And as usual the middle class and the working poor will get screwed as usual. Could this just be another part of the scheme to continue the 30 year conscious redistributipon of wealth to the very top? This will help justify the cutting of "entitlement" programs that help the middle class, while not generating income by cutting some of the corporate welfare and not raising taxes on the very wealthy (when will it trickle down?).
Follow the money and WAKE UP! Your pockets are being emptied by the very rich and the corporate overlords.
Good. Our credit rating goes down, which means it's more expensive for us to borrow. GOOD! It should be expensive to borrow, then maybe we'll think twice before jumping into wars that give us little satisfaction and starting social programs we can't afford. Maybe we'll finally start funding only those things we really need.
Let the federal govt go back to fulfilling its constitutional duties and not trying to engineer our society with the tax code and various bailouts.
The same Standard & Poor's that enabled the Wall Street obscenity by feloniously maintaining high money changer ratings would once again wreak economic ruin upon America? This must not happen. The remedy is to DECENTRALIZE WALL STREET entirely away from NYC. A dozen or so autonomous but interactive locations across the country would wonderfully disrupt Wall Street's criminal collusion, ethnicity and Louis XIV culture.
"There is nothing so demoralizing and destructive to a nation than public debt. It will bring on us more ruin at home than all the enemies from abroad against which the military is charged to protect us."The real war folks is against those that put us so far in National debt. Such a simple problem could be fixed if it were not for the Pole-Cat (Big Money & Corrupt Government) guarding the Hen-House. Lets get out of the foreign wars and fight the battle we NEED to win here at home.
Let me see now. The S&P, that paragon of virtue, that highly respectable institution of estute valuation, that noble watchdog for investor protection, has downgraded the US debt. I was thinking this was the same institution that rated junk collateralized debt obligations AAA in 2007 and 2008. But alas, I must be confused. Surely they are not one in the same.
Please let me tell a brief story. I am fully employed by necessity. However, i retired once after 30 years with another employer and thus had my retirement money to invest. After experiencing some mediocre returns, i took the advice of a friend and talked with his financial advisor about some mortgage bonds that were returning 6 tgo 8 percent. When I asked how they were able to return so much, the advisor explained that the mortgages were combined and resold as packages where investors bought all or part of the package. This still did not compute for me since I could not see how 4% mortgages could pay investors 8%, So I passed on the deal. But they were AAA rated. I am a dumb coal miner. How come I recognized a con job and the S&P didn't?
Like many middle class americans, I went on to lose over 1/3 of my retirement savings in the finacial meltdown that followed. Thanks S&P, with your latest scholarly move you are again playing your part in the demise of the middle class
Anyone who voted Republican needs to take a good, long look at things.
All debt ceilings (by either party) have been raised in the past with no fuss. All the republicans wanted to accomplish was to show how powerful they were.
Two big things have caused our problems:
1) The republicans put two wars on a Chinese credit card and lowered taxes on the rich when logically taxes should go up in wartime. If you don't pay as you go, it catches up with you.
2) Overall our richest are getting richer without producing anything...essentially just shuffling paper around...... lawyering, insurance, stocks, loans, commodities, dollars.....you gotta make stuff to make your economy solid and keep folks working.
Printing more dollars does not create value.
Taxing the citizens does not mean it will be used to pay down the debt.
Cut the waste, it has gone too far.
With all of this going on, lets not forget the soldiers who lost their lives today. God bless them and their families!
Our wonderful government is full of thieving, greedy , self-serving, worthless pieces of garbage who have sold out this country to better themselfs,that is why this country is in bad shape, someday the american people will get to the point, that we can't take it anymore & revolt, This is our hard earned money that they waist time & time again & we suffer for it. We need to take care of our people, not the whole world, These countries we have spent billions of dollars on would cut our throats in a heartbeat, we get nothing out of these huge expenditures. Get all of these thieves out of office.
I wonder if Joe Walsh (tea party mouth piece) and Michelle Bachman (tea part nightmare and presidential wanna be) will be on the morning talks shows about how this downgrading business is a hoax perpetuated by the Obama Administration. since they were absolutely certain that nothing would if the debt ceiling did not get raised
Let's see how fast John Boehner can back peddle on his receiving 98% of everything he wanted.
the only thing the republicans worried about when they took office is cutting social programs, getting rid of unions and workers rights, and telling women what they can and can not do with their bodies. when they ran in 2010 they ran on a platform of creating jobs and they had the audacity to vote down jobs bills presented in the house. they have pledged their lives away to the people who are pulling their strings, while taking a bite out of the US at the same time.
democrats are on the hook as well they were so busy trying to compromise just to get anything done instead of being decisive and making decisions that would have helped the economy and moved us forward when they had the chance. If president Obama gives me one more speech about how this is bad but everything will be ok I am going to scream. We are all adults do not sugar coat the situation it makes you look incompetent and America knows that you are not even if they will not admit it. Just be the leader we elected you to be
now we have grid lock, stale mate and a bunch of crying about who is to blame will they ever understand that you can cut and cut and cut until there is no more and just like the drought in Texas when the well is dry it is dry. people are broke they need to work so find major ways to change trade agreements, close loopholes, reform social programs, increase taxes and most of all do what you were elected to do
we the people are left with a hard choice to make
which idiot party will be the lesser of the two evils going forward. they are really not giving us much to work with
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