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« Wall Street Collects More Than $4 Billion From Taxpayers as Risky Swaps Backfire | Main | Life And Death Of The One Dollar Bill »
Thursday
Nov112010

S&P Warns On U.S. AAA Rating -- Follow Recommendations Of Deficit Commission Or Suffer A Downgrade

This story was originally published about 5 weeks ago, and in light of yesterday's leaked recommendation from the Simpson-Bowles Deficit Commission, it deserves another look.  Did I mention that Moody's just upgraded China's debt rating tonight. 

They're still not AAA rated which could only reflect political risk given they run massive surpluses with which they are buying the rare earth, while we bailout out failed private industry with borrowed, and increasingly worthless U.S. dollars.  Yet we somehow still maintain a AAA rating, even in the face of trillion-dollar deficits projected for the next decade.  Makes perfect sense.

Chinese debt upgraded from A1 to Aa3... 

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Scroll down for VIDEO and additional details...

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S&P warns on U.S. Rating

The United States government needs to take steps to preserve its top AAA-rating, a Standard & Poor's Ratings (S&P) official told Dow Jones newswire in an interview published on Thursday.

The measures taken in response to recommendations President Barack Obama's commission on fiscal responsibility would be crucial in the view S&P takes on the U.S. credit rating, he said.

"It is very important for the credit standing of the United States that the Congress considers very carefully what the fiscal commission proposes," John Chambers, chairman of S&P's sovereign rating committee, was quoted as saying.

"It is very important for Congress to take the required steps."

S&P maintains the United States' top AAA rating with a stable outlook, meaning there is not a significant chance of a change in the near future.

However, it has repeatedly warned about the gigantic deficit and the debt burden in the world's biggest economy, calling it a challenge for the government.

David Beers, S&P's global head of sovereign ratings said in a July report the U.S. does not have unlimited fiscal flexibility and the best-case scenario for the U.S. would be for its debt-GDP ratio to peak at around 80 percent, although there was a chance it could exceed 100 percent.

"So we don't think these political decisions on tackling the public finances can be put off forever," Beers said in the report.

Chambers also disagreed with Ireland's criticism of its downgrade in the Dow Jones interview.

Chambers said S&P does not consider the bad loans the government's asset management agency is buying from banks as liquid assets in the near term, but added further rating action was unlikely in the near term.

On Tuesday, S&P cut Ireland's long-term rating by one notch to 'AA-', the fourth highest investment grade, and assigned the country a negative outlook saying the cost to the government of supporting the financial sector had increased significantly.

That drew criticism from the National Treasury Management Agency which said it disagreed with S&P's view that Ireland faced substantially higher costs to bail out its ailing banking sector.

"In terms of the specific analysis by S&P, this is largely predicated upon an extreme estimate of bank recapitalization costs of up to 50 billion euros," the NTMA said. "We believe this approach is flawed."

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Video:  Bye Bye Chimerican Pie

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Video:  Trust me, this is excellent...Chimerican Currency Battle

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Excerpt from a story I wrote last week:

The U.S. Bails Out Failed Industries, While China Buys The Rare Earth

Why not use a trillion of the Fed's QE to buy some global natural resources instead of treasuries.  But that's not our style.  We run deficits to bail and stimulate a deleveraging economy that will not revive, while China buys the globe.

We borrow money from our grandchildren to bailout banks, insurers, hedge funds, private-equity shops, car companies, states, unions, houseowners, new car buyers, new house buyers.  Meanwhile China is using its surplus to buy every natural resource that's for sale, anywhere.

And not one word from Obama or anyone in Washington.  We are so supremely fubar in the long run, exhibiting the mass insanity of all empires in decline.  Fighting wars, spending massively, encouraging consumer debt, monetizing the national debt and destroying the greatest currency history has ever known - the once mighty U.S. Dollar.

 

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Reader Comments (9)

Nov 11, 2010 at 11:19 PM | Registered CommenterDailyBail
In what could be another sign that the housing crisis is far from over, the percent of mortgage holders who are underwater on their homes continued to rise in the third quarter–and some say it could be another eight to 10 months before that trend turns around.

In the U.S., 23.2% of U.S. mortgage holders were underwater, owing more money than the house is worth. That’s up from 21.7% from a year ago, according to Q03 data out Wednesday from Zillow.com. Roughly 13.9 million homes now have negative equity. Many of these homes could end up in foreclosure should borrowers give up making payments on homes that aren’t worth what they owe—let alone building equity. (See “The Great Mortgage Mystery“)

http://blogs.wsj.com/developments/2010/11/10/zillow-percentage-of-underwater-borrowers-up/
Nov 11, 2010 at 11:23 PM | Registered CommenterDailyBail
“The debt issue and banking issues in Ireland -- that is clearly weighing down on European equities,” said Christian Tegllund Blaabjerg, chief equity strategist at Saxo Bank.

http://www.marketwatch.com/story/europe-markets-edge-down-siemens-climbs-2010-11-11
Nov 11, 2010 at 11:25 PM | Registered CommenterDailyBail
A new poll out by PPP indicates that when asked how to balance the budget, 43% of real Americans said tax the wealthy, 22% said cut defense spending and only 12% said cut Social Security. They didn't stutter. That's crystal clear. If some of our current politicians make the mistake of backing these cuts for Social Security, those numbers are going to come back to bite them. And they'll be our former politicians. I, for one, will work the rest of my life to kick out of office anyone who signs off on this robbery. I don't give a damn what party they claim to be from. That includes the president.

http://www.opednews.com/articles/Cutting-Social-Security-is-by-Cenk-Uygur-101111-600.html
Nov 11, 2010 at 11:27 PM | Registered CommenterDailyBail
Nov 11, 2010 at 11:30 PM | Registered CommenterDailyBail
Ireland's fear is palpable as prospect of bailout looms

Fear of a new wave of domestic debt sweeping the country is the main cause for concern in everyday life

http://www.guardian.co.uk/world/2010/nov/11/ireland-baliout-domestic-debt
Nov 11, 2010 at 11:51 PM | Registered CommenterDailyBail
Oh, are these the same ratings agencies that rated Wall St. junk from 1999 through 2008 as AAA? Why are these criminally fraudulent operations even in business anymore, much less dictating what the sovereign government of the United States must do? The people who ran those ratings agencies should be behind bars, not forcing our parents to starve to death on the street!
Nov 12, 2010 at 10:17 AM | Unregistered CommenterDoug Diggler
"In the U.S., 23.2% of U.S. mortgage holders were underwater, owing more money than the house is worth. That’s up from 21.7% from a year ago, according to Q03 data out Wednesday from Zillow.com."

I'll bet you dollars to donuts the percentage of underwater mortgages is WAY higher than 23.2%.

A year and a half ago, Barry R. pointed out:

"Nationally, 22% of all homes are underwater, then consider the total of homes purchased with credit. Back out the mortgage-free homes, and we get 33% of all mortgaged homes are underwater."

http://www.ritholtz.com/blog/2009/05/22-of-homeowners-underwater/

And consider this datum: one couple on my street put their place up for sale in May 2009 (when the foregoing piece was written) for $750K. Their place is still up for sale--at an asking price of $589K. Even if they get that, they'll net $560K at best (subtracting the realtor's commission alone) and owe the bank tens of thousands of dollars.

Most people vastly overestimate the value of their homes. Mortgages go underwater because most people are absolutely asleep at the switch, drooling in front of LCD TV sets playing American Idol.
Nov 12, 2010 at 11:51 AM | Unregistered CommenterCheyenne
Hey congress, ever thought about stopping the "wars for empire"? Half of our tax dollars go to past/present/future wars. Now you're playing with fire...and you're going to get burned.
Nov 12, 2010 at 12:28 PM | Unregistered Commenterrobertsgt40

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