S&P cuts US outlook to negative

[Moliere]

I don't have a link as I'm on my phone but it's interesting that the US outlook on AAA debt has been cut to negative. I know that typically means that the current rating (Aaa) is reaffirmed but that if corrections are not made in the next year or two a downgrade will happen. Hopefully these types of items are what gets everyone on board will real fiscal reform instead of small, unimportant cuts.

[Uncle Ted]

As reported by FT...

Standard & Poor’s has downgraded its outlook on US sovereign debt from “stable to negative”, citing worries over budget deficits and debt.

“We believe there is a material risk that US policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns,” the rating agency said in a statement.

It reaffirmed its sovereign rating at AAA.

Mary Miller, assistant secretary for financial markets at the US Treasury, said in a statement: “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.”

The S&P announcement sparked knee-jerk selling across markets, notably in equities.

They might have as well dropped the rating. Treasuries (and stocks) are taking a hit.

[Eddie]

Personally, I think Mary Miller overestimates..."the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation.”


I haven't seen much of anything yet that would lead me to believe that they can come together. Much less come together on something to address the difficult fiscal challenges facing the nation.

[Moliere]

Personally, I think Mary Miller overestimates..."the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation.”


I haven't seen much of anything yet that would lead me to believe that they can come together. Much less come together on something to address the difficult fiscal challenges facing the nation.

I think she is alluding to the newly elected leaders in 2012

[byu71]

Interesting, the S&P just came to these conclusions? Someone as dumb as I am could have told you for weeks there could be a real problem if these political leaders, I use the term loosely, don't come together on some plan.

I hope the markets stay spooked a little longer and take a bit more of a hit. Both to maybe shake up the politicians, but also to give some of us brave folks a chance to move some money that is earning 0.00000%

[NorthwestUteFan]

Aren't Greece and Portugal (and others) now paying ~10%+ on bonds as a result of losing their rating status? Getting into the same situation would be extraordinarily painful for us.

Conversely if the US bond rate went to 10% (or even 6%), wouldn't that create a strong demand? Would we not then have an influx of foreign (and domestic) investors willing to buy our debt? As I understand it there currently are few buyers out there.

[Uncle Ted]

Paul Krugman on the S&P's negative outlook...

Japanese bonds became known as the “trade of death”, because people kept betting on an interest rate rise, and it kept not happening.

So, no big deal.

Well, it is a good thing Krugman use Japanese bonds instead of Greek bonds for his example. Greek two year bonds just broke 20%.

[byu71]

How the heck did Krugman ever win the nobel prize for economics. Nevermind, I think I really know.

I guess if he is basing things off of Japan, we have a least 26 years of a go nowhere stock market.

[Uncle Ted]

How the heck did Krugman ever win the nobel prize for economics.

I think it was his work as an Enron economic adviser or maybe it was for being on the council of economic advisers for Reagan.

[Moliere]

Paul Krugman on the S&P's negative outlook...



Well, it is a good thing Krugman use Japanese bonds instead of Greek bonds for his example. Greek two year bonds just broke 20%.

I think I understand his "no big deal" conclusion. I'm skeptical that an actual decrease in the US's credit rating would have tremendous negative results. I guess that skepticism is because I still believe the politicians would do what is needed to correct the issue. Krugman's statement is more a belief in the political process than it is in our ability to finance debt. Although at times I wonder why I still believe in the political process but oh well.

If we don't correct the issue though, then look out. Having to refinance $14 trillion of debt at higher interest rates is a circle of death just waiting to happen. It also doesn't help that we have been shifting more and more to shorter term debt. You no longer see 30 year bonds and instead we use bonds shorter than 10 years.

[pellegrino]

I hadn't seen this thread when it came out, but perhaps this is one of the reasons that the gold market has gone nuts over the past week.

[Uncle Ted]

I think I understand his "no big deal" conclusion. I'm skeptical that an actual decrease in the US's credit rating would have tremendous negative results. I guess that skepticism is because I still believe the politicians would do what is needed to correct the issue. Krugman's statement is more a belief in the political process than it is in our ability to finance debt. Although at times I wonder why I still believe in the political process but oh well.

If we don't correct the issue though, then look out. Having to refinance $14 trillion of debt at higher interest rates is a circle of death just waiting to happen. It also doesn't help that we have been shifting more and more to shorter term debt. You no longer see 30 year bonds and instead we use bonds shorter than 10 years.

I have to wonder about the political process and its ability to correct this debt problem before it does damage to US's perfect credit rating. Look at California and its credit rating, for example. California credit rating has been as low as BBB in recent years because of its inability to pass a budget before it had to resort to passing out IOU's. The political process of the two isn't all that different between. The difference between California/Greece and the US is being able to control its currency. Comparing Japan and the US has its problems as well. A lot of the US debt is held by foreigners whereas Japan's debt is largely held by its own very loyal citizens.

[EuropeanFootballMale]

The yield on 10 yr treasury bonds is 3.4% (less than 1% inflation adjusted). 30 yr 4.47% (< 2%). The S&P "warning" was a non event.

[NorthwestUteFan]

I hadn't seen this thread when it came out, but perhaps this is one of the reasons that the gold market has gone nuts over the past week.

The one that has been even more surprising to me recently has been silver. It was ~$17 a year ago and surpassed $45 a few days ago. I will be interested to see where copper goes in the near future, as it seems to be quite undervalued.

I wish I had gone with my first instinct and rented a house when I moved out here two years ago. I would have been able to do far more with my down payment still under my own control. As it is, that entire chunk o'money vaporized two years ago.

Homes near me are selling at 2003 prices (inflation adjusted). Good thing I bought near the top of the market :swear:

[Moliere]

The yield on 10 yr treasury bonds is 3.4% (less than 1% inflation adjusted). 30 yr 4.47% (< 2%). The S&P "warning" was a non event.

Yes and no. Credit downgrades are typically non events when they happen because most investors already know, unless it happens very quickly ala 2008.