Standard & Poor Changes Outlook for US Debt & Market Falls 2%

[Flopper]

The ratings agency Standard & Poor’s warned the United States on Monday that it could lose its coveted status as the world’s most secure economy if lawmakers don’t rein in the nation’s nearly $14.3 trillion debt.

The finding, the first of its kind in the 60 years that S&P has been judging the country’s credit quality, sent a jolt through the markets and injected a new sense of urgency into the debate gripping Washington over whether to allow the Treasury to keep borrowing.

S&P changed its outlook on the United States from “stable” to “negative” and said the federal government could lose its AAA rating if officials fail to bring spending in line with revenue.

The AAA rating identifies the United States as one of the world’s safest investments — and has helped the nation borrow at extraordinarily cheap rates to finance its government operations, including two wars and an expensive social safety net for retirees.

Stock prices fell nearly 2 percent in the hours after the report’s release before ending the day down about 1 percent. The dollar and Treasury bonds also slid in the wake of the report but recovered by the end of the day.

Lawmakers on both sides of the deficit debate tried to take advantage of the warning from Wall Street, but that just highlighted the point of the report — which is that the polarization in Washington is the problem.

“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,” S&P said in the report. “If an agreement is not reached . . . this would in our view render the U.S. fiscal profile meaningfully weaker.”

S&P is one of the nation’s three major rating agencies, whose assessments influence the decisions of investors worldwide. The other two major agencies have not changed U.S. ratings.

The Obama administration responded to the report by saying that the likelihood of a compromise is greater than the agency realizes. Officials stressed that S&P essentially played the role of political pundit — and its guess was as good as anyone else’s.

“We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” said Mary Miller, assistant Treasury secretary for financial markets. “Addressing the current fiscal situation is well within our capacity as a country.”

Last week, President Obama laid out a plan to trim $4 trillion from deficits over the next 12 years. On Friday, House Republicans adopted a budget resolution that would cut deficits by $4.4 trillion over 10 years.

S&P lowers its outlook on U.S. debt; stocks decline - The Washington Post


S&P is sending a pretty clear message to Congress. We can only hope someone is listening.

 

[Avatar4321]

But don't worry. We don't have spending problem. We can easily afford spending trillions we don't have. We don't have to cut anything.

Now if you'll excuse me, there is a hole in the sand with my head's name on it.

 

[uscitizen]

The market is articificially high anyway, in bubblesville again.

 

[Flopper]

The Deficit Commission plan, Paul Ryan's proposal, and the plan from Deficit Panel scheduled to meet in May will have to be resolved into a bill that both sides can agree on. If nothing else comes out of this, the American public will learn what polarization means and how destructive it can be to the country.

 

[waltky]

Bond market may benefit from warning...

S&P warning may end up actually helping U.S.
4/24/2011 - Threat of downgrade may have made bonds more attractive for investors

A warning from Standard & Poor's that mounting debts put the U.S. government's credit rating at risk blindsided markets last Monday. The Dow Jones industrial average lost more than 240 points in the morning before recovering. It was the worst one-day drop for stocks since fears over a nuclear meltdown in Japan sent investors into hiding on March 16. The response made sense. A downgrade of U.S. debt, after all, could turn into an economic calamity. Here's the surprising part: After a quick dip, prices for U.S. government debt began rising. Economists and bond traders offer varying explanations for the Treasury market's curious reaction, but there's a common thread: S&P's warning shot could actually wind up making bonds more attractive.

If an actual downgrade were to occur, the effects would ripple through financial markets. When S&P lowers the credit rating on a country, it's saying that there's a greater chance the country won't pay its debts. Creditors demand higher borrowing rates. In the U.S. it would mean higher interest payments for the federal government. All borrowers — from companies, homeowners to credit card users — would find it harder to borrow. Presumably, bond prices would fall. The strength of Treasurys, the very debt that S&P said was at risk, left many observers confused. Aren't U.S. government bonds more dangerous now?

"There's quite a bit of head-scratching going on," said Guy LeBas, the chief fixed income strategist at Janney Montgomery Scott. "It looks like the bond market got hit in the head with a frying pan and is already up looking for a fight." One reason that traders say Treasurys have looked surprisingly stable is the belief that S&P's move could spur action in Washington to tackle the country's debt.

In recent weeks, Paul Ryan, the Republican chairman of the House Budget Committee, and President Barack Obama had outlined plans to shrink budget deficits. Even if they were far from sharing common ground, the proposals generated a sense of progress, says Nick Kalivas, vice president of financial research at MF Global. "There was a sense that we're going to get something done," he says. "The move by S&P reinforced that." Kalivas and others say the threat of a downgrade may push Congressional Republicans and the Obama administration to reach an agreement on tackling the country's long-term debts. Cutting spending and raising taxes would lead the government to sell fewer Treasurys. A drop in supply would likely push Treasury prices up.

More S&P warning may end up actually helping U.S. - Business - Eye on the Economy - msnbc.com

 

[editec]

Is this the SAME Standard and Poor who told the bond holders that there was no risk associated with the bonds Standard and Poors employers were flogging to the market?