News that credit rating agency Standard & Poor’s has changed its outlook on U.S. long-term debt to “negative” has sent the Dow down over 200 points this morning. The U.S. still maintains its AAA rating for now but the negative outlook means that S&P feels there is a 1 in 3 chance that the rating will be cut in the next 2 years. In their official release, the S&P said,
“We believe there is a material risk that U.S. 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 is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”
To anyone familiar with Austrian Economics, this news is akin to hearing that the Earth is round but it is significant none the less. This change in outlook signals that mainstream economists are starting to wake up. Many of these are the same folks who championed the Fed’s quantitative easing programs and congressional bailouts not too long ago. This is a good sign, some seasoned pros like Mark Rubino are calling this a “great party” that will result in a “hangover of epic porportions” and laying responsibility at the feet of Bernanke and Obama – though we might like to add Greenspan, Bush, Congress, etc. to that list.
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S&P Ratings are based on timely repayment of principal and interest.
US Treasuries can not go into default – fiat money would be issued to make the payments.
Obviously, this devalues the amount being paid. However, this has been going on since the creation of the Fed. Nevertheless, US Treasuries have always been rated AAA – the are backed by the authority to tax.
So, what would it mean if S&P lowered the rating from AAA? That the dollar has effectively been devalued? If this is the case, then they would need to lower the credit rating of all US dollar denominated debt, not just sovereign debt, since although timely payments were being made, they would be being paid in a devalued currency.
“Obviously, this devalues the amount being paid. However, this has been going on since the creation of the Fed.”
Wrong, this has been going on since the creation of fiat money.
Look Dionysius of Syracuse, he instituated inflationnary policies. The first in recorded history.
The point being that as soon as you have fiat money, you get inflation and devaluation.
The Fed is an old ancient scam from the time of Syracuse. Ever since the USA has depegged the US dollar from Gold in 1913, all other countries have copied the USA in creating fiat money instead of hard currency.
But the scam was known since the times of Syracuse. And to say that we have Keynesians and “economists” who pretend otherwhise and pretend they don’t know why everything is going south.
Maybe some good will come of this.
Yeah, like having your spam posting for ink cartridges deleted.
Isn’t publicity something good from a libertarian perspective ? It permits business and consumers to connect, exactly what Jeffrey Tucker said. I went to his website and I compared his prices with Staples and I have got to admit, he is much cheaper.
Spam is cheap, unlike government regulated expensive publicity spots in newspapers, television etc. Next time I want an ink cartridge, I will go to inkfarm dot com, LOL
P.S. I admit that I couldn’t care less about ink cartridges and that I am just pulling your legs, LOL !!
Briggs,
I don’t know which is worse, your rose colored glasses or my cynical glasses.
This is not so much an honest assessment of the financial condition of the US as it is a political ploy to put more pressure on the Republicans to capitulate on the debt ceiling negotiations. S&P is playing the game like all the other big guys. Honest reporting stopped long ago.
I’m thinking differently. This is a monumental move for S&P considering the United States Federal Government only permits three credit rating agencies to even exist. They’re taking a huge risk to getting their politically granted lisence yanked for not towing the automatic AAA rating with no risk line.
J;
I liked Jim Grant’s description of US treasuries – return free risk! Interesting to note the PIMCO and Bill Gross are getting out of treasuries.
If you look at it simultaneously from the rosy angle and the cynical angle, will you see in 3D ?
Only one way to stop the hyperinflation (if anything can stop it now…):
Not One Penny More Borrowing Against Our Future to Control Our Present.
Please email your congress-critters daily, here:
http://tinyurl.com/NoDebtIncrease
All this means is that it going to be more expensive to borrow our way out of debt.
How do any of the ratings agencies have any credibility left after marking all of those shit mortgage securities at AAA?
Indeed, it really does surprise me that people still pay attention to them at all. They used to be a superb contrary indicator (and perhaps still are), but now that the cat is out of the bag, I really do wonder why they get so much press etc.
Who else is there to turn to? It’s literally illegal for anyone but the Big 3 to attempt to rate a bond.
S&P, Moody’s, and Fitch are still paid attention to because their ratings still influence bond rates.
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