Tag Archives: credit rating

The long term credit rating of the United States was lowered today by Standard and Poors.

The day of reckoning looms: The long term credit rating of the United States was lowered today by Standard and Poors.

The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics. 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.

Life after the downgrade

Life after the downgrade.

An excellent summary of the consequences of a lower credit rating for the U.S. government.

There is a lot of anger at the moment in the US over the embarrassment of the downgrade, as well as shock. I’m most amused by the shock, to tell the truth. S&P didn’t say anything yesterday that was not common knowledge and common sense. If you had to rate a potential investment that had an income of, say, $22,000 a year but had costs of $37,000 per year, a standing debt of $143,000, and contracted future debt that exceeded $1 million, would you give that investment a gold-plated AAA rating and buy their bonds at the lowest interest rate possible, or at all? Of course not, but that’s exactly the fiscal situation of the US, at a 100,000,000:1 scale.

Downgrade could come as soon as Friday

The day of reckoning looms even closer: Credit rating downgrade for the U.S. government could come as soon as Friday. Key quote:

It’s not the debt ceiling that’s triggering a potential ratings change — it’s the trajectory of debt generated by the federal government.

And this:

The problem, as [the ratings agencies] see it, is not that America can’t pay its debts next month, but that America has grown its debt to such a degree that we can’t pay them in the long run without serious restructuring of the federal government — and this administration refuses to consider it: