A credit downgrade for the first time in American history! How's that Hope and Change working out for you?
Standard & Poor’s announced Friday night that it has downgraded the U.S. sterling credit rating for the first time...S&P decided to lower the AAA rating, held by the United States for 70 years, to AA+ after a bipartisan debt deal signed into law this week failed to assuage concerns about the nation’s growing spending.
Frankly, the country deserves a little better than merely "historic".
Cross posted at LCR, Say Anything.
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I blame the Tea Party. There's no other reasonable explanation.
ReplyDeletelinked at RK
ReplyDelete"I blame the Tea Party" I know your tongue is in your cheek, but the folks who banded together in the Tea Party movement didn't even exist as organized bodies until B.O. started driving the country off a cliff. And we haven't hit the bottom yet!
ReplyDeleteFirst of all, why should we care what S&P, a McGraw-Hill company, thinks about our credit rating? Did all of the world banks & governments get together one day and decide that S&P would set the credit ratings for every country on earth? All this tells me is that the US didn't meet some arbitrary number that someone decided would be a cutoff point.
ReplyDeleteThe reason we should care, is that investors use the ratings to determine the amount of risk in their investments. Higher risk lenders have to offer higher interest rates to make the investments worth while. The inability or unwillingness to deal with the underlying debt problem in America is going to cost us more in interest payments on our bonds and securities. Which will increase our debt.
ReplyDeleteI understand all of that. The question I was trying to ask is how and why S&P became the authority & have the power to do this?
ReplyDeleteIt's not so much power or authority as it is an established track record. S&P is not the only financial rating source out there. There are others, such as Moody's, which have not pulled the downgrade trigger yet.
ReplyDeleteIt's like if your neighbor says your dog is worthless, that's one thing. If the AKA tells you your dog is worthless, it's quite another.
The AKA knows dogs, S&P knows investment risk. Everyone is free to ignore either of them. However, investors have relied on the S&P for years for help making financial decisions. Actual authority aside, this is a sign that the business community is not buying into Congress & Obama's smoke and mirror, debt ceiling dance.
Remember too, what happened to the bond holders at Chrysler. By law, they were entitled to be at the top of the list of claims against the company. By government fiat, their claims were nullified. I, too, would have to think twice about making an investment in anything "guaranteed" by the government (or likely to be taken over by them). Or I would at least have to be promised a much larger reward for my risk.
OK - thanks. That clears up things somewhat. I just have a hard time comprehending how a private enterprise can say our credit is so bad and the rest of the world trembles at their opinion. I still would like to know who, or what, happened to make them the All Knowing, that we should pay attention to them in the first place. I would think that unless S&P is some kind of official entity, then all they have to offer is an opinion. And I still don't understand why a sovereign nation would give a crap about that opinion. Does the rest of the world care about S&P? Do they wait with baited breath ever morning to get the latest S&P opinion
ReplyDeleteI didn't mean to turn this into some kind of long-winded rant, high finance economics are way over my head. I just still don't understand why all of this is even newsworthy. Hell, I don't need S&P to tell me our economy is bad.
One good thing about all of this is that maybe this is the 2x4 obama needs up side his head. I doubt it though.
Unfortunately, this isn't the only 2x4 to the head of the economy before Obama and his bunch are done. Hang on tight, my friend! We're in for a bumpy ride!
ReplyDelete