Thread: US AAA credit rating downgraded

Originally Posted by Butterfly

Originally Posted by bsnub

S&P cut the long-term US credit rating by one notch to AA+ with a negative outllook,

nothing like making a good headline with little truth

it wasn't a credit downgrade per se, but a negative outlook, which is a long term view rating of a situation and doesn't mean much.

US Bonds credit rating are not rated, they are assumed to be AAA

It is an official downgrade to AA+ with a negative outlook. they didn't have to add the negative outlook but they did.

Assumed AAA my ass. Why did the Fed issue a statement about it then ?

Originally Posted by The_Ghost_Of_The_Moog

Originally Posted by Butterfly

Originally Posted by The_Ghost_Of_The_Moog

Nope. The rating itself was cut. Not just a negative outlook


Teakdoor clearly isn't the place to find out facts on this scenario !

and neither the BBC apparently, rating agencies issues 3 different ratings and the US debt are not rated by default, they are assumed to be AAA

the story is about some long term "outlook" which again means fuck all,

I thought you would know that,

http://www.standardandpoors.com/serv...ervalue3=UTF-8

Yes and that specific list also includes the likes of AAA ratings for Liechenstein and New Zealand and Guernsey. Even Botswana gets a single A.

The US rating cut overnight is the big one. The important one in their portfolio of ratings types.
.
Not the one on this link, which has nothing like the same significance.

I thought you would have known that.

having a tough time with facts ? New Zealand is rated AA+ not AAA.

You are right, Lehman was downgraded the day before it went bankrupt to AA, I was off by a day.

Originally Posted by Butterfly

Originally Posted by The_Ghost_Of_The_Moog

Yes and that specific list also includes the likes of AAA ratings for Liechenstein and New Zealand and Guernsey. Even Botswana gets a single A.

The US rating cut overnight is the big one. The important one in their portfolio of ratings types.
.
Not the one on this link, which has nothing like the same significance.

I thought you would have known that.

again this is the typical confusion of journalists trying to understand ratings, you are not the only one in that regard actually

it's not a credit rating cut, US debt is still "rated" AAA, the cut is about a long term opinion of their credit worthiness, a long term outlook of what they think will happen, it has very little impact and it means fuck all. Did US bonds collapse after the announcement ? of course it didn't,

a real downgrade credit cut is something else, and like I said, there aren't "credit rating" by the rating agency for US debt, as it's assumed to be AAA and are "unofficially" rated AAA. To this day, US debt is still AAA. Just look it up,

I understand the distinction is confusing, but it's there

Presenting the joint statement by The Fed, the FDIC, NCUA, OCC. Federal Reserve Susan Stawick (202) 452-2955; FDIC David Barr (202) 898-6992; NCUA David Small (703) 518-6336; OCC Bryan Hubbard (202) 874-5307
Full release:
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
National Credit Union Administration
Office of the Comptroller of the Currency
Agencies Issue Guidance on Federal Debt

Earlier today, Standard & Poor’s rating agency lowered the long-term rating of the U.S. government and federal agencies from AAA to AA+.

Originally Posted by Butterfly

Originally Posted by The_Ghost_Of_The_Moog

Well now you're just getting flat out patronising!

it's not patronizing, sorry you feel that way, it's simple facts, not sure why it's so difficult for you to understand that

Originally Posted by The_Ghost_Of_The_Moog

The sovereign rating that ranks the USA at AAA alongside Guernsey and Austria is not the ratings type which governs the world's financial markets. That one was cut last night.

the one that was cut means fuck all, and it doesn't govern the world financial markets as it was clearly demonstrated since DOW was up and bonds didn't collapse.

The confusion that many have is about outstanding debt vs economic outlook to service those debts. If US treasury were downgraded as a credit rating, which they didn't, then it would be a significant story. That hasn't happened and can't happen technically because US debt is not rated by any rating agency, even though they are assumed to be "AAA".

The story that is being sold in the newswire is that the US will eventually default because their long term economic outlook is suffering and this is what prompted S&P to "downgrade" their economic outlook for the US. Big fucking news, like we didn't see this already and all other bankers haven't done so already. It's a fucking PR exercise and you know it, it has no impact on the financial markets or for market participants, it has already been "priced in", only newswire players are making a big story about it, because that's their job.

Originally Posted by The_Ghost_Of_The_Moog

And you can keep saying the contrary all night long, ......but you're still wrong.

but I am not, the story is not about debt downgrading as everyone thinks it is, it's about some long term credit "worthiness" which everyone has already "priced in", not waiting for S&P to issue their "downgrade" of the US economic situation.

Originally Posted by The_Ghost_Of_The_Moog

But you have picked the wrong rating from the numerous ratings S&P issues.

maybe you didn't personally, but the story writers in most of the newswire did and the public certainly doesn't recognize the difference between the ratings. This is exactly what I am talking about. Story is being sold as the "debt rating" is being downgraded but it's not, it's the economic outlook. For the public and some journalists, it's the same thing but not for everyone, in particular for those market participants who can tell the difference, it's not the same thing.

maybe you didn't notice but the DOW hasn't not tanked over this yesterday and the bonds market didn't crash. How odd ?

The downgrade was released after the markets CLOSED on Friday.

Originally Posted by Butterfly

I think the EURO situation is far more real and more dangerous than the "confusing rating" downgrade by S&P

You mean the Eurozone ? The net creditor with no trade deficit that has higher interest rates then the US ? and higher value currency ?

Europe is in great shape compared to the US.

Originally Posted by Butterfly

Originally Posted by The_Ghost_Of_The_Moog

And the US market did tank, in those preceding days when rumours were flying around.

you probably missed the story about the EURO and the default rumor of Italy ?

Did you miss the story that US money market funds have 360 billion dollars invested in Euro bonds ?

Do you realize that default is actually long term positive for the Euro currency ?

Originally Posted by Butterfly

Originally Posted by The_Ghost_Of_The_Moog

If a country's politics prevent economic management, or dilute effective financial market regulation due to lobbying pressure from its banks, or encourage loans to sub prime borrowers, then all serve to create a big systemic risk and of course such issues ought to be reflected in a macro ratings system.

You don't think so?

yes in absolute terms I agree, but in this case, it was an obvious political show by the Republicans trying to create a situation. S&P should have discounted it. Anyway, issuing the downgrade based on this in majority seems to be a joke of "mauvais gout"

I note that the other 2 agencies haven't issued such downgrade. Yet.

Yeah, if they used the regular accounting metrics, the US debt would be rated junk.

The US would not qualify to join the European Union in the fiscal shape that it is in today. That is a fact.

The fact remains, with a functional government system the US could pay down it's debt without too much difficulty. But the rich, having made their stash, seem happy for the country to go to the dogs. So much for patriotism.

Originally Posted by attaboy

Originally Posted by StrontiumDog

China tells U.S. good old days of borrowing are over | Reuters

China tells U.S. "good old days" of borrowing are over


By Walter Brandimarte and Melanie Lee
NEW YORK/SHANGHAI | Sat Aug 6, 2011 10:23am EDT

(Reuters) - China bluntly criticized the United States on Saturday one day after the superpower's credit rating was downgraded, saying the "good old days" of borrowing were over.

Haha. More blusterous belly bumping from China. Go ahead and not buy US debt. Go ahead and sell US treasury bonds. The dollar will fall in value and the yuan will increase in value. Chinese goods will become more expensive. Go on gas bags. Make your move.

Yeah, Chinese good will be more expensive for Americans but they will be incrementally cheaper for the Chinese. China will gain the purchasing power that the US lost. Since all commodities like oil are priced in US dollars, a rise in the RMB will make food and energy cheaper for Chinese which gives them more discretionary income to spend on something else(their own production)

And don't forget, the Euro zone is China's largest trading partner, not the US. The Euro will not crash nearly as hard as the dollar because the Euro zone is a net creditor with no trade deficit.

Originally Posted by sabang

The fact remains, with a functional government system the US could pay down it's debt without too much difficulty. But the rich, having made their stash, seem happy for the country to go to the dogs. So much for patriotism.

It is mathematically impossible actually.

The Official Calls For Change Roll In: "Fire Geithner"

Zerohedge.

The first official demand for a change at the top as a result of the S&P downgrade has come in, courtesy of Indiana State Treasurer Richard Mourdock, who has just demanded the head of the most incompetent and tax evading Treasury Secretary in US history, on a silver platter. "President Obama should fire U.S. Secretary of the Treasury Tim Geithner over the debt downgrade. If Obama won't remove him, then the US Senate should withdraw its consent of Geithner's appointment to U.S. Treasury because someone in the White House needs to be held responsible for this disaster." Zero Hedge fully endorses this perspective.
Full press release:

^ Gee, lemme guess- he's a republican.

The decision to attempt to shrink the debt, and just do a 'hail mary' on the economy & human resources will cost the US dearly. When that is finally acknowledged in the capitol, the downgrading of government services- in particular education, will take years to make up. More downside for the once mighty USD methinks, and surely the world has to replace it as the reserve currency with a basket of currencies, or a trade weighted index. The chinks are right.

^Good posts.
There was no mention of US 'bail-out' tax $ being sat-upon (rather than deployed) by its recipients who placed $1.5 Trillion into foreign bonds.
There was little mention of military budgets and objectives nor who it is that benefits from them nor who funds the efforts.
I once did a bit of work for US Dismantlement Corporation (no kidding) and I'm prone to think that the global fat-cat corporations plan to continue with their bellicose activity until the economies contract whereupon they shall acquire their assets through M&A.
"The future sure ain't what it used to be." (POGO>Walt Kelly)

it's sunday, maybe this will put a smile on your face

Originally Posted by StrontiumDog

After U.S. downgrade, fingers point at S&P

S&P really fucked up, and I suspect there will have a lot of explaining to do in the coming weeks, above all when it has become clear now that their main motivation was political. They are fucked. Wouldn't surprise me if they "remove" the downgrade eventually after they face a barrage of complaints by clients and officials.

They really killed little credibility they had left with that move. Idiots. They shoot themselves in the foot over nothing.

Originally Posted by StrontiumDog

“In short, S&P is just making stuff up — and after the mortgage debacle, they really don’t have that right.”

it really sounds that way, you could question their model methodology but it's clear from the official declaration made Friday about the political impasse that their model is nothing more than hot air. Quite disappointing.

Originally Posted by socal

Did you miss the story that US money market funds have 360 billion dollars invested in Euro bonds ?

that sounds like an interesting story actually, do you have a link for it ?

current US Treasury notes or bonds are not rated, and therefore can't be downgraded

US Treasury are obviously the debt vehicle of the US government, here is a link for a nice explanation

Fixed Income - Bond Ratings

U.S. Treasury Bonds and Insured Bonds

U.S. treasury bonds are not rated. Assuming they are held to maturity they are considered extremely credit worthy, because they are backed by the federal government, which in the event of a default will guarantee the repayment of the principal. Agency (or Government Sponsored Enterprises) bonds are also not normally rated. GSE bonds are not explicitly backed by the full faith and credit of the U.S. Government but they have implied government backing and an implied Aaa/AAA rating.

then you have the "Sovereign" rating, which is basically an opinion of the long term performance of a country, it's not a "credit rating" like you have for Debt instruments such as bonds or notes, it's an economic outlook perspective of the "credit worthiness" of a country. It's a valuable rating, but it has to be taken with a grain of salt since it's an opinion issued by a third party. Obviously, everyone has a different opinion for such things, even though there can be at times a consensus.

in short, it doesn't mean much for US debt instruments, since there are not rated, but it's annoying because it's a very public way to advertise to the world and financial markets that your country is not doing so well.

Greece Bonds on the other hand were "credit downgraded" for their debt issues and that's a whole different matter. The confusion in the press between those different downgrades could bring unfounded over reactions by the public and some speculators. It's a dangerous game, and I suspect S&P just committed suicide in terms of credibility.

Originally Posted by Boon Mee

Now that the United States lost its coveted AAA credit rating. Credit rating agency Standard & Poor’s downgraded the nation’s rating for the first time since the U.S. won the top ranking in 1917. 18 countries now have a better credit rating than the US. Obama has not released a statement. What a pitiful situation...

And it never would have happened if the republicans did not blackmail the government into linking raising the debt ceiling to deficit reduction. The S&P decison is a direct result of the circus created by that tactic.

But their may be a silver lining. If the super committee fails to find sufficient budget cuts the defense departement will have to make up the difference.
http://www.washingtonpost.com/opinions/why-defense-spending-should-be-cut/2011/08/03/gIQAsRuqsI_story.html

Originally Posted by socal

having a tough time with facts ? New Zealand is rated AA+ not AAA.

You are right, Lehman was downgraded the day before it went bankrupt to AA, I was off by a day.

1)
S&P | Ratings Sovereigns Ratings List | Americas

New Zealand Domestic rating is AAA

2)
Morgan Stanley, Merrill, Lehman Ratings Cut by S&P (Update3) - Bloomberg

June 2 was not the day before Lehman went bankrupt.
(And it wasn't even AA on the 2nd June - read the article)


Look I realise you're not the kind of person to ever say 'Ok I stand corrected'. So be it.

Originally Posted by Butterfly

Originally Posted by The_Ghost_Of_The_Moog

Nope. The rating itself was cut. Not just a negative outlook


Teakdoor clearly isn't the place to find out facts on this scenario !

and neither the BBC apparently, rating agencies issues 3 different ratings and the US debt are not rated by default, they are assumed to be AAA

the story is about some long term "outlook" which again means fuck all,

I thought you would know that,

http://www.standardandpoors.com/serv...ervalue3=UTF-8

It says USA is AA+ on the sovereign ratings page today, Butterfly. Looks like a correction has been made to their page since Saturday.

China nervous about the $1.5-trillion of U.S. debt it holds - The Globe and Mail



Analysis

China nervous about the $1.5-trillion of U.S. debt it holds

MARK MacKINNON

BEIJING— From Monday's Globe and Mail

Published Sunday, Aug. 07, 2011 7:28PM EDT
Last updated Sunday, Aug. 07, 2011 8:34PM EDT

It was a lecture from China that many saw as the latest sign that the fiscal troubles of the United States are spinning out of control. But the bluster of a state news agency chiding Washington to change its ways also hid how worried Beijing is about their linked economies.

After Standard & Poor’s downgraded the U.S.’s credit rating, the Xinhua news wire said on Saturday that Beijing, as “the largest creditor of the world’s sole superpower,” had “every right” to demand that Washington “address its structural debt problems and ensure the safety of China’s dollar assets.” China holds an estimated $1.5-trillion worth of U.S. government debt.



“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” Xinhua opined.

The editorial went on to suggest that a new global reserve currency might be needed to replace the U.S. dollar – cheeky stuff from the autocrats running the world’s second-largest economy. Xinhua is seen as reflecting the consensus view of the senior leaders of the ruling Communist Party, and sets a line the rest of the country’s media are expected to follow.

The conventional way to read the editorial was something akin to a dealer warning an addict that he might have to cut off supply. Having helped finance the U.S. economic boom by buying up the country’s debt as Americans overspent, China is hinting at moving away from U.S. bonds, a shift that some worry could push the U.S. economy closer to the brink of a new recession or worse.

But doing so would be self-destructive for Beijing. Instead of a dealer and an addict, the U.S. and China more resemble two drunks stumbling down a street with arms slung around each other’s shoulders. From one crisis to the next, it’s unclear if they’re holding each other up or on the verge of tripping.

Despite talk that China and its Asian neighbours would “decouple” their economies from the U.S. and the West after the 2008 financial crisis, the U.S. trade deficit with China hit a record $273-billion last year. The last thing the Communist Party wants to see is the U.S. consumer changing its profligate ways; less U.S. spending means fewer Chinese exports, which means factory shutdowns and perhaps even social unrest in the Middle Kingdom.

(The Xinhua editorial waded uninvited into the American domestic political debate by suggesting that the U.S. curb its deficit by chopping military spending and social programs. Raising taxes – which could affect consumption of Chinese goods – was noticeably left out as a possible remedy.)

This would be a difficult moment for China to see any kind of decline in demand for its products. The Communist Party is about to begin a sensitive transition at the very top, with President Hu Jintao and Premier Wen Jiabao set to give way next year to a new Politburo likely led by current Vice-President Xi Jinping. Bureaucrats are already struggling to control stubborn and rising inflation in the cost of food and other basic goods.

China holds and continues to buy so many U.S. dollar assets not because Beijing sees it as a sound investment strategy, but primarily because it props up the value of its currency, the yuan. A cheap yuan has been crucial to China’s export-led growth, and the social stability it has created here.

The important note in the Xinhua editorial was not the threat to find another international reserve currency (really, the euro? the yen? the yuan?), but its worried forecast about what might happen if the U.S. credit rating is downgraded again in the future. “The spluttering world economic recovery would be very likely to be undermined and fresh rounds of financial turmoil could come back to haunt us all.”

In all likelihood, the Xinhua editorial and all its tough talk was aimed as much at a domestic audience – China’s policy of holding trillions in U.S. treasuries while letting social problems at home fester has become increasingly unpopular – than the White House or Capitol Hill. The anonymous editorial was followed Sunday by a more sober article in the People’s Daily newspaper that was written by respected economist Sun Lijian.

“The lowering of the United States’ long-term sovereign credit rating has sounded a warning bell for the international currency system dominated by the U.S. dollar,” Mr. Sun wrote in the Communist Party mouthpiece.

“Yet the biggest victims may not be the United States itself, but other countries that have depended on external demand to amass national wealth.”

In other words, China.

This guy is the CEO of PIMCO, the worlds largest mutiual fund and bond investment company i believe. Well worth reading-

U.S. Downgrade Heralds a New Financial Era

Not so long ago, it was deemed unthinkable that America could lose its AAA. Indeed, "risk free" and "US Treasuries" were interchangeable terms -- so much so that the global financial system was constructed, and has operated on the assumption that America's AAA was a constant at the core, and not a variable.

Global financial markets will reopen on Monday to a changed reality. There are immediate operational consequences, from re-coding risk and trading systems to evaluating collateral and liquidity management. Key market segments will be closely watched, including the money market complex and the reaction of America's largest foreign creditors.

Meanwhile, for the real economy, credit costs for virtually all American borrowers will be higher over time than they would have been otherwise. Animal spirits, already hobbled by the debt ceiling debacle, will again be dampened, constituting yet another headwind to the generation of investment and employment.

It is hard to imagine that, having downgraded the US, S&P will not follow suit on at least one of the other members of the dwindling club of sovereign AAAs. If this were to materialize and involve a country like France, for example, it could complicate the already fragile efforts by Europe to rescue countries in its periphery.

The future role of rating agencies will also now come under close scrutiny, bringing to the fore the question of who rates the rating agencies? S&P's action will likely unite governments in America and Europe in an effort to erode their monopoly power and operational influence. This will also force all investors to do something that they should have been doing for years: conduct their own ratings due diligence, rather than rely on outsiders.

Mohamed el-Erian: U.S. Downgrade Heralds a New Financial Era

P.S :- for the Right wingers- he is Egyptian by birth, and his name is Mohammed.