US MAINTAINS AAA RATING... BUT WITH A WARNING.. RATING OUTLOOK NEGATIVE
8:23 pm - 08/02/2011
Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings for the U.S. while warning that the ratings could be downgraded if lawmakers fail to enact debt reduction measures and the economy weakens. The rating outlook is now negative, Moody’s said in a statement yesterday after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending.
The debt-limit compromise “is a positive step toward reducing the future path of the deficit and the debt levels,” Steven Hess, senior credit officer at Moody’s in New York, said in a telephone interview yesterday. “We do think more needs to be done to ensure a reduction in the debt to GDP ratio, for example, going forward.”
A ratings cut would raise the specter that the wrangling between Obama and Republican lawmakers over spending cuts and taxes will harm American prestige and the global financial system. JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year. It could also hurt the rest of the U.S. economy by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries.
“A downgrade is a sign that Congress is failing to address a real fiscal issue,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in an interview before the announcements.
More here: http://www.bloomberg.com/news/2011-08-0
The debt-limit compromise “is a positive step toward reducing the future path of the deficit and the debt levels,” Steven Hess, senior credit officer at Moody’s in New York, said in a telephone interview yesterday. “We do think more needs to be done to ensure a reduction in the debt to GDP ratio, for example, going forward.”
A ratings cut would raise the specter that the wrangling between Obama and Republican lawmakers over spending cuts and taxes will harm American prestige and the global financial system. JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year. It could also hurt the rest of the U.S. economy by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries.
“A downgrade is a sign that Congress is failing to address a real fiscal issue,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in an interview before the announcements.
More here: http://www.bloomberg.com/news/2011-08-0
Fucking awesome.
We need a -reduction- in debt to keep our AAA rating. This is not politically feasible for most elected officials, except the libertarian minded and tea partiers.
HINT: Revenue would need to be increased.
No more bailouts, no more payouts, reduction in redundant/corrupted government departments.
Its against the philosophy, but the patchwork to get revenue up is to make it cheaper for corporations to hire people then pay taxes. But the hired people have to pay taxes, plus that money gets back into the economy, while job creation goes up, so too does business revenue and therefor taxes collected. Its not a perfect solution but its worked in the past.
No amount of revenue increasing can meet our future unfunded obligations which are over well over 50 trillion dollars.
Who is them? What are you referring to here?
Moody's? Moody's is an investment service, not a government branch.
They will be fine. In fact, they'll make a mint.
Never mind, I already know the answer: Because this concept of an 'economy' is a great big imaginary thing that we've all bought into, and we've agreed that these people are allowed to change the board at their whims.
I really fucking hate this particular brand of capitalism.
http://en.wikipedia.org/wiki/Moody
They do research and base their ratings on the research.
What do you mean "change the board." You cant just say something is good even though the research says its not. America is on the decline due to our poor policies and lack of global competitiveness. This isnt Moody's doing.
Moody's is the messenger. What you are talking about is shooting the messenger.
They're just a rating system. They are a bunch of folks who know something about finance who deal in answers to the question "How likely is XYZ to repay their debts?"
I mean, I thought the big deal here was that these ratings systems have the power to royally fuck over any country (financially) by deciding to downgrade their credit rating. Conversely, they could make a country's economy much happier by upgrading their rating. To me, that strikes me as being able to change the board that everyone's playing on. Or least having the power to re-write everybody's character sheet to some extent.
I get the feeling that I'm either missing the point, or that the point is going to change dramatically depending on who I ask for clarification. Possibly (and quite probably) both.
It's hard to say if that would actually happen to the US if it got downgraded. Krugman made the comparison to Japan which got downgraded in 2002: it didn't do anything to their interest rates. (Of course most of Japan's debt is owned by people in Japan which might affect things. I'm not entirely sure.)
Another reason to side-eye the credit rating agencies: these are the same people who rated the subprime mortgages AAA. I don't trust their judgment.
He was elected partially on a point of making sure every american can purchase a home, which lead moody's to give AAA ratings because they figured the government would back it up. They were right (bailouts, im simplifying the story)
But yeah, unintended consequences. Dubya's fault.