'Brinksmanship'. 'Political bargaining chips' FULL S&P downgrade rationale statement at LINK

[ProgressiveEconomist]

.http://dealbook.nytimes.com/2011/08/05/s-p-s-rationale-for-downgrading-the-u-s/?pagemode=print

"Standard & Poor's Ratings Services said today that it lowered its long-term sovereign credit rating on the United States of America to AA+ from AAA. ...

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see 'Sovereign Government Rating Methodology and Assumptions,' June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government¡s other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged. We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government¡s debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years.

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. ..."

[BeyondGeography]

1. Playing politics or sending a constructive message?

Either way, a ratings agency should stick to its knitting. Don't like it.

[ProgressiveEconomist]

2. IMO, what they're saying is: 'If you have a sizable political faction promisint NOT

to authorize the 40 cents out of every dollar already spent that has to be borrowed, we can't help but think that the risk of default has increased.' That makes sense to me, and I can see the point of dropping the rating one notch to get our attention. S&P is saying, 'Stop using your credit rating as a political bargaining chip.'

The fact that the other two of the Big Three agencies have reffirmed our AAA rating means that a one-notch downgrade from one agency may not do as much damage to the US budget as a two-notch downgrade from two agencies might have.

What I don't like is that in the past it has taken many years for countries (such as Canada) who lost their triple-A rating to get it back. And consistently requires that S&P now downgrade MANY states and cities that rely most on the US as a customer. Many of those states and cities already have marginal credit ratings, and a downgrade may cost them tens of thousands of government and private contractor jobs.

[BeyondGeography]

3. I would have preferred a back-channel message

Not that it would have made a difference with these loons, but maybe it would have at least given our side more leverage. To what end...good question, given our timidity.

[girl gone mad]

18. That's not even a valid economimc argument.

A sovereign currency country can only default by choice and it never has to borrow to spend.

[nadinbrzezinski]

5. Oh com'on they do this regularly with other countries

they are telling us to buck up or else.

And this is different because we are not argentina? This kind of analysis enters their rating structure, just that for the first time it is catching up to us.

That is the only news in this.

[ProgressiveEconomist]

8. CSPAN covered a House subcommittee hearing on rating agency methodology. S&P

S&P President Deven Sharma was very voluble in the few wrap-up minutes I caught as the hearing was ending. This was on July 27th (see http://www.bloomberg.com/news/2011-07-27/s-p-s-sharma-says-u-s-bond-rating-hinges-on-details-of-long-term-solution.html ).. I wonder iwhether CSPAN will rebroadcast it this weekend.

[nadinbrzezinski]

11. That should be interesting, and thanks

[nadinbrzezinski]

6. self delete du burp

[ProgressiveEconomist]

4. I wonder whether there will be lawsuits, and who eill win 'sttanding' as plaintiffs

[mmonk]

7. Told you all this is ideological.

They are in line with the New Dems. Raise taxes at the top, cut entitlements.

[ProgressiveEconomist]

10. You mean, the WH and Geithner pleaded with S&P, "PLEASE downgrade us"?

[mmonk]

13. It is an ideological call.

Whether one is for or against a social safety net, it's hard to see it otherwise. Cumulative defense spending for example is 1 trillion when you figure defense related items as well along with past military personnel obligations.

[ProgressiveEconomist]

14. IMO it's mainly a warning to Republicans: "Rein in your TeaParty hostage takers"

and start acting like a responsible creditor. Stop skating on the edge of default on payment for things your government already has bought.

[nadinbrzezinski]

17. We have a WINNAHHHHH

[nadinbrzezinski]

12. This is ideological

and to a point it is a familiar movie, BUT... going over the political stability of the US does not enter into shock doctrine. This is not about our ability to pay... but an unstable system.

After I read it it did not shock me or surprised me, except that they went there... as I said earlier in one of my OPs, me seeing the trends and posting them here is one thing. A rating agency... let's just say it should make people nervous... the short of it... not good.

[mmonk]

15. Here is what Krugman says:

More than that, everything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term. What matters is the longer-term prospect, which in turn mainly depends on health care costs.

[nadinbrzezinski]

16. And krugman should re-read this

they are not really talking of the fiscal situation, but our inability to raise taxes and an unstable political system. Perhaps I get it since I;ve seen them before for places like Argentina. He, like Nate Silver, are stuck in the finance side of this and missing the political commentary by a mile.

Yes their math error should send them to detention... but really the main thrust is about our junta not being able to get it's political goals. No, we don't have a junta, but that is the way they at times speak of other places when doing downgrades. Yes, political stability enters into the equation... they just told us we are not seen as a politically stable system right now.

Here an example... for Turkey

http://www.todayszaman.com/newsDetail_getNewsById.action?newsId=234724

JCR: Political, fiscal stability crucial for Turkey rating upgrade



Japan Credit Rating Agency (JCR) chief analyst Yoshihiko Tamura has said political and fiscal stability will determine whether or not Turkey’s credit rating is upgraded to investment grade.

[Safetykitten]

9. Just wait till the next round from Super Committee...that will be another hit.