Discussion in 'Wall St. News' started by ASusilovic, Apr 18, 2011.
S&P's rating on U.S. remains AAA...
Does this mean Paul Ryan will get more support with his plans?
S&P ratings process:
Step 1: Provide warning
Step 2: Cut rating
big fucking surprise. If you didn't see this coming you shouldn't be involved in economics in any way.
And Greece 2yr bond yields above 19% today with talk of Greek debt "restructuring" so there are fireworks everywhere...
I'd say it is a suprise and no real downgrade will hapen given the interconnectedness between the rating agencies and the US government.
This may be the news sending market in a 1% dive this morning.
WASHINGTON (MarketWatch) â The following is the text of Standard & Poorâs release of its decision to downgrade the ratings outlook on the U.S. debt:
Standard & Poorâs Ratings Services said today that it affirmed its âAAAâ long-term and âA-1+â short-term sovereign credit ratings on the U.S. Standard & Poorâs also said that it revised its outlook on the long-term rating of the U.S. sovereign to negative from stable.
Our ratings on the U.S. rest on its high-income, highly diversified, and flexible economy. It is backed by a strong track record of prudent and credible monetary policy, evidenced to us by its ability to support growth while containing inflationary pressures.
The ratings also reflect our view of the unique advantages stemming from the dollarâs preeminent place among world currencies.
âAlthough we believe these strengths currently outweigh what we consider to be the U.S.âs meaningful economic and fiscal risks and large external debtor position, we now believe that they might not fully offset the credit risks over the next two years at the âAAAâ level,â said Standard & Poorâs credit analyst Nikola G. Swann.
âMore than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,â Mr. Swann added.
In 2003-2008, the U.S.âs general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most âAAAâ rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover.
On April 13, President Barack Obama laid out his Administrationâs medium-term fiscal consolidation plan, aimed at reducing the cumulative unified federal deficit by US$4 trillion in 12 years or less. A key component of the Administrationâs strategy is to work with Congressional leaders over the next two months to develop a commonly agreed upon program to reach this target. The Presidentâs proposals envision reducing the deficit via both spending cuts and revenue increases.
Key members in the U.S. House of Representatives have also advocated fiscal tightening of a similar magnitude, US$4.4 trillion, during the coming 10 years, but via different methods. House Budget Committee Chairman Paul Ryanâs plan seeks to balance the federal budget by 2040, in part by cutting non-defense spending. The plan also includes significantly reducing the scope of Medicare and Medicaid, while bringing top individual and corporate tax rates lower than those under the 2001 and 2003 tax cuts.
We view President Obamaâs and Congressman Ryanâs proposals as the starting point of a process aimed at broader engagement, which could result in substantial and lasting U.S. government fiscal consolidation. That said, we see the path to agreement as challenging because the gap between the parties remains wide. We believe there is a significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections. If so, the first budget proposal that could include related measures would be Budget 2014 (for the fiscal year beginning Oct. 1, 2013), and we believe a delay beyond that time is possible.
Standard & Poorâs takes no position on the mix of spending and revenue measures the Congress and the Administration might conclude are appropriate.
But for any plan to be credible, we believe that it would need to secure support from a cross-section of leaders in both political parties. If U.S. policymakers do agree on a fiscal consolidation strategy, we believe the experience of other countries highlights that implementation could take time. It could also generate significant political controversy, not just within Congress or between Congress and the Administration, but throughout the country. We therefore think that, assuming an agreement between Congress and the President, there is a reasonable chance that it would still take a number of years before the government reaches a fiscal position that stabilizes its debt burden. In addition, even if such measures are eventually put in place, the initiating policymakers or subsequently elected ones could decide to at least partially reverse fiscal consolidation.
In our baseline macroeconomic scenario of near 3% annual real growth, we expect the general government deficit to decline gradually but remain slightly higher than 6% of GDP in 2013. As a result, net general government debt would reach 84% of GDP by 2013. In our macroeconomic forecastâs optimistic scenario (assuming near 4% annual real growth), the fiscal deficit would fall to 4.6% of GDP by 2013, but the U.S.âs net general government debt would still rise to almost 80% of GDP by 2013. In our pessimistic scenario (a mild, one-year double-dip recession in 2012), the deficit would be 9.1%, while net debt would surpass 90% by 2013. Even in our optimistic scenario, we believe the U.S.âs fiscal profile would be less robust than those of other âAAAâ rated sovereigns by 2013. (For all of the assumptions underpinning our three forecast scenarios, see âU.S. Risks To The Forecast: Oil We Have to Fear Is...,â March 15, 2011, RatingsDirect.
âOur negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,â Mr. Swann said. âThe outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.â
Some compromise that achieves agreement on a comprehensive budgetary consolidation program--containing deficit-reduction measures in amounts near those recently proposed, and combined with meaningful steps toward implementation by 2013--is our baseline assumption and could lead us to revise the outlook back to stable. Alternatively, the lack of such an agreement or a significant further fiscal deterioration for any reason could lead us to lower the rating.
Buying opportunity for Timmy and Ben!
Back up the truck Timmy!
Still believe it took them too long to come out with this ratings outlook. But this news doesn't matter, if anything its probably going to be a "buying opportunity"!
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