Tuesday, April 19, 2011

Standard and Poor's Lowers Outlook on Long Term U.S. Government Debt to 'Negative'

Credit rating agency Standard & Poor's downgraded the long-term outlook for US Soverign debt from 'neutral' to 'negative', putting the government on notice that it is at risk of losing it's AAA credit rating (the agency's highest possible rating).
S&P said there’s a one-in-three chance that the rating might be cut within two years and that its “baseline assumption” is that Congress and the Obama administration will come to terms on a plan to reduce record deficits. Treasuries and the dollar rebounded from early losses following the statement, while stocks declined. Moody’s Investor Service, which has a stable outlook on U.S. debt, today said the U.S. budget debate is “positive” for the country’s credit.

Today’s announcement marks the first time the U.S. credit outlook has been questioned since 1995 and 1996, when a dispute between then-President Bill Clinton and House Speaker Newt Gingrich led to government shutdowns. Fitch Ratings put U.S. debt on a “negative ratings watch” in November 1995 until spring 1996, and Moody’s put some U.S. government bonds on review for a possible downgrade in January 1996.

“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013,” S&P said in its statement today.
To harldy anybody's surprise, the announcement from S&P was seemingly dismissed by White House press secretary Jay Carney on Tuesday.
White House spokesman Jay Carney says Standard & Poor’s action Monday is a welcome call for a bipartisan agreement to reduce the deficit. He adds that the White House believes the political process will outperform the agency’s expectations because the president and Congress recognize the problem, have proposed confiscating the assets and property of Americans making above an arbitrary number picked by the Obama Administration cutting $4 trillion and will begin negotiations toward a deal soon

Stocks plunged after the agency’s announcement.

Carney highlighted S&P’s positive comments about the U.S. economy [which A) are only applicable in the short-term and B) it's 'positive' by virtue of the unrest in the middle east, natural disasters in Japan as well as Greece, Portugal and Ireland's soverign debt issues bogging down the European Union- NANESB!].
More of the same- either deny that there's a problem (or tell us that this problem will actually be the 'new normal') or redistribute the money and assets of somebody else by invoking the 'anybody who has more money than you probably doesn't deserve it' rhetoric of class warfare.

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