Breaking: S&P downgrades U.S. to AA+; Update: S&P statement added; Update: No chance of downgrade, said Geithner in April

posted at 8:39 pm on August 5, 2011 by Allahpundit

With a “negative outlook” to boot.

America is now a risky investment.

U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.

The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.

See the last few updates in the other thread for details on this afternoon’s drama between S&P and the White House. Supposedly the agency admitted privately that it goofed in using the wrong debt-to-GDP baseline — a $2 trillion error. But when you’re $14 trillion in the hole and set to add $6 trillion more by the end of the decade, what’s $2 trillion, really? A deadbeat’s a deadbeat.

Odds of that negative outlook turning into a further downgrade if the Super Committee chokes: High. Stand by for updates.

Update: A grumpy White House points to S&P’s math error and calls it “amateur hour.”

Update: Zero Hedge has the text of S&P’s statement. The debt-ceiling deal wasn’t good enough:

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade…

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability…

When comparing the U.S. to sovereigns with ‘AAA’ long-term ratings that we view as relevant peers–Canada, France, Germany, and the U.K.–we also observe, based on our base case scenarios for each, that the trajectory of the U.S.’s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.

Not only can’t the Super Committee fail, it’ll be under enormous public pressure to reach a grand bargain. That’s the silver lining in this cloud — they have to get serious now. They have no choice.

Update: A footnote to a bleak day via Dan McLaughlin: Rick Perry gets another point of contrast for his campaign.

Update: Is this an economic mega-quake or a slight tremor? There’s no way to know since we’ve never been here before, says WaPo’s Dyan Matthews, but here are the arguments for both scenarios.

Update: This video from April is now circulating on Twitter. No comment necessary.


Update: The GOP was planning to push their message for a balanced-budget amendment during the August recess. The downgrade will help that effort, but I wonder after this whether we’ll have an August recess after all. Is Congress really going to sit back for another four weeks while the economy tries to cope with this news?

Update: A “psychological haymaker”:

But the move by S&P could serve as a psychological haymaker for an American economic recovery that can’t find much traction, and could do more damage to investors’ increasing lack of faith in a political system that is struggling to reach consensus on even everyday policy items. It could lead to the prompt downgrades of numerous companies and states, driving up their costs for borrowing. Policy makers are also anxious about the hidden icebergs the move could suddenly reveal…

Some investors believe Treasurys will remain a safe haven in a volatile world, even without a solid triple-A credit rating. Others believe the U.S. will be forced to pay higher interest rates, perhaps about 0.5 percentage points, simply because they are seen as being slightly more risky than before. While only a slight gain, such a jump would increase the cost of a wide array of debt, from a home mortgage to the trillions carried by the U.S. government itself…

J.P. Morgan Chase & Co. analysts estimate some $4 trillion worth of Treasurys are pledged as collateral by borrowers such as banks and derivatives traders. If that collateral isn’t considered as high quality by lenders, the borrowers could be required to cough up more cash or securities to put the minds of lenders at ease.

That could force investors to sell off other assets to come up with the money. In a worst case scenario, credit markets could seize up, as they did during the Lehman Crisis.

Update: Fannie Mae and Freddie Mac will probably be downgraded too. So much for any near-term housing market recovery.

Update: The Treasury Department is indignant: “A judgment flawed by a $2-trillion error speaks for itself.”

Update: Warren Buffett, whose own company was downgraded by S&P, thinks it’s a big nothingburger:

Buffett to my colleague Liz Claman: Did the US deserve this? “Buffett: “NO.”Are you worried about the markets Monday? “NO.”

Update: Lefty Kevin Drum wonders how the debt-ceiling deal could have made the U.S. an instant credit risk given that (a) the sides did reach a deal, and were never seriously at risk of not doing so, and (b) there was zero chance of an actual default. Tax revenues would have covered interest payments to creditors. More:

Look: the United States has been running up big debts for the past couple of years because we’re trying to climb out of an epic recession. That’s perfectly justifiable. And our focus on reining in our long-term debt is, literally, less than a year old. Pretending that our political system is fundamentally broken because we haven’t solved our long-term problems in a few months is staggeringly panicky and ahistorical, and S&P’s obsession with hitting a $4 trillion target for medium-term deficit reduction is economically vacuous. If we still can’t get our act together in four or five years, then fine. We deserve a downgrade. But a few months? That’s crazy. It’s the kind of hair-trigger reaction that belongs on cable shoutfests, not in the boardroom of a sober, 150-year-old financial firm.

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Hey, a girl can dream, right?

Knucklehead on August 6, 2011 at 1:31 AM

I think it’s more of a distinct possibility than a dream. If (big If) he reads the tea leaves over the next several months and recognizes his chances of a second term are slim, I don’t think he or is his ego will take the risk. He is worth more (literally) as a sacrificial one-termer with the media’s pity and continued adoration. Going out as a loser is the stain he can’t get rid of.

sherry on August 6, 2011 at 10:03 AM

Take off your patriot hat and put on your financial hat: really, would YOU have done differently? The US deserves its downgrade and should count itself lucky that it wasn’t done a lot earlier and a lot lower.

katablog.com on August 6, 2011 at 10:04 AM

Obama doesn’t care if he’s a one-termer. He’ll be insanely rich with speaking fees in the hundreds of thousands, book sales, endorsement deals in the tens of millions, etc. His homes will be made into historic sites. He will become the UN President. He will be the defacto leader of the Left all over the world, causing all sorts of trouble.

faraway on August 6, 2011 at 10:06 AM

The sting of reality in the court of the Unicorn King. Progressives have total distrust in economics and business since it’s not an intellectual musing. While this president surrounds himself with campus cronies and waxes philosophical on what will and what will not happen, the numbers and the cash flow don’t lie.

We deserved this downgrade and it should have been worse. Now America, what do you intend to do? Contrary to what the White House tells you, this is still YOUR country

Hening on August 6, 2011 at 10:35 AM

Well, starting a few unnecessary wars and greatly expanding federal spending with no attempt at raising revenues will do that. Kill Obamacare spending (retain regulations on health insurance providers) and kill the wars. Back to AAA.

ernesto on August 6, 2011 at 10:38 AM

Take off your patriot hat and put on your financial hat: really, would YOU have done differently? The US deserves its downgrade and should count itself lucky that it wasn’t done a lot earlier and a lot lower.

katablog.com on August 6, 2011 at 10:04 AM

Read the post again they gave us a negative outlook to go along with that downgrade. Face it we have functioning idiots running our government. This could have been avoided with passing CCB and the President signing it into law. But they were too busy playing politics to worry about the country’s solvency.

Dr Evil on August 6, 2011 at 10:57 AM

Easy response to your friends who ask who you’ll be voting for in ’12. Tell the ones who voted for any Democrat in the last 10 years or so what a disaster they have wrought. DIZ-aster. No more elaboration necessary. Adopt a talking point. Obama is a disaster. When they say Republicans are fat-cat greedheads just tell them to ask themselves: “Which party has the best interests of the country they live in at heart?” Put all else aside and look at the country they and their children live and work in. Has nothing to do with patriotism or flag-waving. They live here. What kind of immediate surroundings would they prefer, chaos or prosperity? Such a no-brainer that only the totally no-brains, community organizer types, the government-dependent takers and the urban hipsters, drunk on smug irony, would give the wrong answer. But there’re enough of us with common sense that these blithering children will be flushed into the academic-lobbyist-foundation complex, hopefully in time, hopefully for good. Republicans aren’t anything near perfect (and I’m not one) but they’re the closest things we have right now to Americans.

curved space on August 6, 2011 at 10:58 AM

Face it we have functioning idiots running our government.
Dr Evil on August 6, 2011 at 10:57 AM

And you would rate functioning idiots well?

I’ll agree CCB was the best answer.

katablog.com on August 6, 2011 at 11:06 AM

faraway on August 6, 2011 at 10:06 AM

He’s not really all that popular – you are buying into his water carrier’s MSM meme. Barack Obama is a media creation – they created him, they create the narrative that is his Presidency. That’s why they are attacking the S&P, that is f’ng with their fascist/corporatist fantasy.

S&P, Moodys, are British – if Obama was so slavishly worshiped in Western Europe, these credit agencies would be covering his butt. They aren’t and Britain is the number 3 U.S. debt holder so it’s not just about a popularity contest. Our multicultural trophy President is a failure at governing. This is Obama and the Democrat’s economy (Just ask Debbie Wasserman Schultz) they are making it worse every single day.

Dr Evil on August 6, 2011 at 11:07 AM

Well, starting a few unnecessary wars and greatly expanding federal spending with no attempt at raising revenues will do that. Kill Obamacare spending (retain regulations on health insurance providers) and kill the wars. Back to AAA.

ernesto on August 6, 2011 at 10:38 AM

How about we go back even further than Bush, although he was a fiscal disaster. I like to put the blame where it really belongs and that’s with FDR and Johnson.

DFCtomm on August 6, 2011 at 11:09 AM

Dr Evil on August 6, 2011 at 11:07 AM

I for one can’t wait to see Obama lose, and watch all of the commenters here make excuses for their GOP president.

ernesto on August 6, 2011 at 11:11 AM

DFCtomm on August 6, 2011 at 11:09 AM

As I said in another thread, all we have to do is put seniors out to pasture and end the wars. I’m glad to see you’re on board with the first part (as a 25 year old, my future depends on it), but the fact that you won’t accept the latter puts us at an impasse.

ernesto on August 6, 2011 at 11:13 AM

curved space on August 6, 2011 at 10:58 AM

It’s so bad, my husband who has been an Independent his adult life has said, who am I kidding, I should just become a Republican. He looked at me, and I said, there are times I will vote Democrat State races….he asked me Why? Well I can’t ever bring myself to vote for people like Kay Bailey Hutchinson or John Cornyn. They both voted for the 1st TARP for George W Bush, and after Obama was elected they voted for his legislation. I am still an Independent, but this last round of stupidity has had an effect on the other voting adult in our house.

Dr Evil on August 6, 2011 at 11:13 AM

I for one can’t wait to see Obama lose, and watch all of the commenters here make excuses for their GOP president.

ernesto on August 6, 2011 at 11:11 AM

I won’t be making excuses for a “McCain”, but you need to realize something. There is no way out from where we are that doesn’t hurt someone. There is no painless way to make this all go away, and that’s why it’s going to get so much worse.

DFCtomm on August 6, 2011 at 11:15 AM

Dr Evil on August 6, 2011 at 11:07 AM

I for one can’t wait to see Obama lose, and watch all of the commenters here make excuses for their GOP president.

ernesto on August 6, 2011 at 11:11 AM

That’s the spirit – Spitefulness.

Dr Evil on August 6, 2011 at 11:16 AM

As I said in another thread, all we have to do is put seniors out to pasture and end the wars. I’m glad to see you’re on board with the first part (as a 25 year old, my future depends on it), but the fact that you won’t accept the latter puts us at an impasse.

ernesto on August 6, 2011 at 11:13 AM

I just love the way you’re willing to throw Grandma under the bus, for the good of the country of course, but we all know your real motivation. You’re ready to throw seniors over because they’re majority white, and we all know how you feel about white people.

DFCtomm on August 6, 2011 at 11:19 AM

I for one can’t wait to see Obama lose
ernesto on August 6, 2011 at 11:11 AM

For the first time, I am in complete agreement with you Ernie.

angryed on August 6, 2011 at 11:20 AM

I for one can’t wait to see Obama lose, and watch all of the commenters here make excuses for their GOP president.

ernesto on August 6, 2011 at 11:11 AM

If I remember correctly, people weren’t supposed to have to make excuses for Obama.

BlueCollarAstronaut on August 6, 2011 at 11:21 AM

As I said in another thread, all we have to do is put seniors out to pasture and end the wars. I’m glad to see you’re on board with the first part (as a 25 year old, my future depends on it), but the fact that you won’t accept the latter puts us at an impasse.

ernesto on August 6, 2011 at 11:13 AM

Strawman much?

All we have to do is

– make the 47% who pay no tax, pay some tax
– end welfare for anyone who is able bodies
– increase retirement age to 70

That will take care of most of the structural deficit

angryed on August 6, 2011 at 11:22 AM

If I remember correctly, people weren’t supposed to have to make excuses for Obama.

There IS not excuse for this man having been elected and allowed to do what he has to America.

katablog.com on August 6, 2011 at 11:24 AM

Well, starting a few unnecessary wars and greatly expanding federal spending with no attempt at raising revenues will do that. Kill Obamacare spending (retain regulations on health insurance providers) and kill the wars. Back to AAA.

ernesto on August 6, 2011 at 10:38 AM

Ernie you’re a trip dude.

Weren’t you the same person who said without spending trillions on stimulus the economy would never recover? Oh wait. I remember now. When Bush spends money it’s bad. But when Obama spends money it’s good. When Bush starts wars, it’s bad. When Obama goes into Libya, that’s good. When Bush gives $700B to banks, bad. When Obama gives $800B to unions, good.

angryed on August 6, 2011 at 11:25 AM

Dr Evil on August 6, 2011 at 11:13 AM

Reassuring to hear about Indies out there of like mind. Most times it’s a matter of degrees and the “bad” Rs can be pulled along if the overall thrust is for the good. This crisis is not a matter of degrees. The danger of giving these vandals four more years should be obvious, even to the Hutchinsons and the Cornyns of the world…perhaps even the Romneys. Maybe.

curved space on August 6, 2011 at 11:33 AM

There IS not excuse for this man having been elected and allowed to do what he has to America.

katablog.com on August 6, 2011 at 11:24 AM

Oh no remember if Obama was elected the world was going to love the United States again. The world is never going to love us. Never have Never Will.

I try to think of something positive Obama has done that I can agree with, it would be his posture toward Pakistan, and the drone strikes, taking OBL out. The Obamas look to be good parents. He’s taken to brewing his own beer in the white house that’s endearing…but outside of that, domestically I can’t point to a good decision he’s made for the economy. When he speaks, he’s only speaking to his far left base – so the rest of us are left WTF and I don’t mean Winning The Future ;) So he needs new Speech writers.

There are a list of people, who could be purged from his cabinet and advisers, that would have a positive effect on the country and economy. Why Daley isn’t advising a house cleaning, and a tweaking at this point after losing the Triple A rating is mind boggling. They are trying to get him reelected right?

Otherwise the U.S. is spinning our wheels for the next 16 months.

Dr Evil on August 6, 2011 at 11:33 AM

angryed on August 6, 2011 at 11:25 AM

Libya was included in the original comment. Feel free to add the bailout, feel free to add the stimulus. I’d gladly give it all back to end the wars.

ernesto on August 6, 2011 at 11:41 AM

Obama’s next best-selling book:

Titanic Captain Tells All: Iceberg Hidden Behind Bushes

OnlyOrange on August 6, 2011 at 11:48 AM

The elite media shares some of the blame for this mess. For example, MEDIA minions FIDDLED over PALIN’S ALASKA emails while our ECONOMY BURNED!

Mutnodjmet on August 6, 2011 at 11:56 AM

I for one can’t wait to see Obama lose, and watch all of the commenters here make excuses for their GOP president.

ernesto on August 6, 2011 at 11:11 AM

Me too! I wish it were always a case of having to make excuses for a Republican president. Always.

Immolate on August 6, 2011 at 12:15 PM

ernesto on August 6, 2011 at 11:41 AM

Yeah if it wasn’t for the Wars, this country would be all rainbows and unicorns. That’s the problem, we have to stop defending ourselves. We should start on our southern border, look at Mexico, it’s so peaceful/

Dr Evil on August 6, 2011 at 1:20 PM

The Republican Chairman needs to order an ad showing Obama pushing America off a cliff.

wtng2fish on August 6, 2011 at 1:39 PM

Bring the troops home, from everywhere!

Repeal Obamacare.

You halfway there.

Without cuts in defense it’s all just empty rhetoric. You can have the strongest military in the world WITHOUT having to protect our “allies.” We are basically subsidizing their socialistic ideals because they don’t have to spend as much on their own defense because of their dependence on us.

Next, cut all bureaucracy, such as the EPA, DOE, ATF, etc.

Your 3/4′s of the way there.

What sucks is that when a GOP President gets into power, very little of the above will be accomplished.

The GOP will betray you

True_King on August 6, 2011 at 2:37 PM

Obama should blame the Republicans more, because Obama hasn’t done shit.

J_Crater on August 6, 2011 at 3:28 PM

“The elite media shares some of the blame for this mess. For example, MEDIA minions FIDDLED over PALIN’S ALASKA emails while our ECONOMY BURNED!

Mutnodjmet on August 6, 2011 at 11:56 AM”

MSM: No no no, look Palin is EVAL, EVAL I tell ya. Just look at that nice family and the cheery attitude of hers, there got to be somethin! She is probably somewhere servin up Satan Sandwiches and we will be there to make sure she is held accountable. OMG, SHE IS RESTARTING THE BUS TOUR, SOUND THE ALARM!

Africanus on August 7, 2011 at 2:44 AM

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