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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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.