Great news from Moody’s and Fitch: Hopelessly bankrupt country to retain AAA rating for a little while longer

posted at 7:55 pm on August 2, 2011 by Allahpundit

We did it.

On Tuesday, Fitch Ratings said the agreement to raise the debt ceiling and make spending cuts was an important first step but “not the end of the process.” The rating agency said it wants to see a credible plan to reduce the budget deficit “to a level that would secure the United States’ `AAA’ status.”

And late on Tuesday, Moody’s Investors Service assigned a negative outlook to U.S. debt, but confirmed its AAA rating — for now. A negative outlook means the rating agency could lower the rating in the next 12 to 18 months. Moody’s said that continued slow economic growth, higher interest rates could lead to a downgrade. Moody’s also said weak fiscal discipline in the coming year could do the same…

“Growth healed all wounds in 1995,” [Federated Investors' Joe] Balestrino said. “However, now the U.S. doesn’t have enough vitality to grow its way out.”…

Because of that, many analysts believe that U.S. debt will eventually be downgraded to AA. And if that happens, it could be tough to regain the AAA rating.

“If the economy won’t grow at 2.5 percent over the long term, it has pretty profound implications from a fiscal point of view,” said Riley, the Fitch managing director.

Big rally on Wall Street today to celebrate the good-ish news, right? Why, no: The S&P500 was down for the eighth day in a row, its worst streak since the last financial crisis in 2008, and actually sunk below its 200-day moving average, which signals a longer downward trend. The losses were a reaction to the new manufacturing numbers, the latest sign of our comatose recovery, but no doubt some diehard Keynesian somewhere is blaming the spending cuts in the debt-ceiling deal for the pain. Read Conn Carroll for a reply to that. So modest are the up-front cuts in the new law that they amount to a rounding error for GDP purposes. And if you think things can’t get worse, then (a) you’ve forgotten that the July unemployment numbers are due Friday and (b) you really haven’t been paying attention the past two and a half years. You don’t have to be an eeyore to spot the trendlines in Hopenchange.

Here’s Erin Burnett speculating, not unreasonably, that the markets have already downgraded the U.S. due to the meagerness of the new savings in the debt-ceiling deal, notwithstanding Moody’s and Fitch’s rubber stamp. If you’re despairing about that, Major Garrett makes a smart/harrowing point: The GOP was so effective in using the threat of default to move Democrats towards their position on deficit reduction that this tactic is bound to be used again, by both sides. That’s bad news if you’re devoutly opposed to new revenues but good news if you’re devoutly intent on shrinking the debt — unless of course it results in tax hikes that slow economic growth to the point where there’s not much new revenue after all. Exit question: Keith Hennessey proposes a Super Committee strategy for the GOP by which all six members would band together and hold out for serious entitlement reform. I’m all for it, except that Pelosi’s crew will be holding out for exactly the opposite. Doesn’t that guarantee the Committee will fail and the triggers will kick in? I get that Democrats don’t want to see eight percent in across-the-board discretionary cuts, but they really, really, really don’t want to jeopardize their Mediscaring message before the election by dealing on entitlements.

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After Thanksgiving, and before New Years, lets see what the rating will be.

GarandFan on August 2, 2011 at 7:59 PM

The AAA rating is completely irrelevant for the near term future.

The looming recession is going to make equities high risk, pushing institutional investors towards treasuries for their short term guaranteed yield. Rates for U.S. treasuries were going down today as the market dropped.

Long term we’re totally screwed; there just isn’t any other good places to put tens of billions of dollars yet.

BadgerHawk on August 2, 2011 at 8:03 PM

They weren’t going to downgrade us anyway- what would the world do if the US stopped buying?

Tax rate increases won’t happen either. There probably will be the same $800B in revenues by way of closing loopholes and lowering the overall rate and that takes us halfway to the 1.5T needed. Nothing else would pass the House- if that passes.

BKeyser on August 2, 2011 at 8:03 PM

And late on Tuesday, Moody’s Investors Service assigned a negative outlook to U.S. debt, but confirmed its AAA rating — for now.

A few severed horse heads in beds can accomplish a lot.

Kataklysmic on August 2, 2011 at 8:04 PM

Translation:

We’ve been upgraded from Second class to First Class…..on The Titanic.

portlandon on August 2, 2011 at 8:04 PM

As ugly as the debt ceiling got, it is nothing to the task the super committee will face. They might as well not meet, it is hopeless.

Until we have a balanced budget amendment both sides will punt. Continued spending plus low taxes means deficit, and a deficit is simply allowing the Chinese to own America in about one generation from now.

pedestrian on August 2, 2011 at 8:04 PM

If you got money on the market… pull it now. Don’t wait and see how much you can get, or your are just going to regret it.

upinak on August 2, 2011 at 8:04 PM

The GOP was so effective in using the threat of default to move Democrats towards their position on deficit reduction that this tactic is bound to be used again, by both sides.

Both parties need to forget about playing Russian roulette with the economy in order to achieve either less spending or more revenue. No one needs the drama of playing chicken with the debt ceiling- the economy has enough problem as it is. Our politicians can learn to act like big boys and girls and find a way to reduce the budget deficit long before these deadlines occur.

bayam on August 2, 2011 at 8:05 PM

Here’s Erin Burnett speculating, not unreasonably, that the markets have already downgraded the U.S. due to the meagerness of the new savings in the debt-ceiling deal, notwithstanding Moody’s and Fitch’s rubber stamp

Well yeah. We just signed a ‘deficit reduction deal’ that adds 6 trillion to our 15 trillion in debt over the next decade.

The smart money learned to be ahead of the rating agencies after 2008.

BadgerHawk on August 2, 2011 at 8:05 PM

Great news from Moody’s and Fitch: Hopelessly bankrupt country to retain AAA rating for a little while longer

Which just goes to show: Our elected idiots aren’t the only idiots; only the most culpable ones.

hillbillyjim on August 2, 2011 at 8:07 PM

Long term we’re totally screwed; there just isn’t any other good places to put tens of billions of dollars yet.

BadgerHawk on August 2, 2011 at 8:03 PM

No way, all this country needs is slightly lower taxes and then companies will start shipping jobs here from China. Get with the program.

bayam on August 2, 2011 at 8:08 PM

The bad news will continue until we pull back the spending.

Count to 10 on August 2, 2011 at 8:09 PM

“Growth healed all wounds in 1995,” [Federated Investors' Joe] Balestrino said. “However, now the U.S. doesn’t have enough vitality to grow its way out.”…

Obama has been quite the antidote for that vitality, hasn’t he?

Chip on August 2, 2011 at 8:10 PM

According to fund managers Quaintance and Brodsky the Fed is only temporarily hiding the debt problem:

Translated: take away infinite leverage (thank you ZIRP) and the 10 year [Treasury note] would be priced more fairly around [yielding] 12.13% (dollar price of $49.20)

Emperor Norton on August 2, 2011 at 8:10 PM

he can was kicked down the road for a few more days (or weeks if we’re lucky.)

MaiDee on August 2, 2011 at 8:11 PM

No way, all this country needs is slightly lower taxes and then companies will start shipping jobs here from China. Get with the program.

bayam on August 2, 2011 at 8:08 PM

You are the queen of the inane. Sheesh you’re stupid.

CW on August 2, 2011 at 8:11 PM

Can we wait fifteen months..?

d1carter on August 2, 2011 at 8:12 PM

bayam – you do realize that they only way we would have defaulted was if OBAMA’s Administration CHOSE to default. God you lapdogs are something.

CW on August 2, 2011 at 8:12 PM

No way, all this country needs is slightly lower taxes and then companies will start shipping jobs here from China. Get with the program.

bayam on August 2, 2011 at 8:08 PM

Let’s see: we need to scrap the minimum wage, pull back labor and environmental restrictions to something sane, and we should probably scrap the corporate profit tax on general principle. We should probably outlaw labor unions as the monopolies they are, too.
Of course, for businesses to have the capital to set up shop here, we are going to have to stop deficit spending, particularly the type that rewards people for being idle.

Count to 10 on August 2, 2011 at 8:13 PM

Not too late to reserve a spot in my bunker.

3 hots and a cot, solar shower once a week, roadkill when available, and…AND…purple shag carpeting.

1-800-Its-Over

Call now!

Bishop on August 2, 2011 at 8:14 PM

I get that Democrats don’t want to see eight percent in across-the-board discretionary cuts, but they really, really, really don’t want to jeopardize their Mediscaring message before the election by dealing on entitlements.

What else can they run on?

Chip on August 2, 2011 at 8:14 PM

I’m all for it, except that Pelosi’s crew will be holding out for exactly the opposite. Doesn’t that guarantee the Committee will fail and the triggers will kick in? I get that Democrats don’t want to see eight percent in across-the-board discretionary cuts, but they really, really, really don’t want to jeopardize their Mediscaring message before the election by dealing on entitlements.

Very interesting point. The Tea Party hasn’t figured this out yet (truly shocking), but the GOP was FAR better off letting Boehner negotiate directly with Obama. Obama stands clearly to the right of the liberal caucus and has publicly stated his willingness to cut entitlement spending (if given the political cover of a few tax increases).

On the other hand, Pelosi’s block has almost no interest in negotiating serious entitlement reform. And unfortunately, public opinion polls backs her up- this isn’t a politically damaging course for Dems to follow unless you’re trying to win Tea Party votes.

bayam on August 2, 2011 at 8:15 PM

bayam – you do realize that they only way we would have defaulted was if OBAMA’s Administration CHOSE to default. God you lapdogs are something.

CW on August 2, 2011 at 8:12 PM

To be fully correct, we would have defaulted on payments owed to companies that provided us goods and services, but that was also Obama’s fault for continuing to order those goods and services in the face of the debit limit.

Count to 10 on August 2, 2011 at 8:15 PM

Obama stands clearly to the right of the liberal caucus and has publicly stated his willingness to cut entitlement spending.

bayam on August 2, 2011 at 8:15 PM

The Why didn’t he do so?

Chip on August 2, 2011 at 8:17 PM

Obama stands clearly to the right of the liberal caucus and has publicly stated his willingness to cut entitlement spending (if given the political cover of a few tax increases).

Why would PBHO need political cover, is he working on behalf of the nation or himself? Choose carefully.

Bishop on August 2, 2011 at 8:18 PM

In keeping with my tradition of being simplistic:

I guess we don’t suck as much as we do.
For now anyway…

Anyone for cribbage?

Scoreboard44 on August 2, 2011 at 8:19 PM

Count to 10 on August 2, 2011 at 8:15 PM

You keep saying that….

Reality:

The Treasury Department is due to pay off $30 billion in maturing short-term debt. But we also know that the Treasury has the ability to prioritize its payments and pay that particular $30 billion out of the $172 billion it collects in tax revenue. As the Bipartisan Policy Center has calculated, after paying $30 billion in interest payments in August, Treasury could, if it ceased all other functions (see page 13 of this document), also pay for Social Security, Medicare, unemployment benefits, and payments to defense contractors. Technically speaking, there is no need to default in the absence of a debt ceiling agreement. from Reason.TV

CW on August 2, 2011 at 8:19 PM

No way, all this country needs is slightly lower taxes and then companies will start shipping jobs here from China. Get with the program.

bayam on August 2, 2011 at 8:08 PM

For something that looks like a rock, you sure do float well.

upinak on August 2, 2011 at 8:20 PM

This feels an awful lot like groveling.

ernesto on August 2, 2011 at 8:20 PM

I’d like to say I’m shocked but eh not so much.

2012 baby 2012 – eye on the goal.

gophergirl on August 2, 2011 at 8:23 PM

Great news from Moody’s and Fitch: Hopelessly bankrupt country to retain AAA rating for a little while longer

Victory or a vice grip to the gonads of the rating agencies by the WH?

bluemarlin on August 2, 2011 at 8:24 PM

CW on August 2, 2011 at 8:19 PM

Regardless, we would have defaulted on payments due for work already done. Note how that was not included in what we had the money to pay.
We are running a hefty deficit: something has to go.

Count to 10 on August 2, 2011 at 8:25 PM

Because of that, many analysts believe that U.S. debt will eventually be downgraded to AA. And if that happens, it could be tough to regain the AAA rating

But then again, dropping my pants and running down the street yelling might do some good…for me…to keep me sane…you know.

Scoreboard44 on August 2, 2011 at 8:25 PM

Doesn’t that guarantee the Committee will fail and the triggers will kick in?

Heh. See how easy it is, AP? You’ve already written off the third solution: passage of the BBA. I don’t fault you, the inclusion of the BBA was always intended to be a sop to the House to get votes. Once passed, however, no one will take it seriously, even though close to 75% of the country supports it. All that leaves is across the board cuts or tax increases.

Weight of Glory on August 2, 2011 at 8:25 PM

Here’s the main thing:

NO DRAMA.

Right? Huh?

hillbillyjim on August 2, 2011 at 8:26 PM

So who here still doubts what many of us were saying that these rating agencies have been politicized?

I am 100% sure that Obama and his goons would have pushed for a downgrade if conservatives/tea partiers had been successful in pushing through a plan that DOES cut and cap spending and probably even a BBA.

One thing, though, about reality is that sooner or later it will catch up to you. We can only continue to live in our inflated bubble world for a defined period of time until it… BURSTS!!

TheRightMan on August 2, 2011 at 8:27 PM

Here’s the main thing:

NO DRAMA. And some damn sharp creases.

Right? Huh?

hillbillyjim on August 2, 2011 at 8:26 PM

Where are Dowd, Brooks, Frum, and their merry band when you “need” them?

hillbillyjim on August 2, 2011 at 8:27 PM

I suspect that the Obama years will have done as much for the credibility of the likes of Moody’s and Fitch as they have done for the credibility of the Nobel Peace Prize. I half suspect we’ll start to see inflation take off before we lose the AAA rating.

Aitch748 on August 2, 2011 at 8:28 PM

OT – anybody seen the Ed Schultz promo of him sitting in the coffee shop.

I think I just threw up in my mouth a little bit.

gophergirl on August 2, 2011 at 8:28 PM

No way, all this country needs is slightly lower taxes and then companies will start shipping jobs here from China. Get with the program.

bayam on August 2, 2011 at 8:08 PM

Oh, is that it? Who gets the slightly lower taxes? Do we curtail spending in your plan?

bluemarlin on August 2, 2011 at 8:29 PM

OT – anybody seen the Ed Schultz promo of him sitting in the coffee shop.

I think I just threw up in my mouth a little bit.

gophergirl on August 2, 2011 at 8:28 PM

Thanks for saving me the trouble of watching. You mentioned his name and I almost threw up in my mouth!

bluemarlin on August 2, 2011 at 8:30 PM

Obama will buy them or arm-twist them in NOT downgrading before the election, no matter what.

michaelo on August 2, 2011 at 8:30 PM

There is a bit of good news in that Moody’s report, however, and that is the report somewhat boxes Obama in by looking negatively on fiscal stimulus programs like the Porkulus:

In assigning a negative outlook to the rating, Moody’s indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year

That’s a strong warning against another stupid adventure down the shovel ready road.

Weight of Glory on August 2, 2011 at 8:30 PM

Thanks for saving me the trouble of watching. You mentioned his name and I almost threw up in my mouth!

bluemarlin on August 2, 2011 at 8:30 PM

It is the biggest load of liberal BS I’ve ever heard and I’ve heard a lot.

gophergirl on August 2, 2011 at 8:33 PM

I’m watching CNBC’s special coverage tonight on the market’s collapse and you would not believe the crappy state the European banks are in right now. Commerzbank down 46% YTD; Unicredit Group down 27% YTD; Barclays down 15% YTD; and Banco Santander down 15% YTD. There are so many things that are going to push this market lower, from European contagion, liquidity crises, all major U.S. indicators showing rapid contraction, etc. etc. etc.

Weight of Glory on August 2, 2011 at 8:36 PM

In assigning a negative outlook to the rating, Moody’s indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year

That’s a strong warning against another stupid adventure down the shovel ready road.

Weight of Glory on August 2, 2011 at 8:30 PM

The mere mention of an Infrastructure Bank should accomplish the downgrade, if they were actually serious.

bluemarlin on August 2, 2011 at 8:38 PM

Postee no workee.

Emperor Norton on August 2, 2011 at 8:42 PM

Postee no workee.

Emperor Norton on August 2, 2011 at 8:42 PM

?

Count to 10 on August 2, 2011 at 8:43 PM

Translation:

We’ve been upgraded from Second class to First Class…..on The Titanic.

portlandon on August 2, 2011 at 8:04 PM

The most definitive analysis of this fiasco I’ve seen anywhere.

rplat on August 2, 2011 at 8:44 PM

Because the postee no workee, I refer you (manually) to the CNBC story, “Europe on Brink of “Major Financial Collapse.”

On the DRUDGE front page right now.

As we say in California, “Have a Nicee Day!”

Emperor Norton on August 2, 2011 at 8:48 PM

Crisis created – check.

Big bill passed – check.

More money spent – checkity check.

fossten on August 2, 2011 at 8:51 PM

This entire situation has become so Kafkaesque that I can’t even come up with a snark equal to the idiocy that abounds within the topic or the commentators.

LegendHasIt on August 2, 2011 at 8:52 PM

Regarding the AAA rating: “The fix is in.”

Khun Joe on August 2, 2011 at 8:54 PM

That was my plan all along. Borrow to pay what I already owe. Perfect crow.

Limerick on August 2, 2011 at 9:03 PM

This the same Erin Burnette that assured us her sources at S&P would downgrade on the Boehner plan but not the Reid plan???

blue13326 on August 2, 2011 at 9:09 PM

I get that Democrats don’t want to see eight percent in across-the-board discretionary cuts, but they really, really, really don’t want to jeopardize their Mediscaring message before the election by dealing on entitlements.

well AP…i think you took the trump card out of Hennessy’s hand. The dims will let the trigger go into effect. no downside. 1. slash Defense 2. Reduce Medicare. They’ll be loving every minute of it…GOP kills grandma.

So the R position in the committee will be: well Mr. Durdin, what do you want? Tax increase, yes sir, how high sir?

r keller on August 2, 2011 at 9:14 PM

Of course, it was far too late for Egan-Jones, which cut US soverign debt to AA+ a couple weeks ago.

Steve Eggleston on August 2, 2011 at 9:14 PM

Emperor Norton on August 2, 2011 at 8:48 PM

Links from that network are usually refused, as well as Ted Turner’s network.

slickwillie2001 on August 2, 2011 at 9:16 PM

They will wait until a Republican or Tea party president has been in office for 3 weeks then downgrade us. Then the liberals will yell from the top of the mountain how this new president let our credit rating slip. Barry, 3 years later still blames Bush but the new guy will take all the flack from the MSM and libturds!! My oracle has spoken.;)

wirebitersmith on August 2, 2011 at 9:29 PM

I would expect that the ratings agencies want to stay as far away as they can from appearing to have approved one plan over the other. For the sake of their business they need to appear apolitical. They have probably already made their decision and will wait a decent time before making their move.

What they say in private discussions with democratics though is another matter, and we have to be on guard for the possibility that the democratics and the thuggish little Bammie have corrupted them.

slickwillie2001 on August 2, 2011 at 9:39 PM

I had heard a radio-news soundbite of McCain opining on the economic impact of this “deal of the century” earlier today, and all I have to say is, please lock him in a closet somewhere. McCain admitted during his presidential run that economics is not his strong suit. (Of course, ObaMao the Wonderful would never admit to his even worse shortcomings there.) Why McCain doesn’t simply keep his mouth shut and/or defer to someone who knows what they are talking about is evidence that he suffers from Schumer disease. Neither understands that the camera and the microphone are not enhanced as tools of communication when they leap to the forefront.

onlineanalyst on August 2, 2011 at 9:44 PM

The GOP was so effective in using the threat of default to move Democrats towards their position on deficit reduction that this tactic is bound to be used again, by both sides.

Was that a joke, Major?

xblade on August 2, 2011 at 9:46 PM

Great~!!! The checks cleared the bank.

w00T!!!

BigWyo on August 2, 2011 at 9:48 PM

A negative outlook means the rating agency could lower the rating in the next 12 to 18 months.

Gee, right after Obama gets thrown out of office – and it’ll be the new Republican President’s fault, natch.

Midas on August 2, 2011 at 10:17 PM

Who gives a **** what Moody’s, Fitch, or S & P think? They were completely complicit in the mortgage meltdown of ’08. Who do you think got rich rubber stamping all of the toxic mortgage securities?

All of their bluster has been about trying to restore some shred of their lost credibility on matters of debt. Does anybody really believe that they would downgrade the country that makes them relevant in the first place? Hell, if they downgraded the US they might as downgrade their own relevance and open the door to non-Western competitors.

Lawdawg86 on August 2, 2011 at 10:39 PM

For something that looks like a rock, you sure do float well.

upinak on August 2, 2011 at 8:20 PM

yeah…but he smells like something else. Could be why he floats.

Fighton03 on August 2, 2011 at 11:14 PM

They decided to not downgrade Americas rating because Glenn Beck predicted they would. They will lower it soon anyway because the world knows we are headed over the cliff into bankruptcy!

MCGIRV on August 3, 2011 at 12:39 AM

Translation:

We’ve been upgraded from Second class to First Class…..on The Titanic.

portlandon on August 2, 2011 at 8:04 PM

going down in style :-)…

jimver on August 3, 2011 at 1:47 AM

This has nothing to do with AAA ratings and debt ceilings…but I’ve long thought Erin Burnett is gorgeous!!

BobM88 on August 5, 2011 at 2:27 AM