USA Downgraded!

August 5th, 2011 by NC Tea Party Staff Categories: Archives No Responses

Everyone that voted for this deal should and may well be removed from office.

Standard & Poors announced Friday night that it has downgraded the United States credit rating for the first time, dealing a huge symbolic blow to the worlds economic superpower in what was a sharply worded critique of the American political system.

Lowering the nations rating one-notch below AAA, the credit rating company said political brinkmanship in the debate over the debt had made the U.S. governments ability to manage its finances less stable, less effective and less predictable. It said the bi-partisan agreement reached this week to find at least $2.1 trillion in budget savings fell short of what was necessary to tame the nations debt over time and predicted that leaders would not be likely to achieve more savings later on

The decision came after a day of furious back-and-forth between the Obama administration and S&P. Government officials fought back hard, arguing that S&P made a flawed analysis of the potential for political agreement and had mathematical errors in its initial report, which was submitted to the Treasury earlier in the day. The company had overstated the U.S. deficit over 10 years by $2 trillion, officials said.

A judgment flawed by a $2 trillion error speaks for itself, a Treasury spokesperson said Friday.

The downgrade will push the global financial markets into uncharted territory after a volatile week fueled by concerns over a worsening debt crisis in Europe and a faltering economy in the United States.

The AAA rating has made the U.S. Treasury bond one of the worlds safest investments and has helped the nation borrow at extraordinarily cheap rates to finance its government operations, including two wars and an expensive social safety net for retirees.

Treasury bonds have also been a stalwart of stability amid the economic upheaval of the past few years. The nation has had a AAA rating for 70 years.

Analysts say that, over time, the downgrade could push up borrowing costs for the U.S. government, costing taxpayers tens of billions of dollars a year. It could also drive up interest rates for consumers and companies seeking mortgages, credit cards and business loans.

A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising t=
he cost of borrowing for schools, roads and parks.

But the exact impact of the downgrade wont be known until at least Sunday night, when Asian markets open, and perhaps not fully grasped for months. Analysts say the initial effect on the markets may be modest because they have been anticipating an S&P downgrade for weeks.

Federal officials are also examining the impact of a downgrade in large but esoteric financial markets where U.S. government bonds serve an extremely important function. They were generally confident that markets would hold up, but were closely monitoring the situation. Regulators said that the downgrade would not affect how banking rules treat Treasury bonds as risk-free assets.

The ratings action immediately fueled partisan wrangling Friday night. Allies to Obama said it underscored his call for a grand bargain that would trim $4 trillion from the federal budget involving a mix of tax revenues and spending cuts.

Republicans criticized Obama’s handling of the economy.

Standard & Poors rating downgrade is a deeply troubling indicator of our country’s decline under President Obama, said Republican presidential candidate Mitt Romney.

S&P has angered government officials with aggressive warnings over the past few months of a potential downgrade. Those warnings, so far, have not worried government bond markets.

Whats more, the two other major credit rating companies, Moodys Investors Service and Fitch Ratings, have said they would preserve the nations AAA rating for now.

S&Ps downgrade was as much a political critique as a financial conclusion. It is based on a view that American political leaders would be unable to come up with at least $4 trillion in savings, which is needed to bring the nations debt to a manageable level over the next decade.

The debt deal swung earlier this week proposed spending cuts in two phases. Democrats and Republicans agreed to the first round, worth nearly $1 trillion. But a Congressional committee must decide the remaining $1.2 trillion to $1.5 trillion and S&P questioned whether that would ever happen.

S&P added that it expects that the upper income Bush-era tax cuts will continue, despite vows from Obama to end the breaks next year.

The majority of Republicans in Congress continue to resist any measure that would raise revenues, the firm said.

S&Ps downgrade served as an indictment of the gridlock that sent the nation to the edge of defaulting on its debt obligations. It is also striking in part because it reflects the tremendous power of a small group of financial analysts employed by a New York company part of McGraw-Hill. In Europe, political leaders have taken aim at credit rating companies when they cut the ratings of governments struggling with heavy debt burdens.

S&P said the nation could suffer additional downgrades later on if the nations debt burden grows worse. A new political consensus might (or might not) emerge after the 2012 election, but we believe that by then, the government debt burden will likely be higher, the firm said.

The company said the United States financial position was diverging from that of other AAA countries, including Canada, France, Germany and the United Kingdom. The firm made clear there is little likelihood of the United States regaining its AAA rating in coming years.

Countries with a AA+ rating include New Zealand and Belgium. Among those countries with a AA rating, one notch lower, are Bermuda, Spain, and Qatar.