US Credit Downgrade

Dollar Down - Credit Wrecked - Obama's LegacyStandard & Poor’s rating agency has downgraded the US credit rating to AA+ from its top rank of AAA, reflecting concerns over the US federal government’s inability or unwillingness to curb its deficit spending.

This was an expected course of action and S & P, along with Moody’s, Fitch, the IMF, and even Italy, had warned that this would likely happen.

Well, the Obama presidency was supposed to be historic and this is historic. Friday, August 5, 2011 marked S & P’s first ever downgrade rating for the US Government’s credit since S & P first granted it in 94 years ago in 1917.

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Nikola G Swann, CFA, FRM
Primary Credit Analyst, Standard & Poor

As bad as that sounds, it actually gets worse. Standard & Poor – It’s also a safe bet that Moody’s and Fitch will concur – has, rightly I believe, not only downgraded America’s government’s credit score but predicts at negative outlook indicating the likelihood of an even further worsening credit rating in the near-term future.

The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

This means that it’s unlikely that any of us alive today will see America’s credit rating restored to AAA and that we’ll almost assuredly live to see it downgraded further to AA and likely see it downgraded even further unless we can force the federal government to live within our means.

How Embarassing - Americans can't keep Obama and his Liberals in the manner that they've become accustomed to
How Embarrassing

And it will take force – ballots, bullets, bombs, or some combination thereof – for Americans to correct the federal government’s addiction to raping our nation’s economy. Obama and his coterie of Liberals, while the most profligate of the wastrels, are just the latest downward step in the degeneration of America’s federal government. Hoover, FDR, Carter, and yes Bush Jr., along with their respective Congresses built and expanded the entitlement society and the nation’s deficit.

With so much inertia built up within it and so much bloated weight behind it, there’s no gentle way enact true change upon this system or its proponents before our nation is completely beggared and bankrupt. We, the People are left with only “short lever” means at our disposal – maximum force applied at the point of change. Sadly I suppose, this is inefficient and will be extremely painful, both for Americans and for the Liberals and their minority tenants.

Then again, it’s been Americans’ long-running misapplied compassion, complacency, and stupidity that has allowed them to bring our nation to this point and, “Stupid should be painful.

~*~

Keep your eyes open. Travel light but load heavy, and always put another round in the enemy after theyre down. When faced with extremity, extremism in the cause of America is no vice; it is a virtue and holy duty.

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3 Responses to “US Credit Downgrade”

  1. Alan Scott Says:

    Jonolan,

    I want to see just how this plays out politically. I expect every GOP Presidential candidate to jump all over the event. I also want to see how Democrats try to spin this as the Republicans fault. It will be Bush’s tax cuts and wars, and the Tea Party’s debt ceiling battle that is to blame.

    Long term all of this could be good. Other countries have regained their AAA rating. All we need is the will.

    To think, we are rated lower than the CDOs once were and they turned out to be toxic.

  2. jonolan Says:

    Alan,

    Im interested in how this will play out politically as well, but am not particularly optimistic since Americas domestic enemies control the MSM and we can be assured that their professional spin doctors will be working overtime to paint this as anyones fault other than Obamas and his Liberals.

    Personally, Im expecting them to spin it into another round of class warfare and blame it on the evil credit agencies tools of Wall Street and the Evil Old White Men.

    Expect a few variants of:

    Is it because the POTUS is Black?

    Blacks have historically been discriminated against by the credit industry and did this affect S & Ps rating?

    And

    Could this just be Wall Street wanting higher interest rates on US Treasuries?

    The answers will be in the negative and the interviews will proceed away from the topic, but the idea will be planted in peoples minds.

    On the other hand, Dems massively outspent and out campaigned the GOP in the 2010 Midterm Elections and still got their asses (pun intended) handed to them, so theres definitely hope – Hope for Change. 😉

    As for the downgrade itself As Ive said before, I was expecting it and cant say that I think theyre wrong to do so. If you or I behaved as the government does our credit would be tanked even if we had a perfect payment record.

    Why should different rules apply to government just because they spend Americans money instead of their own?

  3. Alan Scott Says:

    Jonolan,

    I just came across this in National Review. February 7, 2010 Tim Geithner was asked if the US could lose it’s AAA rating. “Absolutely not.” “That will never happen to this country. “That can be added to the great predictions of the 21st century, like unemployment staying below 8% pending the passage of the stimulus, and like the promised closing of Gitmo.

    Actually the US was downgraded a few weeks ago by a smaller agency named Egan-Jones.

    From the little bit of research I have done, Egan-Jones seems to be far more reliable than the big 3. At least it is more honest.

    So when the Obama zombies begin complaining about S&P dropping the rating, we can come back with Egan-Jones.

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