Citing deficit, ratings agency downgrades U.S. credit

[RandomGuy]

Of course it wasn't one of the big ones, 'cause they know better than to poke the bear with a stick, but *someone* at this agency is getting the Brass Cahones award for 2011.--RG

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Despite the ongoing possibility that Congress and the Obama administration won't come to a deal to raise the U.S. debt ceiling, the major ratings agencies have so far refrained from downgrading the country's credit rating.

True, both Moody's and Standard and Poor's warned last week that they're considering doing so, thanks to the possibility that a failure to raise the debt limit could trigger a massive government default by early August. But at this point, neither has acted.

Still, neither of those two agencies has the best track record of late. Both played a key role in the events that led to the financial crisis, by continuing to slap AAA ratings on subprime-mortgage-backed securities, even long after it became clear to many that they were junk.

A less prominent agency, Egan-Jones Ratings, largely avoided buying into the subprime madness. That might be because it's not paid by the Wall Street banks whose securities it's rating; instead it collects fees from investors who need accurate assessments, so it has more of an incentive to get things right.

And wouldn't you know it? Egan-Jones announced yesterday that it had downgraded the U.S. debt rating, from AAA to AA+.

The firm made it clear that its decision wasn't prompted primarily by the immediate fear of a default caused by a failure to raise the debt limit. Rather, Egan-Jones officials explained the downgrade arose out of the related concern that Washington won't reduce the long-term deficit. "The major factor driving credit quality is the relatively high level of debt and the difficulty in significantly cutting spending," the firm said in a report released Saturday.

In an interview with The Lookout, Sean Egan, the firm's president, elaborated on that view. Egan brought up the situation of a homeowner who goes on vacation and forgets to make his monthly mortgage payment. In that case, "the mortgage company won't declare you in default," he said. "They'll charge you a fee and expect you to pay on return."

But, he continued, "it's a different case than if your ability to pay is significantly diminished."

The first scenario, he said, is how the firm views the debt ceiling issue--"akin to a delinquency that will soon be rectified." The second scenario corresponds to the long-term deficit problem, Egan said.

Egan said that since the firm first put the U.S. rating under review back in March, it had been looking for reassurance that Washington was getting the deficit problem under control. On that score, he said, "we have yet to receive comfort."

The downgrade won't have a major impact on the financial markets. But it's another sign that investors are growing increasingly spooked about the political system's apparent inability to address the country's fiscal situation.
http://news.yahoo.com/blogs/lookout/citing-deficit-ratings-agency-downgrades-u-credit-154418610.html

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I don't entirely disagree.

[coyotes_geek]

Prediction time.

I'll go ahead and say that by this time next week one of the big boys pulls the trigger on a downgrade.

[ChumpDumper]

I think one will leak that it will downgrade and a budget deal will magically sail through both houses.

[boutons_deux]

I don't think the Pain Gang of 6 plan will get past both houses.

House tea baggers absolutely refuse to raise taxes or raise the debt level. If they vote for either, they're toast with their insane bases.

I'm seeing default on 2 Aug.

[CosmicCowboy]

Prediction time.

I'll go ahead and say that by this time next week one of the big boys pulls the trigger on a downgrade.

I really don't see that happening. Naturally I could be surprised.

[Winehole23]

If the fiscal adjustment in Coburn-Lieberman isn't big enough to reassure the ratings agencies, they'll downgrade. How could they not? The political spectacle has been heinous.

[jack sommerset]

Blame Obama

[Winehole23]

Sure, why not? I blame everybody.

[coyotes_geek]

I certainly hope you guys are right. I'm just pessimistic that anything short of one of them actually going through with it will be a sufficient kick to get things moving.

[ElNono]

My prediction is that they should downgrade but they won't because a deal will be in place by Aug 2nd.

[Winehole23]

I certainly hope you guys are right. I'm just pessimistic that anything short of one of them actually going through with it will be a sufficient kick to get things moving.It'll just make our obligations more expensive. Political will often lags behind necessity.

[SnakeBoy]

If the fiscal adjustment in Coburn-Lieberman isn't big enough to reassure the ratings agencies, they'll downgrade. How could they not? The political spectacle has been heinous.

We are going to be downgraded regardless of whatever bill gets passed. The political spectacle is just a game to establish which side gets the blame in the next election.

[RandomGuy]

I think one will leak that it will downgrade and a budget deal will magically sail through both houses.

Yup. One of them will hint at it, and that danger will make the consequences fully clear to those not in the "hell no" crowd.

Just enough Republicans who have very secure seats will be allowed to vote for it, giving cover to the "hell no" crowd, especially Bachmann to say they voted against it.

[RandomGuy]

We are going to be downgraded regardless of whatever bill gets passed. The political spectacle is just a game to establish which side gets the blame in the next election.

The current $4T deal being asked for is more than enough for the analysts that have been writing about this to show that the US government is serious about getting a handle on deficits.

But hey, it is your prediction, and you are free to be wrong, just as I am. :toast

[RandomGuy]

[I wish everybody will] Blame Obama[despite the fact that the congressional Republicans have been total douchebags about the whole process]

Sorry. Not everybody is so dumb as to think it was entirely the presidents fault.

You do know that budgets actually start in the House, right?

[Winehole23]

The current $4T dealI heard it was a hair less. $3.6T or something like that. Am I mistaken, RG?

[RandomGuy]

I heard it was a hair less. $3.6T or something like that. Am I mistaken, RG?

Honestly, it is moving so fast, I have not really bothered keeping up.

Nothing but rumors at this point. Sorry. :depressed

[SnakeBoy]

Sorry. Not everybody is so dumb as to think it was entirely the presidents fault.

You do know that budgets actually start in the House, right?

This fight is because Obama is fighting for tax increases. He had the opportunity to let the Bush tax cuts expire and he didn't. He could have easily let them expire and now been in the position of fighting for tax cuts & spending cuts. He blinked too soon and that's entirely his fault.

[Winehole23]

Honestly, it is moving so fast, I have not really bothered keeping up.

Nothing but rumors at this point. Sorry. :depressedIt is moving fast. Info/disinfo is day to day at this point.

[Winehole23]

Obama ... could have easily let {tax cuts} expire and now been in the position of fighting for tax cuts & spending cuts. He blinked too soon and that's entirely his fault.That's certainly true.

[Viva Las Espuelas]

Plus, when dems had full control of house and senate. Plenty of blame to go around.

[JoeChalupa]

I've got my safety net and stash ready for when the shit hits the fan.

[JoeChalupa]

I've got my safety net and stash ready for when the shit hits the fan.

[SnakeBoy]

I heard it was a hair less. $3.6T or something like that.

Over 10 years right? Do you think that is "more than enough" to keep our credit rating for very long?

[Winehole23]

I sure wouldn't know, but tend to doubt it.

[RandomGuy]

This fight is because Obama is fighting for tax increases. He had the opportunity to let the Bush tax cuts expire and he didn't. He could have easily let them expire and now been in the position of fighting for tax cuts & spending cuts. He blinked too soon and that's entirely his fault.

:wow

I kind of agree.

He caved on the Bush Tax Cuts, and it is biting him in the ass. That is what he gets for trying to work with Republicans, who have consistantly stabbed him in the back at every opportunity. Can't say as I blame them, they are good at what they do.

[LnGrrrR]

How long before Obama sends some cronies after this agency, a la Wikileaks? :lol

[LnGrrrR]

This fight is because Obama is fighting for tax increases. He had the opportunity to let the Bush tax cuts expire and he didn't. He could have easily let them expire and now been in the position of fighting for tax cuts & spending cuts. He blinked too soon and that's entirely his fault.

It is Obama's fault, for giving the Republicans something they wanted, and then expecting the Republicans to play nice. He's an idiot in some cases with his "bipartisanship". He should just say, "You know what, we're raising taxes, and that's it. I'll veto anything that doesn't have tax raises. Have a nice day."

Of course, that's assuming that he stands behind his words.

[SnakeBoy]

He should just say, "You know what, we're raising taxes, and that's it. I'll veto anything that doesn't have tax raises. Have a nice day."


That's a losing argument. What makes him an idiot is he could be arguing for middle class tax cuts and the GOP would have a choice of going along with what he wanted or arguing no middle class tax cuts unless our rich buddies get tax cuts too.

[ElNono]

That's a losing argument. What makes him an idiot is he could be arguing for middle class tax cuts and the GOP would have a choice of going along with what he wanted or arguing no middle class tax cuts unless our rich buddies get tax cuts too.

That makes him an idiot? There's no more room for tax cuts, any class.

[LnGrrrR]

That's a losing argument. What makes him an idiot is he could be arguing for middle class tax cuts and the GOP would have a choice of going along with what he wanted or arguing no middle class tax cuts unless our rich buddies get tax cuts too.

How would middle class tax cuts help break our deficit?

[SnakeBoy]

How would middle class tax cuts help break our deficit?

I didn't say they would. I said if he had let the Bush tax cuts expire he could be making that argument. Keep the increase on higher brackets, lower the middle class rates (still could be higher than currently). In other words he would be holding all the marbles and the the GOP would have his foot on their throats.

[LnGrrrR]

I didn't say they would. I said if he had let the Bush tax cuts expire he could be making that argument. Keep the increase on higher brackets, lower the middle class rates (still could be higher than currently). In other words he would be holding all the marbles and the the GOP would have his foot on their throats.

In that scenario, I don't think there's really any question Republicans would defend the upper-class, and spin it so that the middle-class would think that raising their taxes to support breaks for the upper-class is essential to a healthy, functioning economy.

Hell, that's what they do today.

[LnGrrrR]

We must cut social security, welfare and Medicare/Medicaid so we can support these Bush tax cuts!

[Winehole23]

now you're gittin it.

[Winehole23]

How would middle class tax cuts help break our deficit?The more quickly we quit our debt, the sooner we are relieved of our burden, and more lightly do we bear it. You know, interest payments and so forth. The sooner we start, the better it is for us in the long run. All together now!

[Winehole23]

Never mind the hit to revenues from extending the Bush/Obama tax cuts.

[Winehole23]

That goes without saying, I think. It's basically inconceivable that they won't be extended again. Both parties gotta grovel hard to the class of political donors.

[Winehole23]

Tax cuts are the new sacred cow.