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A downgrade for US even as Moody's postpones the inevitable

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S&P downgraded long term US debt to AA+ even as it maintained A1+ rating on short term instruments. The downgrade is headlined “On Political Risks and Rising Debt Burden” and the outlook is negative.

S&P follows Dagong into a beat for US glory?

Yesterday’s short news of Dagong’s downgrade of US treasury debt was old hat for followers as the Chinese agency had first announced a downgrade in November 2010 and the latest put US a notch down from A+ to A

S&P continued its proposed downgrade after a minor scuffle withthe Whitehouse over its calculations and Moody’s downgrade denial where it maintained US at Triple A

The US had its AAA credit rating downgraded for the first time by Standard & Poor’s to AA+ based on its judgment that the debt ceiling deal agreed by lawmakers would not be enough to curtail record deficits.
“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement released late on Friday.

Global equity markets had suffered their worst week since the depths of the financial crisis, only to face the prospect of a downgrade.

The ratings cut followed a dispute with the US administration over the agency’s calculations when it was notified on Friday, resulting in a delay in the announcement.(

A rating of AA+ could be a blessing in disguise for US as it almost Triple A status maintains liquid access to markets and coupled with investor governments’ large stable holdings likely to maintain sanity in the markets. The emotional reaction to the downgrade is understandable as quantitative factors will start weighing in on the US in the long run in terms of the ccosts of debt creeping up, the $2.4 tln cutbacks rejected as fiscally insufficient by S&P where Moodys’ had given the government the benefit of the doubt.

US, Germany, France and Canada are rated higher than US by S&P. According to the CNBC/MSNBC breakout the $2.1 tln cutback was substantially lower than the $4 tln deficit reduction recommended by S&P as a good”downpayment” on fixing America’s finances

The S&P 500 has fallen in 9 out of the last 10 trading sessions, down nearly 11% even as the Jobs report and unemployment came out better at 115k jobs and 9.1% unemployment after a disastrous ISM Services survey showing a blank pipeline for the coming months as new orders ticked down

Here is the ratings report by S&P

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This entry was posted on August 6, 2011 by in Amitonomics, US and tagged , , , , , , , .


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