S&P goes negative on US

posted at 10:55 am on April 18, 2011 by Ed Morrissey

The long-awaited market reaction to accelerating US debt and uncontrolled deficit spending has arrived.  Standard & Poor’s issued a blunt warning today that it will re-evaluate America’s credit rating in the near future unless Washington acts to control its red ink, and that a lower rating — and therefore higher interest payments — is under consideration:

Standard & Poor’s cut its ratings outlook on the U.S. to negative from stable while keeping its triple-A rating on the world’s largest economy.

Relative to its AAA-rated peers, the U.S. has very large budget deficits and rising government indebtedness, and the path to addressing those issues is unclear, S&P analysts said.

“More than two years after the beginning of the recent crisis, U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” said Standard & Poor’s credit analyst Nikola G. Swann.

If a meaningful agreement to address medium- and long-term budgetary challenges isn’t reached and implementation isn’t begun by 2013, it would render the U.S. fiscal profile meaningfully weaker than its AAA-rated peers, analysts said.

Wall Street has reacted predictably.  The Dow dropped 200 points (1.8%) in the immediate aftermath of the announcement, and 29 of its 30 components fell backward.  The S&P lost 1.6%, and NASDAQ lost 1.8%, and all three indices gave no indication that they would recover quickly today.

What exactly does this mean?  S&P rates bonds, including Treasuries, for the risk they pose to investors.  A rating of AAA means the least amount of risk, so those selling the bonds — basically, debt — offer lower yields (interest rates).  This allows corporations and governments to borrow money less expensively, but only as long as their finances convince bond rating firms like S&P that the risk remains low to creditors.  A drop in the US rating means that we will have to offer higher yields, which means higher debt payments, and that will worsen our deficit problems as we borrow more money.

S&P isn’t looking for a commitment to end deficit spending altogether.  They want to see the trajectory of debt-to-income shift soon, and permanently, in order to keep assuring investors in the financial stability of the US government.  This is a warning that a recalculation will happen soon if Washington refuses to act, and it will also act as a warning to bond purchasers to avoid US Treasuries in the short term.

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LOL, Limbaugh was just brilliant on this moments ago.

S & P is telling Americans, as well as the rest of the world, that O’bama’s been a disaster for the American economy.

Count It!

Del Dolemonte on April 18, 2011 at 2:32 PM

This is the first step to financial armageddon…and no, that is no exaggeration.

gryphon202 on April 18, 2011 at 2:34 PM

S & P is telling Americans, as well as the rest of the world, that O’bama’s been a disaster for the American world economy.

Count It!

Del Dolemonte on April 18, 2011 at 2:32 PM

Count it twice.

BobMbx on April 18, 2011 at 2:48 PM

Obama claps as his plan is indeed working!

SPGuy on April 18, 2011 at 3:15 PM

“What exactly does this mean? “

“Everything is going according to plan!” – Barack Hussein Obowma

Seven Percent Solution on April 18, 2011 at 3:29 PM

Standard & Poor’s red flag waved at our AAA bond status is a blatantly irresponsible action as it could cause severe dyspepsia among some of our leaders. The government must respond to this action. Which of the following choices should it be?

(1) Stop using the Republican biased Standard & Poor’s for government bond ratings.
(2) Sic the att’y. gen. Bolder Holder on S&P for market manipulation and some form of antitrust violation.
(3) Henceforth use Substandard and Broke for ratings of government bonds.
(4) Signal the Chancellor of the Exchequer Bernanke to turn the presses on at full speed.
(5) Ignore the obviously biased pronouncements of the rating agency and continue on our present course.
(6) All of the above.

Heckle on April 18, 2011 at 3:45 PM

Thing is, the market’s been up and down over the last few years, sometimes even more than the 140 points or so today for no solid reason at all.

I would have thought that the Dow would have slumped a heck of a lot more over the S&P announcement.

Hm.

Dr. ZhivBlago on April 18, 2011 at 4:15 PM

This is great news for Democrats. Anything thing the proves their destruction of the USA is closer should make them quite happy

The Notorious G.O.P on April 18, 2011 at 4:23 PM

The Republicans need to a single message right now: It is not a coincidence that S&P downgraded our fiscal outlook less than a week after the President’s so-called budget “proposal”. The markets have cast a vote of no confidence in the President after he failed to propose any actual steps to deal with the deficit. Instead of proposing his own alternative and creating a framework for negotiation, the President launched an irresponsible political attack that significantly eroded the chance for bipartisan compromise. The markets have responded– and now every man, woman, and child in this country is threatened with higher interest rates because the President is more concerned with his own re-election than he is with the health of the nation. The proof is in the pudding.

Lawdawg86 on April 18, 2011 at 4:33 PM

For one thing, the narrator here isn’t so stupid as to drive towards the twister, as Cool Hand Luke in the White House is busy doing.

I was thinking it’s more like Phil from Groundhog Day, driving on the train tracks towards an oncoming locomotive and saying: “I’m betting he’s going to swerve.”

Socratease on April 18, 2011 at 5:04 PM

Interesting: Texas University Endowment Storing About $1 Billion in Gold Bars

I wonder how much Gold the liberal Ivy Leagues have in their endowments?

slickwillie2001 on April 18, 2011 at 5:11 PM

Fundamental Change we can believe in…

… or something.

Lawrence on April 18, 2011 at 5:30 PM

Heckle on April 18, 2011 at 3:45 PM

I wasn’t aware Paul Krugman was posting on HA now.

Del Dolemonte on April 18, 2011 at 5:58 PM

S & P is telling Americans, as well as the rest of the world, that O’bama’s been a disaster for the American world economy.

Count It!

That’s not what the S&P has said, that’s what you are saying. To assume that one politician or political party is responsible for the nation’s deficit or debt load is simply ignoring the facts. If you look at the current national debt, most of it accumulated under George Bush when the economy was far stronger and well before before the bubble economy collapse.

bayam on April 18, 2011 at 6:01 PM

The United States’ quantitative easing policy did not impact Standard & Poor’s decision to place the sovereign rating on negative outlook, but its conservatorship of Fannie Mae and Freddie Mac certainly did.

One of the pressures on the credit is analysts’ estimate that it could cost the U.S. government up to “3.5% of GDP to appropriately capitalize and relaunch Fannie Mae and Freddie Mac” in addition to the 1% of GDP already invested.

S&P analysts said the government may have to inject as much as $280 billion into the government-sponsored enterprises, which includes $148 billion already spent, to cover losses at the housing finance companies that were put into conservatorship in September 2008.

By our estimates, that $280 billion could swell to $685 billion if the government capitalizes Fannie and Freddie on a commercial basis,” S&P said.

J_Crater on April 18, 2011 at 6:07 PM

Expect Washington politicians to react negatively to this. Hearings in the senate with s&p analysts.
General bullying of the messenger.

Scranton on April 18, 2011 at 6:13 PM

To assume that one politician or political party is responsible for the nation’s deficit or debt load is simply ignoring the facts. If you look at the current national debt, most of it accumulated under George Bush when the economy was far stronger and well before before the bubble economy collapse.

bayam on April 18, 2011 at 6:01 PM

(Uproarious Laughter)

In your first sentence above, you say no one person is to blame for this mess. Yet in the very next sentence, you blame one person and one person alone for that mess. Can’t have it both ways, kiddo.

F-

Del Dolemonte on April 18, 2011 at 6:41 PM

Heckle on April 18, 2011 at 3:45 PM

I wasn’t aware Paul Krugman was posting on HA now.

Del Dolemonte on April 18, 2011 at 5:58 PM

I was waiting for the /lib or /sarc tag somewhere.

I think that idiot is serious though.

MadDogF on April 18, 2011 at 7:13 PM

That’s not what the S&P has said, that’s what you are saying. To assume that one politician or political party is responsible for the nation’s deficit or debt load is simply ignoring the facts. If you look at the current national debt, most of it accumulated under George Bush when the economy was far stronger and well before before the bubble economy collapse.

bayam on April 18, 2011 at 6:01 PM

UM could someone prove this?

MadDogF on April 18, 2011 at 7:14 PM

We’re f00ked.

Well and truly.

Midas on April 18, 2011 at 7:20 PM

bayam on April 18, 2011 at 6:01 PM

Back squeezing out more horsesh1t tonight, I see.

Midas on April 18, 2011 at 7:21 PM

Guys, in all seriousness, I hope you have begun preparing. This is going to collapse, it’s going to be catastrophic, and there’s not much to be done about it at this point. Not only are things spiraling down now, but when we lose the US dollar as the world monetary basis, it’s going to be very near worthless as everyone of consequence overtly does what they’ve been quietly doing for awhile now – getting rid of US dollars in exchange for *anything* else.

Midas on April 18, 2011 at 7:25 PM

In your first sentence above, you say no one person is to blame for this mess

I never claimed that only Bush was to blame- it was in response to your brilliant observation that Obama in 3 years had been the source of the US debt and deficit disaster.

In any event, S&P economists have called for increased taxes and serious spending cuts, in line with other leading economists on Wall Street.

bayam on April 18, 2011 at 7:48 PM

I never claimed that only Bush was to blame- it was in response to your brilliant observation that Obama in 3 years had been the source of the US debt and deficit disaster.

In any event, S&P economists have called for

increased taxes and serious spending cuts, in line with other leading economists on Wall Street.

bayam on April 18, 2011 at 7:48 PM

1. Obamao is the main source of it. Hid debt is greater than the combined debt of the entire united states put together up until ’09.

2. Great, now you libs wanna kill small businesses AND the elderly.

Do us a favor and jump off a bridge.

MadDogF on April 18, 2011 at 8:09 PM

Obama & Co. have completely and thoroughly robbed this country.

crosspatch on April 18, 2011 at 8:14 PM

‘Bushes fault’/moron MSM lib
-

RalphyBoy on April 18, 2011 at 8:29 PM

1. Obamao is the main source of it. Hid debt is greater than the combined debt of the entire united states put together up until ’09.

2. Great, now you libs wanna kill small businesses AND the elderly.

Do us a favor and jump off a bridge.

MadDogF on April 18, 2011 at 8:09 PM

These libtards should be tried for treason and sedition and when not if convicted, as the evidence is overwhelming, sentenced to the maximum. That should set a good example.

shmendrick on April 18, 2011 at 8:33 PM

1. Obamao is the main source of it. Hid debt is greater than the combined debt of the entire united states put together up until ’09.

2. Great, now you libs wanna kill small businesses AND the elderly.

Yes, and Bush’s estimated $1 trillion structural deficit is the fault of Obama as well. After the economic crisis it would have been easy to balance the budget while avoiding another great depression, but Obama decided to spend anyway because his goal was to out-spend Bush.

It’s all the fault of Dems that just don’t get that the future of this country is riding on the railroad and oil industries plus brilliant small business growth engines like Joe the plumber.

bayam on April 18, 2011 at 9:47 PM

Yes, and Bush’s estimated $1 trillion structural deficit is the fault of Obama as well. After the economic crisis it would have been easy to balance the budget while avoiding another great depression, but Obama decided to spend anyway because his goal was to out-spend Bush.

bayam on April 18, 2011 at 9:47 PM

Cram it in your cakehole, libby. That one trillion in “structural debt” that Bush accumulated over eight years took less than a year-and-a-half for Barack Obama to match and then exceed. While I was none-too-pleased with Bush’s admittedly profligate spending, Obama makes him look like a piker. Your intellectual dishonesty would be stunning if it wasn’t also coming from so many of your ideological brothers and sisters.

gryphon202 on April 19, 2011 at 9:12 AM

Boehner, you are a lucky man….you just drew to an inside straight and won!!!! S&P handed you more clout than you deserve from your performance so far. Now, take this hand you now have and bet big. You have leverage like never before and you better use it. With this hand you can include whatever cuts you would like in the Debt Ceiling vote coming up and you also have a winning hand such that Ryan’s plan may just go only slightly butchered by the Senate.

Boehner, play your cards now mister….. show some strength fella, Man Up for a change…..

highninside on April 19, 2011 at 3:24 PM

Comment pages: 1 2