So our AAA credit rating is safe now, right?

posted at 10:40 am on August 1, 2011 by Jazz Shaw

“The storm has passed!”

“Disaster has been averted!”

Don’t you feel better? Of the various flavors of Armageddon being pitched over the last month or more, one of the most dire was the threat that the Big Three credit ratings agencies would downgrade our super-duper triple A status unless we got our fiscal house in order. Investors would be jittery and demand a better deal prior to purchasing any of America’s shabby paper.

So with the latest version of the new, new deal nearly inked, we’ve at least dodged that bullet, right? Not so fast, says the CEO of PIMCO.

One of the most prominent global investors says that a potential budget deal in Washington will only bring short-term relief, and it won’t remove the threat of a U.S. debt downgrade by credit rating agencies.

“I think this compromise will lead to an increase in the debt ceiling, and therefore avoid default,” said Mohamed El-Erian, CEO of PIMCO, a global investment firm and one of the world’s largest bond investors said today on ABC’s “This Week With Christiane Amanpour.” “But this relief will be short.”

“We have one rating agency out there that said it would downgrade unless certain things happen, and these things are not happening fast enough,” El-Erian said of the budget framework being negotiated.

“If the U.S. loses that AAA status, it will be much more difficult for the U.S. to restore growth, so it’s unambiguously bad,” El-Erian added.

The problem was never a question of default vs. no default. First, we were never going to fail to pay the interest on our debts. We simply wouldn’t have paid a bunch of other bills. But clearly that wasn’t the real underlying fear of either investors or creditors. What they were waiting to see was if we were on a path toward long term fiscal stability or if they would have to sit through this same waiting game from now on every time we ran out of cash.

Even if the currently proposed deal goes through, the “problem” for the world market doesn’t go away forever. It just gets to sit on the bench for a year or two. It’s not just the red or black numbers on the balance sheet, but the glide path that we are on. Are we heading toward a more fiscally stable future, or just heading toward the cliff at a more leisurely pace?

Obviously PIMCO’s CEO seems to be leaning toward the latter. Video of the interview follows, with apologies for including Christiane Amanpour when you may still be enjoying your morning coffee.

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Told ya!

Sporty1946 on August 1, 2011 at 10:43 AM

It’s the uncertainty, stupid! Oh, and spending out the wazoo.

Kissmygrits on August 1, 2011 at 10:45 AM

If it’s downgraded – it’s because this deal was a sham.

And – that means the GOP is equally responsible if they vote for it.

Good Job Team!

HondaV65 on August 1, 2011 at 10:45 AM

You mean to tell me that that Timmy Geithner lied?

coldwarrior on August 1, 2011 at 10:46 AM

I didn’t click ont he video, but just from the still shot, Christiane Amanpour has actually gotten a LOT more attractive. I mean, the suit and tie she’s wearing is a little odd, I’ll admit. But she’s clearly much more feminine looking than she used to be. Her mustache is less defined, her Adam’s apple is smaller. You go, girl!

SoRight on August 1, 2011 at 10:46 AM

Thank God, our ability to write IOUs has been preserved. That ought to comfort everybody. No?

RBMN on August 1, 2011 at 10:47 AM

Egan Jones as already Downgraded the US to AA+
http://www.zerohedge.com/article/egan-jones-downgrades-us-aaa-aa

the_ancient on August 1, 2011 at 10:47 AM

America’s credit rating has long been ‘D’ for Democrat. The rating agencies are just playing catchup.

meci on August 1, 2011 at 10:50 AM

“We have one rating agency out there that said it would downgrade unless certain things happen, and these things are not happening fast enough,”

What things? Something more like what those crazy Tea Party terrorists wanted?

forest on August 1, 2011 at 10:50 AM

Downgrade or STFU.

artist on August 1, 2011 at 10:50 AM

PIMCO has a huge vested interest in big gov because of their bond and currency hedging positions. They are not dis interested parties

georgealbert on August 1, 2011 at 10:52 AM

I don’t expect our ratings to drop simply because the rest of the world is worse. If we don’t have a AAA rating then no one has a AAA rating. I think these guys are using their own thuggish tactics to try and get congress to do some real cutting.

NotCoach on August 1, 2011 at 10:58 AM

and it won’t remove the threat of a U.S. debt downgrade by credit rating agencies.

Bah! The govt will just force them to comply with its wishes.
OR ELSE.

Badger40 on August 1, 2011 at 10:59 AM

As I recall Moody’s and S&P called for 4 trillion in REAL spending cuts.

But our elected officials are DEAF to all except LOBBYIST so they ignored the message.

Dr Evil on August 1, 2011 at 10:59 AM

So, we were told for well over a decade that the rating agencies knew what they were doing and should not be questioned…according to people such as Barney Frank, Chris Dodd, Maxie Waters and the rest of the Dems in Congress and others…as the financial/housing bubble was allowed to grow, encouraged to grow and grow until it burst….and now, these same agencies are to be trusted again?

The US should have lost its AAA rating well over a decade ago. Any normal household would have the minute their borrowing exceeded the normal allowable rate in relation to assets and income. If I, as a head of household, cannot go to the bank and get endless loans and constantly change the rates of my repayments or choose not to repay at all…then why should government be allowed to do so?

Cut.

Cap.

Balance.

Defund.

coldwarrior on August 1, 2011 at 11:00 AM

When is this downgrade supposed to occur?

Tasha on August 1, 2011 at 11:01 AM

A technical default would have had the potential to knock the world economy back to the bottom of the ladder even though we seem to have only climbed a rung or two. They will most likely give us time to come up with something before a downgrade. That would be in nobody’s best interest because if we sink a lot of others go too.

Southernblogger on August 1, 2011 at 11:03 AM

Meh, the rating agencies….wrong on Mortgage Backed Securties, Lehman Brother, Bear Sterns, AIG, Bank of America, Country-wide.

You have triple A credit, then 6 months later you are filing for BK.

Oil Can on August 1, 2011 at 11:06 AM

A technical default would have had the potential to knock the world economy back to the bottom of the ladder

Southernblogger on August 1, 2011 at 11:03 AM

Right … and let’s not forget to mention – it would have caused the sky to fall on our heads.

Chicken Little.

HondaV65 on August 1, 2011 at 11:06 AM

Even if the currently proposed deal goes through, the “problem” for the world market doesn’t go away forever. It just gets to sit on the bench for a year or two. It’s

Why is it that everyone but WH/Congress can see this…and understand it?

I thought PIMCO unloaded their all their Treausury positions several weeks ago?

herm2416 on August 1, 2011 at 11:07 AM

But we’re only spending 120% of our GDP, and our unfunded liabilities are only 1000% of our GDP!!!

…and we only got TWO new credit cards (with 10% of GDP limits) this month….so we’re “responsible” now…right?

…and we’re only a little over two years without a budget…

…and it’s not OUR fault that little Timmy Geithner can’t account for any of those TARP funds…

.and still we’re DOWNGRADED????!!!???

/SARC>

Question: Is there a FFF rating?

landlines on August 1, 2011 at 11:07 AM

Southernblogger on August 1, 2011 at 11:03 AM

Which supports what I posted. These threats are laughable considering our place in the global economy. These ratings agencies will do nothing but make noise because they fear a downgrade more than anyone else. They can’t afford to downgrade us. Which only highlights the fact they are really not independent ratings agencies.

NotCoach on August 1, 2011 at 11:07 AM

that means the GOP is equally responsible if they vote for it.

Good Job Team!

HondaV65 on August 1, 2011 at 10:45 AM

Clear, succinct, and totally correct.

All the posturing, anal-yzing and commenting by the squishes during this disaster ignored this one simple point. The Republicans bought into Osama Obama’s lust for uncontrolled spending, thought the public wouldn’t notice, and are now co-signers on the biggest debt in history unless they shock the hell out of me and collectively grow a pair before the vote.

MrScribbler on August 1, 2011 at 11:10 AM

They can’t afford to downgrade us. Which only highlights the fact they are really not independent ratings agencies.

NotCoach on August 1, 2011 at 11:07 AM

Well – the ONE true independent rating agency DID downgrade us – over the weekend.

HondaV65 on August 1, 2011 at 11:10 AM

HondaV65 on August 1, 2011 at 11:10 AM

True enough. But nobody is paying attention to them. They aren’t viewed as credible by the “important” people. And the supposedly important ones? They are invested up to their eyeballs in never downgrading us.

NotCoach on August 1, 2011 at 11:13 AM

A technical default would have had the potential to knock the world economy back to the bottom of the ladder even though we seem to have only climbed a rung or two.

Southernblogger on August 1, 2011 at 11:03 AM

…and the world economy is how far up the ladder from the bottom rung??? How much damage can you do by falling off the bottom rung?

We won’t be trampled by herds of spotted unicorns, either. But it’s a giant leap to conclude that any deal (or no deal) on the budget cap had anything to do with that OR the “world economy”!

landlines on August 1, 2011 at 11:13 AM

“If the U.S. loses that AAA status, it will be much more difficult for the U.S. to restore growth, so it’s unambiguously bad,” El-Erian added.

“Unambiguously” is the new “Unexpectedly”?

The War Planner on August 1, 2011 at 11:14 AM

With half the number of cuts Moody’s and S&P said the deal had to have at a minimum why would anybody consider the country safe from downgrade?

Why would anybody approve of the Kabuki the elites perpetrated upon this country either?

Come election time all of the institutionalized old guard has to go.

No more politics as a career, time to Tea Party!

Speakup on August 1, 2011 at 11:14 AM

..Christiane Amanpour has actually gotten a LOT more attractive. I mean, the suit and tie she’s wearing is a little odd, I’ll admit. But she’s clearly much more feminine looking than she used to be. Her mustache is less defined, her Adam’s apple is smaller. You go, girl!

SoRight on August 1, 2011 at 10:46 AM

..unexpectedly funny!

The War Planner on August 1, 2011 at 11:16 AM

Just in case it’s not safe:

National Geographic’s ‘Doomsday Preppers’ is available on YouTube.
http://www.youtube.com/watch?v=SMPepJpadbo&feature=player_embedded

Some of the preppers profiled are getting ready of an economic collapse.

NMRN123 on August 1, 2011 at 11:17 AM

landlines on August 1, 2011 at 11:13 AM

Okaaaay, I assume you don’t understand the repercussions of a default or the fact that the dollar is still the Global reserve currency?

Southernblogger on August 1, 2011 at 11:18 AM

Hey,..look over there! A shiny new football season!

a capella on August 1, 2011 at 11:19 AM

Well, the market started ‘up’, but doesn’t seem pleased since then, having opend about 1.4% higher, but doesn just under 1% now…

Midas on August 1, 2011 at 11:20 AM

Good Job Team!

HondaV65 on August 1, 2011 at 10:45 AM

Says the man in the basement of his aunt’s house…get out much?
If you ran your life, like you run your mouth, you can bet you wouldn’t have a job.
I bet that you are as quite as a mouse “around town” but you talk “big” on HotAir…no one is as naive as you are and maintains a job above minimum wage.

right2bright on August 1, 2011 at 11:21 AM

Some of the preppers profiled are getting ready of an economic collapse.

NMRN123 on August 1, 2011 at 11:17 AM

I know I am.

Midas on August 1, 2011 at 11:21 AM

Some of the preppers profiled are getting ready of an economic collapse.

NMRN123 on August 1, 2011 at 11:17 AM

I was watching a promo for Noodling segment on NG. Hillbillys will be just fine, but all those urban dwellers will be in trouble when the grocery store shelves go empty.

Dr Evil on August 1, 2011 at 11:25 AM

Like Rubio said, we have $180-billion a month coming in, and $300-billion a month going out, i.e. going out after borrowing $120-billion a month. That’s a month, and doesn’t include lies, surprises, etc. Some kind of federal sales tax is going to have to happen or collapse is rolling in.

Karmi on August 1, 2011 at 11:26 AM

I have to go to work for a while so have fun. Right2bright is spot on about mommy’s basement for some here who don’t know how things work.

Southernblogger on August 1, 2011 at 11:27 AM

PIMCO has a huge vested interest in big gov because of their bond and currency hedging positions. They are not dis interested parties

georgealbert on August 1, 2011 at 10:52 AM

PIMCO began dumping their bond positions months ago citing unsustainable debt and almost certain default as the reason.

Your post should probably read “had a huge vested interested” rather than “has”, imo.

Midas on August 1, 2011 at 11:27 AM

Like Rubio said, we have $180-billion a month coming in, and $300-billion a month going out, i.e. going out after borrowing $120-billion a month. That’s a month, and doesn’t include lies, surprises, etc. Some kind of federal sales tax actual spending cuts are going to have to happen or collapse is rolling in.

Karmi on August 1, 2011 at 11:26 AM

Get OUT of my wallet, not farther in. k thx.

Midas on August 1, 2011 at 11:29 AM

Southernblogger on August 1, 2011 at 11:27 AM

Oh….ok.

Thanks for telling everyone how things work, us slopeheads out here have trouble with simple tasks.

Bishop on August 1, 2011 at 11:39 AM

Midas on August 1, 2011 at 11:21 AM
+++++++++++++++++++++++++++++++
A couple more links:

Gun ‘preppers’ go mainstream as more people realize no one is immune to disaster

The Economic Collapse blog reports that Robert Kiyosaki is warning of an impending economic collapse—and advises on preparations that include buying guns.

http://www.survive2thrive.net/

Top 10 Reasons America Depends On Survivalists And Preppers

NMRN123 on August 1, 2011 at 11:41 AM

Gold at $1630, headed for new high.

petefrt on August 1, 2011 at 11:46 AM

That would be in nobody’s best interest because if we sink a lot of others go too.

But it’s the parasites at Goldman Sachs who have the most to lose, don’t they?

Emperor Norton on August 1, 2011 at 12:00 PM

This is non-news. Some AA credits have traded for weeks at a premium to US Treasury according to Kudlow. It’s priced on to the market already, in other words.

Having said that, I dont believe they’ll lower the rating. Too many money markey funds and insurance companies are required to own AAA credits, and the only pool big enough for them is US debt. As a practical matter they really can’t lower our rating, unless those rules get changed first, even though the market already has done the deed!

MTF on August 1, 2011 at 12:03 PM

“Everyone already knows that the U.S. has lost its AAA status. Anyone who knows what is going on, already knows that the U.S. is now the biggest debtor nation in the history of the world. It’s only S&P and Moody’s that haven’t figured out what is going on. The investment world knows that the U.S. is not AAA.”
Jim Rogers

Then again:

“True, investors also worry about the likelihood of a U.S. credit downgrade. This is not probable since the agencies are American and that would be rather unpatriotic given they got a pass on criminal charges for what they did in the mortgage debacle.”

Rae on August 1, 2011 at 12:32 PM

Full text of the S&P statement threatening downgrade in April shows it is not the debt ceiling but the debt to GDP ratio that determines grading

Unless S&P changes its system, the US takes a downgrade

From the S&P statement:

In our baseline macroeconomic scenario of near 3% annual real growth, we expect the general government deficit to decline gradually but remain slightly higher than 6% of GDP in 2013. As a result, net general government debt would reach 84% of GDP by 2013. In our macroeconomic forecast’s optimistic scenario (assuming near 4% annual real growth), the fiscal deficit would fall to 4.6% of GDP by 2013, but the U.S.’s net general government debt would still rise to almost 80% of GDP by 2013. In our pessimistic scenario (a mild, one-year double-dip recession in 2012), the deficit would be 9.1%, while net debt would surpass 90% by 2013. Even in our optimistic scenario, we believe the U.S.’s fiscal profile would be less robust than those of other ‘AAA’ rated sovereigns by 2013

Raising the debt ceiling means more debt will accrue. Cuts will not exceed the increase in the debt ceiling. Nothing changes in the ratio. Meanwhile, manufacturing is lagging. Does anyone expect the GDP to soar under Obama, with Obamacare phasing in and tax rates going up?

entagor on August 1, 2011 at 12:33 PM

Can’t post in this thread

entagor on August 1, 2011 at 12:39 PM

We’ve got a maxed out credit card and are making “minimum monthly payments”.

So we DESERVE an AAA rating?

GarandFan on August 1, 2011 at 1:23 PM

Buy guns! They will soon be the new “Gold!”

Scorched_Earth on August 1, 2011 at 1:23 PM

The ratings agencies were always clear: the US is on an unsustainable fiscal track and needs to reduce expenditures by at least $4-5 trillion over the ten year budget window to maintain a AAA rating. Only the Ryan budget plan, of all the plans we’ve seen – and even those we haven’t seen, but have heard rumors of the basics, like Obama’s – does that.

Even that would not lead to a clean bill of fiscal health, but it would buy us some more time. If we can get the economy growing again, it could absorb the million or so federal workers we need to “separate” when their agencies are closed down.

In the long term we must do two things: reform entitlements so they don’t break us, and cut the size of the federal government significantly (and I do NOT mean “cut by reducing the rate of growth by 0.1%,” either).

Adjoran on August 1, 2011 at 2:47 PM

Does the U.S.*MERIT* a Tripple-A credit rating?

Seems the obvious answer to that is, “no”.

Perhaps the best thing for this nation would be a big dose of reality: deal with the negative consequences of negative behavior by being required to face-up to the negative behavior, and then modify that behavior (and the consequences) for the better.

I also do wonder if these ‘credit rating agencies’ are engaged in a mutual gamesmanship with…well, with whoever plays with them like the bond market, etc. They get to claim “crises” while the players get to claim “impending doom if we don’t ________” and then they dance around and then announce their mutually protecting decision.

Lourdes on August 1, 2011 at 3:22 PM

That would be in nobody’s best interest because if we sink a lot of others go too.

But it’s the parasites at Goldman Sachs who have the most to lose, don’t they?

Emperor Norton on August 1, 2011 at 12:00 PM

Obama’s Goldman Sach’s guy so it ruins both their credibility that he was lounging around for the past twelve months, utterly ignoring the impending “debt crises” until mere weeks before action was required. It just makes no credible sense how all parties have behaved here, but especially as to Obama and the Wall Street Democrats so invested in him.

Lourdes on August 1, 2011 at 3:25 PM