ONTD Political


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/2011-08-02/u-s-aaa-rating-faces-moody-s-downgrade-on-debt-economic-slowdown-concern.html
angry_chick 3rd-Aug-2011 01:14 am (UTC)
So, even though this whole 'back and forth' shit to save the debt ceiling and America's credit rating, and all of this madness, and we still may be up shit creek anyway.

Fucking awesome.
bludstone 3rd-Aug-2011 01:47 am (UTC)
The back and forth was political theater. There were no cuts in anyone's plan. Just a reduction in growth of debt, but still a growth in debt.

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.
angry_chick 3rd-Aug-2011 01:53 am (UTC)
And what, pray tell, would libertarians suggest?

HINT: Revenue would need to be increased.
bludstone 3rd-Aug-2011 01:59 am (UTC)
Ending the wars, stopping the war on drugs, reducing barriers to entry (so much more business if the road-side-stand was legal again)

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.
kerrence 3rd-Aug-2011 01:37 am (UTC)
We pretty much sold our soul to the devil for some marigold seeds that you could've found in a Happy Meal circa 1989.
omimouse 3rd-Aug-2011 01:44 am (UTC)
And if they do downgrade the rating, what'll happen to them? I suspect a massive amount of smoke being blown at Congress, because this looks to me to be a tactic that would bite them in the ass.
bludstone 3rd-Aug-2011 01:49 am (UTC)
What do you mean, "what will happen to them?"

Who is them? What are you referring to here?

Moody's? Moody's is an investment service, not a government branch.
omimouse 3rd-Aug-2011 01:54 am (UTC)
Investment services depend on economies, right? If the stock market does what I'm pretty sure it will if they downgrade the credit rating, how are they going to make money off of it? They depend on the world economy as much as any country. I can't see how downgrading the credit rating, even if it's what they *should* be doing, just by the numbers, would help their profit margin any.
bludstone 3rd-Aug-2011 01:56 am (UTC)
Errrr, moody's provides investment INFORMATION and RATINGS. They are a investment research service.

They will be fine. In fact, they'll make a mint.
omimouse 3rd-Aug-2011 01:59 am (UTC)
. . . so why are they allowed to decide credit ratings again, if they stand to profit like this?

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.
bludstone 3rd-Aug-2011 02:03 am (UTC)
What? They make money based on the quality of their information. They make money if the market goes up -or- down because people pay them for their info. The more accurate they are, the more money they make. Moody's is the most successful market research firm.


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.
entropius 3rd-Aug-2011 02:08 am (UTC)
They're not changing the board at all. Nobody is required to listen to them.

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?"

omimouse 3rd-Aug-2011 02:14 am (UTC)
So, if nobody is required to listen to them, why is this such a big deal?

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.
papilio_luna 3rd-Aug-2011 02:38 am (UTC)
No one is required to listen to them, but listening to them is generally a good idea for people who don't want to lose money on their investments.
dkwrkm 3rd-Aug-2011 03:40 am (UTC)
Credit ratings are sometimes just a confirmation of what everybody else already knows. The markets for instance are already acting like Greece has defaulted even though the S&P grades it CCC.
dkwrkm 3rd-Aug-2011 03:35 am (UTC)
A credit rating downgrade usually means higher interest rates which means it'll be harder for the US to pay back its debt.

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.
bludstone 3rd-Aug-2011 04:44 am (UTC)
A bit more fault should be given to Dubya.

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.
dkwrkm 3rd-Aug-2011 04:51 am (UTC)
The credit ratings agencies also got paid by the people who invented the subprime mortgage derivatives. They have sh*tty incentives to do what they do, just like the rest of Wall Street.
bludstone 3rd-Aug-2011 04:52 am (UTC)
this too.
romp 3rd-Aug-2011 06:17 am (UTC)
Thank you for bringing this up. I don't know much about finance but I can't hear about large-scale credit ratings without thinking of the subprime mortgage derivative swindle.
hinoema 3rd-Aug-2011 04:45 am (UTC)
Exactly. It's too easy for it to become a huge racket.
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