US credit rating downgraded to AA+

[rumborak]

Not too surprising really, but nonetheless a "historic" event. Sadly, watching the political stunts the American government (especially the Congress) has pulled off lately, I kinda have to agree that it can no longer be fully trusted in its ability to solve problems when they arise.

rumborak

[XJDenton]

What does this mean in real terms? Higher interest rates? The world economy is doomed?

[Chino]

It makes The US look like it's made up of nothing but greedy/irresponsible assholes.

[kári]

It makes The US look like it's made up of nothing but greedy/irresponsible assholes.

It's been that way since 1776.

[Riceball]

It makes The US look like it's made up of nothing but greedy/irresponsible assholes.

This is true. But there's a bit more to it than that.

I'm not hugely into economic history yet (I will be some day ideally) but as far as I know, this is the first time one of the world's major debtor nations has had its rating changed, not necesserally just cut.

As I said, the US is the world's biggest debtor in absolute terms (in relative terms - like debt to GDP, I think Japan might be), so they basically owe money to the world.

US treasuries are the world's risk free asset; as in, you buy treasuries cos you know you are gonna get your money back. Kind of like when I go to a McDonalds (which has been a while now I think of it); sure, it isn't gonna be the most fantastic meal, but I know it's going to give me value for money, is cheap, and is always available (the secret of the universe is between the T-bills). A cut in the rating, ceteris paribus, means investors will demand a higher yield. Seeing as pretty much every other asset is priced based on their risk relative a treasury, the potential ripple effect is pretty huge.

And finally, the US dollar is the world's reserve currency. This now must be called into question, as any threat to the ability for people to transact in US dollars due to circumstances implied by a lower-than-AAA rating should be a cause for panic. Fortunately at this stage, things are being held together.

We enter uncharted waters on Monday - my call is a bloodbath, followed by the realisation that nothings really changed. Ofcourse, the alternative is armaggedon.

[Super Dude]

God forgive us.

[emindead]

I'm more surprised that this didn't happen sooner. The credit rating should even be lower.

Of course, Judge Napolitano tells it like it is: https://www.youtube.com/watch?v=WsMZTdex0a0

[PraXis]

It makes The US look like it's made up of nothing but greedy/irresponsible assholes.

It's been that way since 1776.

If you really feel that way then the next time the EU needs help, they won't get it. We already pay for 75% of NATO. I'd like our money back please.

[sonatafanica]

or he'll shoot you in the goddamn MOUTH

[El Barto]

There are a few things I don't get here.  For one,  I have no idea who the various entities that make these ratings are, or what they do,  but presumably they make money as a result of the global economy.  If the results of lowering the credit rating are as catastrophic as many believe, then why would they want to?  Isn't S&P going to get absolutely clobbered if chaos ensues over the next few weeks?

Part of the reason I wonder this is because the behind the scenes reports make it look like they were itching to do it.  Their numbers were off by 2 trillion dollars when they made the decision,  and when it was pointed out to them, they spent a whole 2 hours deciding that they were going to do it anyway.  I kind of agree with the Whitehouse that it really looks like they were going to do it regardless.

And of course asshole Republican presidential candidates are all using this as yet another reason to assail Obama.  Is there anybody who doesn't recognize what a stunning display of bullshit that actually is.  Even an idiot populace has to be scratching their heads at that one.

[Super Dude]

There are a few things I don't get here.  For one,  I have no idea who the various entities that make these ratings are, or what they do,  but presumably they make money as a result of the global economy.  If the results of lowering the credit rating are as catastrophic as many believe, then why would they want to?  Isn't S&P going to get absolutely clobbered if chaos ensues over the next few weeks?

Part of the reason I wonder this is because the behind the scenes reports make it look like they were itching to do it.  Their numbers were off by 2 trillion dollars when they made the decision,  and when it was pointed out to them, they spent a whole 2 hours deciding that they were going to do it anyway.  I kind of agree with the Whitehouse that it really looks like they were going to do it regardless.

And of course asshole Republican presidential candidates are all using this as yet another reason to assail Obama.  Is there anybody who doesn't recognize what a stunning display of bullshit that actually is.  Even an idiot populace has to be scratching their heads at that one.

And yet I had a lengthy email discussion with a friend of mine this morning about how the reason we're in this situation in the first place is because taxes are immoral and that it's Obama's fault.

[El Barto]

I blame Rick Perry.  God is smiting us for his hubris.

[ResultsMayVary]

There's no use to complain and whine about it. Everyone needs to grow some balls and strive to get that AAA credit rating back. Acting like a bunch of children isn't going to solve the problem.

[XJDenton]

The BBC made a good point that the company that downgraded the US was the same company that rated subprime mortgage assets at AAA.

[PraXis]

There will have to be cuts. Even if the gov't doubled the current federal income tax rates for ALL brackets, that would only raise $1.1 trillion when the budget calls for $1.5 trillion.. that's $400 billion short.

Hell if you just seize all earnings from the top 10% of rich Americans you can run the gov't for about a month.

[emindead]

The BBC made a good point that the company that downgraded the US was the same company that rated subprime mortgage assets at AAA.

And this is also true. Yet again, people conveniently chooses when they will vouch or deny their validity in the rating process.

[William Wallace]

There are a few things I don't get here.  For one,  I have no idea who the various entities that make these ratings are, or what they do,  but presumably they make money as a result of the global economy.  If the results of lowering the credit rating are as catastrophic as many believe, then why would they want to?  Isn't S&P going to get absolutely clobbered if chaos ensues over the next few weeks?

Part of the reason I wonder this is because the behind the scenes reports make it look like they were itching to do it.  Their numbers were off by 2 trillion dollars when they made the decision,  and when it was pointed out to them, they spent a whole 2 hours deciding that they were going to do it anyway.  I kind of agree with the Whitehouse that it really looks like they were going to do it regardless.

And of course asshole Republican presidential candidates are all using this as yet another reason to assail Obama.  Is there anybody who doesn't recognize what a stunning display of bullshit that actually is.  Even an idiot populace has to be scratching their heads at that one.

And yet I had a lengthy email discussion with a friend of mine this morning about how the reason we're in this situation in the first place is because taxes are immoral and that it's Obama's fault.

Yeah, that's idiotic. There are systemic problems that have to be addressed, and nobody wants to make the effort. 

[orcus116]

Part of the reason I wonder this is because the behind the scenes reports make it look like they were itching to do it.  Their numbers were off by 2 trillion dollars when they made the decision,  and when it was pointed out to them, they spent a whole 2 hours deciding that they were going to do it anyway.  I kind of agree with the Whitehouse that it really looks like they were going to do it regardless.

That's really what it looked like. It didn't look like it was done out of necessity but more to stir the pot as if they're trying to prove a point that everyone is already aware of. Where they itching to do it just for the thrill of it?

[rumborak]

I think all of us get that feeling, yeah. But, I think it however reflects reality, in that the US can not just get the carte blanche anymore when it comes to credit. In fact, as emindead pointed out, AA+ seems still way too benign, given how close to the edge politicians like to operate in the US, only to score partisan points with their base. And especially the Tea Party, while this time having been shut out, seems a major danger to the integrity of the US.

rumborak

[Super Dude]

I think all of us get that feeling, yeah. But, I think it however reflects reality, in that the US can not just get the carte blanche anymore when it comes to credit. In fact, as emindead pointed out, AA+ seems still way too benign, given how close to the edge politicians like to operate in the US, only to score partisan points with their base. And especially the Tea Party, while this time having been shut out, seems a major danger to the integrity of the US.

rumborak

There was some NYT editorial that I thought put it really well: the US ought to make it national policy not to negotiate with terrorists.

There are a few things I don't get here.  For one,  I have no idea who the various entities that make these ratings are, or what they do,  but presumably they make money as a result of the global economy.  If the results of lowering the credit rating are as catastrophic as many believe, then why would they want to?  Isn't S&P going to get absolutely clobbered if chaos ensues over the next few weeks?

Part of the reason I wonder this is because the behind the scenes reports make it look like they were itching to do it.  Their numbers were off by 2 trillion dollars when they made the decision,  and when it was pointed out to them, they spent a whole 2 hours deciding that they were going to do it anyway.  I kind of agree with the Whitehouse that it really looks like they were going to do it regardless.

And of course asshole Republican presidential candidates are all using this as yet another reason to assail Obama.  Is there anybody who doesn't recognize what a stunning display of bullshit that actually is.  Even an idiot populace has to be scratching their heads at that one.

And yet I had a lengthy email discussion with a friend of mine this morning about how the reason we're in this situation in the first place is because taxes are immoral and that it's Obama's fault.

Yeah, that's idiotic. There are systemic problems that have to be addressed, and nobody wants to make the effort. 

[Quadrochosis]

so does this mean that jesus is coming or something

[ReaPsTA]

There was some NYT editorial that I thought put it really well: the US ought to make it national policy not to negotiate with terrorists.

How does this make sense?  If we had listened to the Tea Party politicians and drastically cut out budget, I think S&P would be more likely to figure that we were trying to revamp ourselves economically.

[Super Dude]

If we did listen to them government spending, and therefore government programs, would cease to exist in this country.  The Tea Party seeks to sabotage our country by taking sensible policies to ridiculous extremes.

[Quadrochosis]

So do Democrats. And Republicans. And everyone else.

[Super Dude]

Now you're not totally wrong, but it's a simple-minded conclusion. The degree to which the two major parties compare to this problem cannot compare. At least Republicans operated under the pretense of initial compromise.

[Quadrochosis]

All I got from that is "I want to agree with you but I am from party X, therefore you're wrong because my party can't be wrong."

[Riceball]

Theres too muchstuff ITT to quote, so heres my contribution.

Ratings agencies serve a purpose, however they have far too much power for my liking. And yes, as someone said, they all rated the shitty CDOs as AAA in the lead up to the GFC. And yes, they probably should cut the rating further (in their defence i think the outlook they have is still negative). AFAIK, China's ratings agency has knocked them down to BB+, and has been cutting since the GFC; but noone listens to them lol.

Second, this is no one persons fault, its the culmination of poor public policy choices from all American governmemts over the past 20-25 years.

Ill post more later.

[Super Dude]

All I got from that is "I want to agree with you but I am from party X, therefore you're wrong because my party can't be wrong."

No, the fact of the matter is Tea Parties are radicals who have no idea what they stand for, and so they go for the most anarchist policies they can think of.  The Republicans at least have a plan.

[ReaPsTA]

If we did listen to them government spending, and therefore government programs, would cease to exist in this country.  The Tea Party seeks to sabotage our country by taking sensible policies to ridiculous extremes.

Oh come on now, you really think all government spending and government programs would cease to exist if they had their way?  If nothing else, they have to make sure government funding goes towards making gay kids straight again.  I'm not saying their opinions are great or right, but they were clearly the only group with any real power in Washington concerned with actually reducing spending - even if it was only for political gain.

[TL]

There was some NYT editorial that I thought put it really well: the US ought to make it national policy not to negotiate with terrorists.

How does this make sense?  If we had listened to the Tea Party politicians and drastically cut out budget, I think S&P would be more likely to figure that we were trying to revamp ourselves economically.

Two of the main reasons they cited for the rating downgrade were basically the Republicans holding the global economy hostage during what should have been a routine matter, and their preventing any revenue increases from being included in the deal. The downgrade is basically entirely the fault of the Tea Party.

The Democratic plan involved some pretty large spending cuts, and actually called for increased revenues via returning tax rates on the wealthy to what they were in the 90s. The Tea Party were literally willing to destroy the global economy because they weren't willing to agree to a very reasonable revenue increase.

[rumborak]

I personally have the impression that many elements of the Tea Party would like to see the almost complete dismantling of the federal government. If there's a sure-fire way of bringing back the US to 18th century status (which is the time they are so idolizing), reducing the US to a pile of disjunct states where each state cooks its own soup is a good way of getting there.
The Tea Party is a collection of disillusioned people that turned to extremism, lead by populists. Just like Haider in Austria a few years back, and Austria paid a big international price for that stunt.

rumborak

[Super Dude]

Like I said, irrational extremists.

[hefdaddy42]

There was some NYT editorial that I thought put it really well: the US ought to make it national policy not to negotiate with terrorists.

How does this make sense?  If we had listened to the Tea Party politicians and drastically cut out budget, I think S&P would be more likely to figure that we were trying to revamp ourselves economically.

Two of the main reasons they cited for the rating downgrade were basically the Republicans holding the global economy hostage during what should have been a routine matter, and their preventing any revenue increases from being included in the deal. The downgrade is basically entirely the fault of the Tea Party.

The Democratic plan involved some pretty large spending cuts, and actually called for increased revenues via returning tax rates on the wealthy to what they were in the 90s. The Tea Party were literally willing to destroy the global economy because they weren't willing to agree to a very reasonable revenue increase.

This.

[PraXis]

Double the federal income tax rate on every bracket and you're at $1.1/$1.5 trillion... $400 billion short... and that's just this year.

[El Barto]

Two of the main reasons they cited for the rating downgrade were basically the Republicans holding the global economy hostage during what should have been a routine matter, and their preventing any revenue increases from being included in the deal. The downgrade is basically entirely the fault of the Tea Party.

The Democratic plan involved some pretty large spending cuts, and actually called for increased revenues via returning tax rates on the wealthy to what they were in the 90s. The Tea Party were literally willing to destroy the global economy because they weren't willing to agree to a very reasonable revenue increase.

Yeah, this pretty much sums it up.  The Teapartiers were perfectly willing to see us default, and were only interested in their all or nothing approach.  There could have been a reasonable compromise weeks ago that would have appeased everybody.  Even their Messiah Norquist thought they were being irrational.  At this point,  they actually are starting to look like terrorists.  They've latched onto a fairly radical end, which apparently justifies any means from their POV.