Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Downgrades S&P

Interest-Rates / Credit Crisis 2011 Aug 07, 2011 - 05:46 AM GMT

By: Brady_Willett


U.S. Treasury Securities are no longer risk-free.  This news comes after Standard and Poor’s cut the triple-A rating it has awarded the U.S. since 1941 (Moody’s has been in the AAA camp since 1917). Given the U.S.’s status as the world’s reserve currency printer – not to mention the safe haven flows arriving in the U.S. due to the recent upheaval in Euroland - the immediate impact of the downgrade is highly uncertain. However, what can be said is that should Moody’s or Fitch also cut, capital may be required to exit U.S. debt due to restrictive ownership covenants.  This ominous prospect could quickly come into play should another financial crisis arise and/or the U.S. economy slip back into recession. After all, Moody’s warned last week that it may cut if lawmakers do not enact larger debt reduction plans (an increasingly difficult undertaking with the markets and economy weakening), and Fitch is set to complete its U.S. ratings review by the end of August.

Rather than focus intently on the difficult steps required to maintain its triple-A rating, policy makers, regulators, and Wall Street may now be in panic mode – trying to covertly rid the marketplace of pesky AAA covenants and/or take the rogue rating agency that is Standard and Poor’s down a notch. Perhaps highlighting this trend – or that of ignoring the message in favor of scheming behind closed doors - an array of conflicting/interesting reports crossed shortly before and after yesterday’s ratings cut.

S&P said to back away from U.S. downgrade MW
Standard & Poor’s has reportedly backed off a plan to strip the U.S government of its prized triple-A debt rating Friday after White House officials challenged the analysis...

BL: The U.S. immediately lashed out at S&P, with a Treasury Department spokesman saying the firm’s analysis contains a $2 trillion error. The spokesman, who asked not to be identified by name, didn’t elaborate, saying the mistake speaks for itself. Dow Jones

CNN: “This is a facts-be-damned decision," the senior official said. "Their analysis was way off, but they wouldn't budge."..."These guys make Congress look good," the official said of S&P

Obama officials attack S&P's credibility after downgrade Reuters

Suffice to say, the story being told threatens to become more about the suspicious actions of S&P than about the historic U.S. ratings cut.  As for the NYT, they went a completely different route: using “A spokesman for the Federal Reserve” and dutifully noting that closed markets do not trade:

“The announcement came after markets closed for the weekend, but there was no evidence of any immediate disruption.”

As shocking as S&P’s mathematial mistake is at this stage of the game, what should be remembered is that the major rating agencies will (allegedly) rate crap triple-A for a price and they will always be late downgrading this crap once it blows-up. But what the major U.S. rating agencies do not tend to do, unless the issue they are covering fails to pay-up, is downgrade for no reason. Realizing they would face the wrath of many different regulatory and policy making powers that be, Standard and Poor’s nonetheless became the first major NRSRO to cut the U.S.’s AAA. Now policy makers are torn between seeking retribution against S&P or trying to appease the demands of Fitch and Moody’s. If the debt ceiling debacle is any indication, don’t count on a successful multitask.

By Brady Willett was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in