USA credit rating downgraded

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Aug 6 2011 00:43
USA credit rating downgraded

Standard & Poors have just downgraded the crediting rating of the USA from AAA to AA+ (outlook negative). This doesn't mean that the US is necessarily going to default but it's still massive news and gives Obama the privilege of being the only US president to have the nation's credit rating downgraded. It's unlikely that this will lead to large scale sell offs of US debt but it will probably increase the yield and will have some sort of economic impact. A fund manager on Newsnight was saying that she thought it would lead to a sell off of other countries debts so this could further exacerbate the problems in the Eurozone.

jesuithitsquad's picture
Joined: 11-10-08
Aug 6 2011 05:02

It's worth noting that neither Moody's nor Fitch agrees. A lot of the stuff I've seen has been attacking S&P's analysis which might be a kill the messenger thing. From what I've read it seems the consensus is it shouldn't be that big of a deal in the US economically (cf. Canada, Japan). Politically it's probably a different story. Meanwhile, it will surely be used as an excuse for further attacks against the working class.

Joined: 11-02-07
Aug 6 2011 09:05
jesuithitsquad wrote:
A lot of the stuff I've seen has been attacking S&P's analysis which might be a kill the messenger thing.

The Italians are being more proactive about shooting the messenger:
S&P's and Moody's face Italian raids

Documents were taken from the Milan offices of the two agencies by Italian prosecutors as part of an investigation aimed at "verifying whether these agencies respect regulations as they carry out their work," according to Carlo Maria Capistro, the head of the prosecutors office in the southern Italian town of Trani which is heading the action.

The raids come at a time of rising tensions between ratings agencies and eurozone governments.

The agencies are blamed by some for exacerbating the region's sovereign debt crisis by downgrading many of the indebted countries.

Joined: 25-11-06
Aug 7 2011 22:40

I'd enjoy it if they actually did kill this messenger...

The thing is that a US downgrade isn't even a logically supportable step. The only way that the US could default is it simply chose to (since it can print as much money as it wants). And while the political parties play mad games of chicken, the actual chance of this is remote.

I strongly suspect it is some combination of political agenda and speculative agenda.

But then again, a whole lot of the market swings have involved just this. The present crisis is both real problem for capital and an opportunity for a lot of operators to make a lot of money on the side (the austerity side of the crisis equation, to abuse metaphors). Indeed, the willingness of the powers-that-be to profit from events that weaken the system in any long sense is a testament to the likelihood of the things reaching an authentically higher level of crisis soon (as opposed this particular bit of bullshit).

Forbes Blogger wrote:
Isn’t a credit agency suppose to opine on the probability of a debtor paying its debts? What difference does it make that it looks silly getting in a position to do so? What difference does it make if the central bank is called upon, or if monetization of its debt leads to inflation? Not that it will. A credit agency doesn’t grade fiscal rectitude. It doesn’t grade inflation probabilities. It’s supposed to grade the probability of the repayment of its debts.
Joined: 25-11-06
Aug 7 2011 22:39


Joined: 11-07-08
Aug 8 2011 11:11

some these on this profoundly important event:

Joined: 3-12-07
Aug 8 2011 12:30

This post by Paul Mason (from April) explains pretty well what just happened:

S. Artesian
Joined: 5-02-09
Aug 8 2011 14:27

What counts of course is not the downgrade in isolation, not the downgrade as cause, but the downgrade as effect.

What counts is the deterioration in profit margins in critical sectors of the world economy, i.e. semiconductor fabrication where the price of a 1 GIG DRAM chip has declined from $2.72 to .84 in a year. What counts is that the global purchasing manager's index indicates "no growth." What counts is the generalized overproduction and continued overaccumulation that inhibits valorization of all previously accrued capital.

The AA+ rating will have no smaller or larger impact on the bourgeoisie's need to exploit labor at even greater intensities than the UK's continued AAA rating has had on Cameron's "Thatcher in Drag" routine.

And no, the Fed cannot simply "print money" and inflate its way out of the morass. Fed tried that, remember? Quantitative easing? All those special investment vehicles-- PPIP, TALF, TARP, PDCR, Maiden Lane 1, 2, 3, etc. etc. ad infinitum, ad nauseum.

Didn't work. Doesn't work. Look around, did any of that reduce, eliminate the massive non-performing debt held by US banks and financial institutions? Not really.