Sunday, August 07, 2011

Who sucks, S&P or our Government?

I'd say, our overspending government:

Ouch! U.S. booted from Triple-A debt club
[...] On Friday, S&P downgraded the United States to AA+, an investment grade level just one notch below triple-A. It marked the first time the world's largest economy has been downgraded, since Moody's first gave the country a credit rating in 1917.

S&P cited estimates that U.S. government debt would balloon to 79% of the size of the entire U.S. economy by 2015, and 85% by 2021 -- a level S&P says is consistent with AA+ rated countries.

In comparison, estimates from the International Monetary Fund show triple-A rated Canada's debt is likely to only rise to 34% of its economy by 2015, and Germany's is forecast to rise to 52%. (The IMF does not publish forecasts out to 2021).
Your money in a AA-rated U.S.

The debt of Belgium, another AA+ rated country on S&P's list, is expected to grow to 85% of GDP by 2015, according to the IMF. [...]

If the growth of debt as a portion of GDP is the criteria they use for assigning ratings, and we are on a par with Belgium, which is also rated AA+, then isn't the changing of the rating for the United States justified? People and nations who over-extend themselves by borrowing too much, lower their credit ratings. Sad but true.

Yet, I know there are other nations on that 15 member AAA list that are having financial troubles too. The article didn't mention all their Debt as a portion of GDP growth projections, I'd like to see those.

Meanwhile, we are going to have to deal with the repercussions of this:

Dollar Weakens to Record Versus Franc as S&P Lowers U.S. Rating
[...] “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,” S&P said.

Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings for the U.S. on Aug. 2, the day President Barack Obama signed a bill that ended the debt-ceiling impasse which had pushed the Treasury to the edge of default. Moody’s and Fitch also said downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.

S&P’s move “highlights the much-less advanced pace of fiscal consolidation in the U.S., relative to Europe and the U.K.,” John Normand, the London-based global head of foreign- exchange strategy at JPMorgan Chase & Co., wrote in a report to clients.

Haven Rally

Foreign exchange strategists at Barclays Capital said in a note to clients that S&P’s move may initially lead to a rally in assets and currencies perceived to be a haven, such as the franc and yen, while causing currencies of economies that are depend on commodities to weaken. The dollar may also benefit from the “risk impact of the shock,” though longer-term U.S. “fiscal problems are likely to mean a weaker dollar.”

“S&P had been very clear about what it wanted to see in order for the U.S. to maintain its AAA rating, and the agreement reached last week had not met those criteria,” Paul Robinson, a strategist at Barclays in London, wrote in a note to clients. “Commodity currencies look most vulnerable in the short run, again because of the risk element.” [...]

This is what happens when you keep spending money you don't have. It's not politics, it's MATH.

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