Friday, August 05, 2011

S & P Downgrades U.S. Credit Rating

Standard & Poor's - which demonstrated its utter incompetence in giving top ratings to what turned out to be junk grade investments comprised of sub prime mortgages bundled as "Investments" - has down grade United States government securities fro AAA to AA+. In doing so, S&P cited the "political gridlock" in Washington - i.e., the GOP refusal to face objective reality and stop trying to destroy the economy and the federal government in an effort to win political points. The only good news is that the other two rating agencies, Moody’s and Fitch, have said they have no immediate plan to downgrade the USA's credit rating. Thus, in theory the federal government has more time to make progress on debt reduction and other issues impacting the U.S. economy. Therefore, the split verdict of the rating agencies limits the impact of the S.& P. downgrade - at least for now. Will the GOP get the message or will they continue to try to destroy the country in the hope that the typically uninformed and unengaged electorate will reject Barack Obama and embrace those who bear ultimate responsibility for most of the nations economic ills? Frankly, I'm not optimistic given the mainstream media's failure to do investigative reporting and report all the facts. Based on the last 2+ years, the main stream media "journalists" will merely regurgitate GOP talking points as if the GOP lies were true. Here are highlights from the New York Times:
Standard & Poor’s removed the United States government from its list of risk-free borrowers on Friday night, citing concern about the rising burden of the federal debt.

The nation’s rating was reduced to AA-plus for its long-term debt, one notch below the top rating of triple-A.

S.& P., one of the three major agencies that assign grades the credit of companies and governments, had threatened the downgrade if the government did not act to reduce the federal debt by at least $4 trillion over the next decade. Earlier this week, Congress instead passed a plan to reduce the debt by at least $2.1 trillion.

Treasury Department officials said that the S.& P. announcement was delayed after Treasury found a serious mathematical error in a draft of the downgrade announcement, which was provided to the government Friday afternoon. The officials said that S.& P. inadvertently added $2 trillion to its projection of the federal debt, significantly overstating the problem confronting the government.

The announcement by S.& P. came after a week of turmoil on Wall Street not seen since the days of the financial crisis. After plunging around 5 percent on Thursday, stocks bounced up and down Friday and closed relatively flat.

Even with the rating agencies split, S.& P.’s downgrade could become an election-year liability for President Obama. Fair or not, critics are likely to point to it as evidence of his failure to get the government’s finances under control.

There is also a financial cost. The federal government makes about $250 billion in interest payments a year. So even a small increase in the rates demanded by investors in United States debt could add tens of billions of dollars to those payments.

In addition, the credit rating agencies have said that a downgrade of government debt would probably be followed by downgrades of other entities backed by the government. For example, the said, Fannie Mae and Freddie Mac, the government-controlled mortgage companies, would be downgraded, raising rates on home mortgage loans for borrowers.

Dozens of counties and even a handful of states — including Maryland, Virginia, and New Mexico — might also be downgraded because of their local economies’ strong ties to Washington.

Yes, Virginia may suffer a financial cost from this. Will it be enough to cause Bob McDonnell to stop giving political fellatio to the Tea Party and extremist elements in the GOP? Personally, I'm not going to be holding my breath.

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