U.S. Credit Rating Downgrade Looking Likely Even If Debt Ceiling Deal Is Reached

[brooklynite]

Source: Huffington Post

NEW YORK -- Could the U.S. lose its top credit rating even if a deal is reached to raise the debt limit? Market analysts and investors increasingly say yes. The outcome won't be quite as scary as a default, but financial markets would still take a blow. Mortgage rates could rise. States and cities, already strapped, could find it more difficult to borrow. Stocks could lose their gains for the year.

"At this point, we're more concerned about the risk of a downgrade than a default," said Terry Belton, global head of fixed income strategy at JPMorgan Chase. In a conference call with reporters Tuesday, Belton said the loss of the country's AAA rating may rattle markets, but it's "better than missing an interest payment."

Even with a deadline to raise the U.S. debt limit less than a week away, many investors still believe Washington will pull off a last-minute deal to avoid a catastrophic default. Washington has until Aug. 2 to raise the country's $14.3 trillion borrowing limit or risk missing a payment on its debt. President Barack Obama and Congressional Republicans have failed to reach an agreement to raise the debt ceiling and pass a larger budget-cutting package. Politicians have tied raising the debt limit and spending cuts together.

But at least one credit rating agency has already made it clear that unless that agreement includes at least $4 trillion in budget cuts over the next decade, the country's AAA rating could be lost. Right now, the proposals under discussion cut around $2 trillion or less.

Read more: http://www.huffingtonpost.com/2011/07/27/us-credit-rating-downgrade-likely_n_910513.html?ir=Politics

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I've been trying to figure out what to do with our investments, and my Wife, who's a Wall Street lawyer says pretty much nothing's going to be safe...

[no_hypocrisy]

1. Reminds me of The Sorceror's Apprentice.

Things get out of control really fast and can't be easily retracted.

[KansDem]

2. Who's "downgrading" the US credit rating?

Surely not these credit rating agencies?

[Bragi]

5. Global bond traders will do so

US credit rates have been based on the assumption that a default is unthinkable. We now know that with an ignorant right-wing dominated Congress, and a weak and ineffectual President, that default is NOT unthinkable. So the U.S will now have to pay for this new risk in the rates investors will demand for money they loan to the U.S.

So damage is already done. We're waiting now to find out now is how bad will the damage be.

[plumbob]

13. Why, yes, citizen, THOSE rating agencies, BUT surely you must realize that

since that article was written 3 months ago, that these folks have cleaned house, reformed, seen the error of their ways, and are now washed in the blood of the Lamb and will meet us over on the other side where no tear shall be shed nor pain ever felt?

Move along, nothing to see here. And try not to step in that giant pile of bullshit someone left here.

[Kolesar]

3. So, those notes issued by Greece and Botswana become relatively "more desirable" ?

Heavy whipping sarcasm

[Psephos]

29. Probably not, but those issued by Canada and Switzerland will. n/t

[Turbineguy]

4. We seem to be having our Boner Crash

Markets are down.

[Harmony Blue]

6. I read the article and it was a misleading

but journalism has that reputation these days.

Anyways, I am mulling what to do with my investments as well. I fear for the people that don't understand the ramifications of all this. In a way, it started out as Kabuki theater, but now we are fast approaching reality hitting us in the face Aug 2nd.

[neoralme]

9. I am well spread, but still wonder about bonds. My money is

managed by USAA, which manages military investments. It don't make much, but it's pretty safe. I will never go into the stock market again. It is totally crooked.

[CountAllVotes]

10. USAA is an insurance company

They pose as a bank/credit union but they are not. Many of their "products" are not insured so watch out!

How do I know this? Answer: They were trying to get me to move my entire IRA into a 2% annuity and I told them NO.

I found the people working for them to be incompetent at best. I plan to stay the hell away from this place.

:dem:

[closeupready]

7. The ratings agencies are unreliable in my opinion. They rate CDO's AAA

so, I'm not sure why this is even newsworthy.

[avaistheone1]

17. True. That has been proven particularly over the last few years.

k&r

[wilt the stilt]

8. Thanx Repubs

you are doing a great job ruining America. Would you do this with your personal credit?

[redixdoragon]

11. Why must we please these people?

We give too much effort to appease those that have no concern for our continuing civilization. I just wish we all had the guts to remove them.

[redixdoragon]

12. And no I'm not saying removal as anything harsh

No violent intent meant, but just a good "Get out"

[Lucky Luciano]

14. In a true US default only physical assets in your possession

...not held by someone else (eg a bank) would be safe.

Even shorting treasuries will not work because your broker could go bankrupt and you would become a creditor of your bankrupt broker....and SIPC could not possibly work to protect you either.

This will hopefully not be a true default because recovery should be 100%...should be that is....

[obxhead]

15. This is exactly what Cantor and friends have been fighting for.

None of this kabuki theater matters a bit. They don't give a shit about debt or deficit amounts.

Cantor (and I'm sure many others) have invested millions and need their bet on a downgrade to pay off big. It's about the money.... how much they will make.

[dipsydoodle]

16. U.S. Credit Rating Rests On S&P’s London View of Washington

David Beers may be the most influential political commentator in the U.S. right now, even though he’s hardly a household name, that isn’t technically his job and he’s only visiting.

As the London-based managing director of sovereign credit ratings at Standard & Poor’s, Beers will help determine whether the U.S. government’s credit rating will be downgraded as a result of the battle over raising the debt limit.

His company has gone beyond competing credit rating agencies to say that it isn’t enough for lawmakers to agree to lift the government’s $14.3 trillion debt ceiling. Congress and the White House also must agree to a deficit-reduction package to avoid a downgrade in the government’s AAA credit rating.

In an interview this week at Union Station, just blocks from the U.S. Capitol, Beers said he views the debt limit fight as a test of lawmakers’ willingness to tackle the deficit.

http://www.bloomberg.com/news/2011-07-27/u-s-credit-rating-rests-on-s-p-s-london-view-of-washington.html

[EFerrari]

19. I don't remember electing him. n/t

[dipsydoodle]

22. I know what you mean

but it seems to be the way of the world.

off topic - did you see that flordia08 cracked how to watch the Murdoch documentary over your side ?
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=439&topic_id=1586200&mesg_id=1586200

You are so clever you girls. :)

[EFerrari]

23. Cool. Thanks for the link. n/t

[denverbill]

18. Most of my money is in 401K's. Options are pretty limited.

Few 401K's offer precious metals investments, and even if they did, it's hard to say what will happen to metals. Interest rates will go up, which will deepen the recession and could potentially lead to deflation, but I don't know how deflation would even be possible with a fiat currency backed by a country with a $1.4 trillion annual budget deficit and a trade deficit almost as bad. what a fucking mess.

And Republicans refuse to consider tax increases on the wealthy, blame Democrats for the massive deficits THEY created with tax cuts, unfunded wars, and an unfunded prescription drug program, and really just seem completely clueless as to the destruction they are about to unleash.

[unblock]

20. the reality is that ratings are most important for the least understood investments

if you are considering an esoteric investment, or a company with little public information, then you may rely heavily on what the rating agencies say.

but if you are investing in u.s. treasuries, there are mountains of information about these investments that is publically, readily available and most investors don't really need the rating agencies' opinions because they can easily form their own or find other sources of opinion.


the assessment of the market overall matters, of course, but the opinion of the rating agencies won't have nearly as much impact on the price of treasuries as it has on the price of corporate debt from a not-well known company.

SOME mutual funds and such may have to unload treasuries if their charter requires them to invest in only aaa-rated stuff, or to maintain a certain portion of their pool invested in aaa-rated stuff. this will have a negative effect, but i don't think we'll see mass fleeing from treasuries just because the rating agencies say boo.

[TomClash]

21. Your wife may be right nt

[TexDevilDog]

24. So, just raising the ceiling will not stop a down grade.

Well, pooh. If the credit card company double's my credit limit when I max out the card, that lowers my credit rating?

/sarc

[kirby]

25. The US deserves a downgrade...

If we think we can continue trillion dollar wars and keep extending tax cuts for the rich, that tells how irresponsible the US is.

[No Elephants]

26. By August 9, Americans will just be grateful if we don't default. They'll forget about cuts

[MrModerate]

27. These are the same rating agencies who were Wall Street's partners in crime . . .

When they decided to play sillybuggers with our money? Great.

OTOH, the 4 trillion wouldn't need to be all cuts, it could be increases in revenue, if 1)Obama doesn't fold, and is successful in increasing taxes/reducing loopholes as every sane person acknowledges needs to be done; 2)Stimulus measures on the other side of this Republican-manufactured crisis work to spark job growth; and 3) Tax revenues increase as a result of economic recovery.

The fact of the matter is that if Obama had been more constant in terms of the appropriate application of stimulus, we'd be much further down the road to recovery. Instead, the Republicans have hijacked the debate and made in all about debt -- which is utter bullshit.

[ozone_man]

28. A downgrade would be a good thing,

It would raise mortgage rates, make it harder to create these subprime mortgages, and to wage wars across the world. Is their any downside?

However, if there is an order to pay off creditors, social security must be first, always, all others are after that.

The bottom line is that we are living off a credit card and the sooner we end that, the better. We know that from personal finances, and it is no different at the national level. No free ponies for everyone I'm afraid.