AntZ
08-06-2011, 09:48 AM
U.S. Loses AAA Credit Rating From S&P
Published August 06, 2011 | FoxNews.com
The United States has lost its sterling credit rating.
Credit rating agency Standard & Poor's on Friday lowered the nation's AAA rating for the first time since granting it in 1917. The move came less than a week after a gridlocked Congress finally agreed to spending cuts that would reduce the debt by more than $2 trillion -- a tumultuous process that contributed to convulsions in financial markets. The promised cuts were not enough to satisfy S&P.
The drop in the rating by one notch to AA-plus was telegraphed as a possibility back in April. The three main credit agencies, which also include Moody's Investor Service and Fitch, had warned during the budget fight that if Congress did not cut spending far enough, the country faced a downgrade. Moody's said it was keeping its AAA rating on the nation's debt, but that it might still lower it.
Speaker John Boehner issued a statement saying that the downgrade is "the latest consequence of overspending by Washington."
One of the biggest questions after the downgrade was what impact it would have on already nervous investors. While the downgrade was not a surprise, some selling is expected when stock trading resumes Monday morning. The Dow Jones industrial average fell 699 points this week, the biggest weekly point drop since October 2008.
"I think we will have a knee-jerk reaction on Monday," said Jack Ablin, chief investment officer at Harris Private Bank.
But any losses might be short-lived. The threat of a downgrade is likely already reflected in the plunge in stocks this week, said Harvey Neiman, a portfolio manager of the Neiman Large Cap Value Fund.
"The market's already been shaken out," Neiman said. "It knew it was coming."
One fear in the market has been that a downgrade would scare buyers away from U.S. debt. If that were to happen, the interest rate paid on U.S. bonds, notes and bills would have to rise to attract buyers. And that could lead to higher borrowing rates for consumers, since the rates on mortgages and other loans are pegged to the yield on Treasury securities.
However, even without an AAA rating from S&P, U.S. debt is seen as one of the safest investments in the world. And investors clearly weren't scared away this week. While stocks were plunging, investors were buying Treasurys and driving up their prices. The yield on the 10-year Treasury note, which falls when the price rises, fell to a low of 2.39 percent on Thursday from 2.75 percent Monday.
A study by JPMorgan Chase found that there has been a slight rise in rates when countries lost an AAA rating. In 1998, S&P lowered ratings for Belgium, Italy and Spain. A week later, their 10-year rates had barely moved.
The government fought the downgrade. Administration sources familiar with the discussions said the S&P analysis was fundamentally flawed. They spoke on condition of anonymity because they weren't authorized to discuss the matter publicly. S&P had sent the administration a draft document in the early afternoon Friday and the administration, after examining the numbers, challenged the analysis.
S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade, to AA, would occur if the agency sees smaller reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period.
In its statement, S&P said that it had changed its view "of the difficulties of bridging the gulf between the political parties" over a credible deficit reduction plan.
S&P said it was now "pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics anytime soon."
Senate Democratic Leader Harry Reid said the credit downgrade showed the need for a "balanced approach to deficit reduction that combines spending cuts with revenue-raising measures."
GOP Rep. Jack Kingston has called on Congress to reconvene to fix the debt crisis, saying the downgrade "confirms my belief that the debt ceiling increase signed into law this week does not go far enough to change the nation's fiscal trajectory."
The Federal Reserve and other U.S. regulators said in a joint statement that S&P's action should not have any impact on how banks and other financial institutions assess the riskiness of Treasurys or other securities guaranteed by the U.S. government. The statement was issued to make sure banks did not feel that the downgrade would affect the amount of capital that regulators require the banks to hold against possible losses.
Before leaving for a weekend at Camp David, President Barack Obama met with Treasury Secretary Timothy Geithner in the Oval Office late Friday afternoon.
The downgrade is likely to have little to no impact on how the United States finances its borrowing, through the sale of Treasury bonds, bills and notes. This week's buying proves that.
"Investors have voted and are saying the U.S. is going to pay them," said Mark Zandi, chief economist of Moody's Analytics. "U.S. Treasurys are still the gold standard." He noted that neither his parent organization, Moody's, nor Fitch, the other of the three major rating agencies, have downgraded U.S. debt.
Japan had its ratings cut a decade ago to AA, and it didn't have much lasting impact. The credit ratings of both Canada and Australia have also been downgraded over time, without much lasting damage.
"I don't think it's going to amount to a lot," said Peter Morici, a University of Maryland business economist.
Still, he said, "The United States deserves to have this happen," because of its clumsy handling of fiscal policy.
______________________________________________
And we find out that the other day when all the stock markets were in a nose dive, Obama partied and danced into the night! :cheerlead: Even if it was his birthday, this child is incapable of common sense! :roll:
I wonder if someone gave him a fiddle to play? :-k
POLITICO EXCLUSIVE -- The President’s private 50th birthday bash, not listed on his public schedule: His gift to the press corps was a travel/photo lid shortly after 4 p.m., prompting what pooler Julie Mason called “general cheering in WH workspace.” An hour later, the party started…
--… with dinner in the Rose Garden, accompanied by “The President’s Own” United States Marine Band. Then the First Lady and his daughters presented POTUS with a cake, and everyone moved into the East Room for performances that included R&B singer Ledisi, and Herbie Hancock. Stevie Wonder came up at the end and sang a medley ending in “Signed, Sealed, Delivered I’m Yours.” DJ Cassidy played Motown, hip hop, and ’70s and ’80s R&B.
--The president asked everyone to dance -- and they did!
--DINNER: BBQ chicken, ribs, hamburgers, hot dogs, pasta, salad.
--DESSERT: apple, peach, huckleberry and cherry pies; chocolate cake.
--GUESTS: Al Sharpton, Patrick Gaspard, UBS Investment Bank President Robert Wolf, FCC Chair Julius Genachowski, Leader Nancy and Paul Pelosi, Secretary Tim Geithner, Secretary Arne Duncan, U.S. Trade Rep. Ron Kirk, Secretary Hillary Clinton, Attorney General Eric Holder, Secretary Kathleen Sebelius, Rep./DNC Chair Debbie Wasserman Schultz, former Virginia Gov. and DNC Chair Tim Kaine, Anita Dunn and Bob Bauer, Robert Gibbs, David Axelrod, David Plouffe, Valerie Jarrett, Michael Strautmanis, Pete Rouse, Bill Daley, Deputy Chief of Staff Alyssa Mastromonaco, Denis McDonough, John Brennan, Rahm Emanuel, Tina Tchen, White House chef Sam Kass, Julianna Smoot, Marty Nesbitt, Eric Whitaker, Linda Douglass, and many more.
--CELEBS: Jay-Z, Hill Harper, Chris Rock, Charles Barkley, Steve Harvey, Tom Hanks and Rita Wilson, Grant Hill, Gayle King.
--Also present: Chicago pals, law-school friends, donors – and lots of kids of friends, who stole the show by doing dance routines to the hip-hop songs, in the center of the East Room.
http://www.politico.com/playbook/
Published August 06, 2011 | FoxNews.com
The United States has lost its sterling credit rating.
Credit rating agency Standard & Poor's on Friday lowered the nation's AAA rating for the first time since granting it in 1917. The move came less than a week after a gridlocked Congress finally agreed to spending cuts that would reduce the debt by more than $2 trillion -- a tumultuous process that contributed to convulsions in financial markets. The promised cuts were not enough to satisfy S&P.
The drop in the rating by one notch to AA-plus was telegraphed as a possibility back in April. The three main credit agencies, which also include Moody's Investor Service and Fitch, had warned during the budget fight that if Congress did not cut spending far enough, the country faced a downgrade. Moody's said it was keeping its AAA rating on the nation's debt, but that it might still lower it.
Speaker John Boehner issued a statement saying that the downgrade is "the latest consequence of overspending by Washington."
One of the biggest questions after the downgrade was what impact it would have on already nervous investors. While the downgrade was not a surprise, some selling is expected when stock trading resumes Monday morning. The Dow Jones industrial average fell 699 points this week, the biggest weekly point drop since October 2008.
"I think we will have a knee-jerk reaction on Monday," said Jack Ablin, chief investment officer at Harris Private Bank.
But any losses might be short-lived. The threat of a downgrade is likely already reflected in the plunge in stocks this week, said Harvey Neiman, a portfolio manager of the Neiman Large Cap Value Fund.
"The market's already been shaken out," Neiman said. "It knew it was coming."
One fear in the market has been that a downgrade would scare buyers away from U.S. debt. If that were to happen, the interest rate paid on U.S. bonds, notes and bills would have to rise to attract buyers. And that could lead to higher borrowing rates for consumers, since the rates on mortgages and other loans are pegged to the yield on Treasury securities.
However, even without an AAA rating from S&P, U.S. debt is seen as one of the safest investments in the world. And investors clearly weren't scared away this week. While stocks were plunging, investors were buying Treasurys and driving up their prices. The yield on the 10-year Treasury note, which falls when the price rises, fell to a low of 2.39 percent on Thursday from 2.75 percent Monday.
A study by JPMorgan Chase found that there has been a slight rise in rates when countries lost an AAA rating. In 1998, S&P lowered ratings for Belgium, Italy and Spain. A week later, their 10-year rates had barely moved.
The government fought the downgrade. Administration sources familiar with the discussions said the S&P analysis was fundamentally flawed. They spoke on condition of anonymity because they weren't authorized to discuss the matter publicly. S&P had sent the administration a draft document in the early afternoon Friday and the administration, after examining the numbers, challenged the analysis.
S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade, to AA, would occur if the agency sees smaller reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period.
In its statement, S&P said that it had changed its view "of the difficulties of bridging the gulf between the political parties" over a credible deficit reduction plan.
S&P said it was now "pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics anytime soon."
Senate Democratic Leader Harry Reid said the credit downgrade showed the need for a "balanced approach to deficit reduction that combines spending cuts with revenue-raising measures."
GOP Rep. Jack Kingston has called on Congress to reconvene to fix the debt crisis, saying the downgrade "confirms my belief that the debt ceiling increase signed into law this week does not go far enough to change the nation's fiscal trajectory."
The Federal Reserve and other U.S. regulators said in a joint statement that S&P's action should not have any impact on how banks and other financial institutions assess the riskiness of Treasurys or other securities guaranteed by the U.S. government. The statement was issued to make sure banks did not feel that the downgrade would affect the amount of capital that regulators require the banks to hold against possible losses.
Before leaving for a weekend at Camp David, President Barack Obama met with Treasury Secretary Timothy Geithner in the Oval Office late Friday afternoon.
The downgrade is likely to have little to no impact on how the United States finances its borrowing, through the sale of Treasury bonds, bills and notes. This week's buying proves that.
"Investors have voted and are saying the U.S. is going to pay them," said Mark Zandi, chief economist of Moody's Analytics. "U.S. Treasurys are still the gold standard." He noted that neither his parent organization, Moody's, nor Fitch, the other of the three major rating agencies, have downgraded U.S. debt.
Japan had its ratings cut a decade ago to AA, and it didn't have much lasting impact. The credit ratings of both Canada and Australia have also been downgraded over time, without much lasting damage.
"I don't think it's going to amount to a lot," said Peter Morici, a University of Maryland business economist.
Still, he said, "The United States deserves to have this happen," because of its clumsy handling of fiscal policy.
______________________________________________
And we find out that the other day when all the stock markets were in a nose dive, Obama partied and danced into the night! :cheerlead: Even if it was his birthday, this child is incapable of common sense! :roll:
I wonder if someone gave him a fiddle to play? :-k
POLITICO EXCLUSIVE -- The President’s private 50th birthday bash, not listed on his public schedule: His gift to the press corps was a travel/photo lid shortly after 4 p.m., prompting what pooler Julie Mason called “general cheering in WH workspace.” An hour later, the party started…
--… with dinner in the Rose Garden, accompanied by “The President’s Own” United States Marine Band. Then the First Lady and his daughters presented POTUS with a cake, and everyone moved into the East Room for performances that included R&B singer Ledisi, and Herbie Hancock. Stevie Wonder came up at the end and sang a medley ending in “Signed, Sealed, Delivered I’m Yours.” DJ Cassidy played Motown, hip hop, and ’70s and ’80s R&B.
--The president asked everyone to dance -- and they did!
--DINNER: BBQ chicken, ribs, hamburgers, hot dogs, pasta, salad.
--DESSERT: apple, peach, huckleberry and cherry pies; chocolate cake.
--GUESTS: Al Sharpton, Patrick Gaspard, UBS Investment Bank President Robert Wolf, FCC Chair Julius Genachowski, Leader Nancy and Paul Pelosi, Secretary Tim Geithner, Secretary Arne Duncan, U.S. Trade Rep. Ron Kirk, Secretary Hillary Clinton, Attorney General Eric Holder, Secretary Kathleen Sebelius, Rep./DNC Chair Debbie Wasserman Schultz, former Virginia Gov. and DNC Chair Tim Kaine, Anita Dunn and Bob Bauer, Robert Gibbs, David Axelrod, David Plouffe, Valerie Jarrett, Michael Strautmanis, Pete Rouse, Bill Daley, Deputy Chief of Staff Alyssa Mastromonaco, Denis McDonough, John Brennan, Rahm Emanuel, Tina Tchen, White House chef Sam Kass, Julianna Smoot, Marty Nesbitt, Eric Whitaker, Linda Douglass, and many more.
--CELEBS: Jay-Z, Hill Harper, Chris Rock, Charles Barkley, Steve Harvey, Tom Hanks and Rita Wilson, Grant Hill, Gayle King.
--Also present: Chicago pals, law-school friends, donors – and lots of kids of friends, who stole the show by doing dance routines to the hip-hop songs, in the center of the East Room.
http://www.politico.com/playbook/