S&P Says Likelihood US Is Downgraded To AA As Soon As Early August Is 50-50

[dkf]

The Endgame

In our view, the need for an agreement to raise the debt ceiling
before it is breached--which the government has said would occur on or
around Aug. 2--remains a major risk to the U.S. economy, in our view.
Because we see a real risk that efforts to reduce future deficits may
meaningfully miss the targets that Congressional leaders and the White
House have discussed, we put the likelihood that we would lower the
long-term rating on the U.S. within the next three months and
potentially as soon as early August--by one or more notches, into the
'AA' category--at about 50-50.

There is some concern that
investors, especially those overseas, are speculating that the U.S.
government would resort to higher inflation to reduce the real value of
its debts. Given the risks of a government shutdown, some feel the Fed
would need to keep policy "too easy, too long" in order to accommodate
whatever happens on the fiscal side. But the central bank has said it
understands the dangers of this kind of action, with Chairman Ben
Bernanke arguing that it's "an outcome that should be avoided at all
costs."

We believe it unlikely that the Fed would sit on its hands
if fiscal inaction or irresponsibility destabilized the recovery. If an
aggressive dose of austerity hurts growth and brings back the risk of
deflation--or if market liquidity begins to dry up--we think the Fed
would likely step in to provide support to the markets and offer another
round of quantitative easing.

Collaboration on substantial
spending cuts appears to be within reach, though we see demands that
spending be trimmed by as much as the increase in the debt limit as a
potential stumbling block. Still, we expect that cooler heads will
prevail in the end, and Washington will avert a default. The
consequences of not doing so would simply be too severe, in our view.

http://www.zerohedge.com/article/sp-says-likelihood-us-downgraded-aa-soon-early-august-50-50

[Buns_of_Fire]

1. S&P... Hmmm... Weren't these the same guys who rated AIG as AA in 2008?

Why yes, yes they are... http://www.forbes.com/2008/05/09/aig-losses-update-markets-equity-cx_md_0509markets20.html

So now S&P and Moody's and the others are going to show us all what a bunch of rough, tough, manly-man analysts they are. Feeling guilty, boys?

[ThomWV]

2. Didn't Moody's say they might downgrade as early as this coming week?

[dkf]

4. Yes...as early as July apparently.

http://blogs.wsj.com/marketbeat/2011/07/11/debt-ceiling-debate-the-mother-of-all-timelines/

The thing is S&P has threatened a downgrade even if the debt ceiling is resolved. I am not aware that Moody's has done the same.

[RadiationTherapy]

3. The republican plan all along.

Not default, but downgrade.