US AAA credit rating downgraded

[Martinus]

It's laughable that the conservatives are claiming that the recent downgrade is unrelated to debt ceiling fight.  They knew full well what not raising the debt ceiling in a timely manner would do.  If they didn't it wouldn't make sense to use it to blackmail the president or as they say "hold President Obama accountable".  Accountable for what or to what is anyone's guess.

Didn't the S&P communication about the downgrade expressly state that this was a part of the reason?

[Berkut]

It's laughable that the conservatives are claiming that the recent downgrade is unrelated to debt ceiling fight.  They knew full well what not raising the debt ceiling in a timely manner would do.  If they didn't it wouldn't make sense to use it to blackmail the president or as they say "hold President Obama accountable".  Accountable for what or to what is anyone's guess.

Didn't the S&P communication about the downgrade expressly state that this was a part of the reason?

I thought they said the specific reason was that the debt ceiling fight made it clear there was no political will or ability to resolve the fundamental problem.

If the Republicans had just rolled over and let the Dems continue to simply borrow even more to fund the deficit rather than do anything about it, I don't see how that would make our credit risk any better.

Obviously the BEST solution from the risk agencies perspective would be a serious proposal to slash spending and increase revenues. But apparently that is not possible, and both parties bear some responsibility for that. The TBers are going to get more than an equal share, but that is just because they happened to be the last group to refuse to compromise. Lord knows the Dems sure didn't care to be reasonable three years ago when they controlled both houses of congress and went on a crazed spending spree, and sank their own party in a tantrum because the Blue Dogs didn't toe the party line that "you have to feed a recession! The only way to kill off a recession is choke it to death with borrowed cash!"

[MadImmortalMan]

It's gonna be an interesting FOMC meeting tomorrow.

[alfred russel]

Geithner and Bernanke have had an interesting few years. I'd be interested in reading their memoirs someday.

[alfred russel]

So markets are told treasuries have more risk, which scares people, and scared people run to treasuries?

Pretty much.  The downgrade doesn't in itself change the risk profile of Treasuries, which is still quite solid.  But it does reinforce the pre-existing negative sentiment about the economy, because it is now clear that the the US government cannot act as a source of strength for the economy -- the opposite is more likely.  Think what would happen if a Lehman-style even occurred now: the federal government would neither have the financial firepower, the political support, or the legal authority to act decisively.

The Euromess is a factor in the negative sense that Euro-sovereigns can't act effectively as an alternative draw for investors seeking more liquidity and less risk.  There was no news over the weekend which affected the fundamentals of the Eurosovereigns (other than ECB growing a pair and buying Med debt, which is a net positive for the market).

All that stuff about the US was known long before S&P chimed in. I'm interpreting this as the continued crisis of Italian and Spanish debt that went into high gear last week. If markets are crashing because of the opinion of S&P, they are much less efficient than I thought.

[The Minsky Moment]

All that stuff about the US was known long before S&P chimed in.

Depends what you mean by "this stuff"

The S&P downgrade in itself doesn't impact the safety of US treasury securities (which is one reason they haven't been negatively affected).  What it does do is impact the political dynamics around the budget - it weakens the White House and gives deficit hawks a political club.   And the implication of that is that until the '12 election there will be no action to improve the employment situation or promote growth, and at the same time there is risks of another big ugly showdown over the budget in year's time.  Translated into market terms, that means earnings estimates may be over-optimistic, there is a chance of a double-dip, and expectation of more volatility and uncertainty ahead ---> flight from equity and illiquid investments into safe, highly liquid investments.  Like treasuries.

[Faeelin]

The S&P downgrade in itself doesn't impact the safety of US treasury securities (which is one reason they haven't been negatively affected).  What it does do is impact the political dynamics around the budget - it weakens the White House and gives deficit hawks a political club.   And the implication of that is that until the '12 election there will be no action to improve the employment situation or promote growth, and at the same time there is risks of another big ugly showdown over the budget in year's time.  Translated into market terms, that means earnings estimates may be over-optimistic, there is a chance of a double-dip, and expectation of more volatility and uncertainty ahead ---> flight from equity and illiquid investments into safe, highly liquid investments.  Like treasuries.

So the market which was ostensibly worried about the U.S. deficit is now worried about a lack of government spending?

[alfred russel]

All that stuff about the US was known long before S&P chimed in.

Depends what you mean by "this stuff"

The S&P downgrade in itself doesn't impact the safety of US treasury securities (which is one reason they haven't been negatively affected).  What it does do is impact the political dynamics around the budget - it weakens the White House and gives deficit hawks a political club.   And the implication of that is that until the '12 election there will be no action to improve the employment situation or promote growth, and at the same time there is risks of another big ugly showdown over the budget in year's time.  Translated into market terms, that means earnings estimates may be over-optimistic, there is a chance of a double-dip, and expectation of more volatility and uncertainty ahead ---> flight from equity and illiquid investments into safe, highly liquid investments.  Like treasuries.

I'd include all of that in "this stuff." The current republican house wasn't going to pass any positive spending whether the rating is AA+ or AAA.

[The Minsky Moment]

So the market which was ostensibly worried about the U.S. deficit is now worried about a lack of government spending?

"The market" is not a single actor with single mind.  But regardless of perspective, the downgrade is a net negative because it further poisons the political atmosphere and thus generates greater uncertainty and risk for the future.

I do think that there a lot of market participants that are concerned about short-term risks of a double dip recession.  If not, they should be.  There is a reason that the proposed deficit cuts under ALL plans (including Ryan) were significantly back-loaded.  Consumers are still paying down private debt, banks are recapitalizing, and industrial enterprises are hoarding cash.  But all that private saving has to be balanced off with public dis-saving.  The deficits have been providing the economic cover for the private sectors to get private balance sheets back into order.  The hawkish fantasy is that if the government really cut spending, private business would be so impressed they would immediately jump-start investment.   I don't think that is plausible given the still-weakened position of consumers.    Stronger public spending restraint in the short term is going to good for government bonds, but bad for everything else.

[alfred russel]

So the market which was ostensibly worried about the U.S. deficit is now worried about a lack of government spending?

"The market" is not a single actor with single mind.  But regardless of perspective, the downgrade is a net negative because it further poisons the political atmosphere and thus generates greater uncertainty and risk for the future.

I do think that there a lot of market participants that are concerned about short-term risks of a double dip recession.  If not, they should be.  There is a reason that the proposed deficit cuts under ALL plans (including Ryan) were significantly back-loaded.  Consumers are still paying down private debt, banks are recapitalizing, and industrial enterprises are hoarding cash.  But all that private saving has to be balanced off with public dis-saving.  The deficits have been providing the economic cover for the private sectors to get private balance sheets back into order.  The hawkish fantasy is that if the government really cut spending, private business would be so impressed they would immediately jump-start investment.   I don't think that is plausible given the still-weakened position of consumers.    Stronger public spending restraint in the short term is going to good for government bonds, but bad for everything else.

Even without a double dip, we moved so far off the lows I think the market was pricing in a rebound. With 9%+ unemployment there is plenty of slack for significant growth. At the very least there is plenty of reason to think that this isn't happening atm.

We are still way up from the 2008 lows and also up from where we were about 5 quarters ago.

[Ed Anger]

Enjoy!

(from the moonie Wash Times)

Liberal firebrand Michael Moore called on President Obama to respond to the U.S. credit downgrade by arresting the leaders of the credit-ratings agencies.

On his Twitter feed Monday, the Oscar-winning film director also blamed the 2008 economic collapse on Standard & Poor's — apparently because it and other credit-ratings agencies did not downgrade mortgage-based bonds, which encouraged the housing bubble and let it spread throughout the economy.

"Pres Obama, show some guts & arrest the CEO of Standard & Poors. These criminals brought down the economy in 2008& now they will do it again," Mr. Moore wrote.

ROR

[garbon]

[Palisadoes]

So now that the credit reference agencies are doing their job, Michael Moore thinks they should be arrested (EDIT: Or, rather, the people who work for them)?

[MadImmortalMan]

So now that the credit reference agencies are doing their job, Michael Moore thinks they should be arrested (EDIT: Or, rather, the people who work for them)?

Yes. The Berlusconi method.

[Drakken]

That guy's a nutcase.