By Les Dunaway
A Special Breaking News Edition
In a move surprising only those who believe demagoguery is a substitute for economics, the Standard & Poor Ratings Services downgraded its outlook on the US to “Negative” from “Stable”. This is the first step toward a downgrade of the US credit rating from AAA, which would increase borrowing costs and hasten America’s spiral into economic ruin.
The Statement
“More than two years after the beginning of the recent crisis, U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” S&P credit analyst Nikola G. Swann said. He said the rating agency puts the chance of a U.S. downgrade within two years at least one-in-three.
“We believe there is a significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections. If so, the first budget proposal that could include related measures would be Budget 2014 (for the fiscal year beginning Oct. 1, 2013), and we believe a delay beyond that time is possible,” S&P added.
Reports
- “S&P Cuts U.S. Ratings Outlook to Negative” – WSJ
- “Ratings Service Warns Politics Could Delay Budget Deal, Downgrades Outlook” – Fox News
- “Shares fall after S&P lowers U.S. debt rating outlook to negative” – Kansas City Star
- “Wall Street shares slump as S&P downgrades US debt outlook” = UK Guardian
Responses
- Sen. Mark Kirk, R-Ill., said the debate over the debt limit offers lawmakers the chance “to save the dollar and our economy.” He said S&P offered a “stark warning” for the country if lawmakers “miss this chance or if Congress sends the president a blank check.”
- Rep. Paul Ryan, R-Wis., author of the Republicans’ budget proposal, said the failure to reach an agreement threatens the country’s “economic security” and continued to hammer the president for his deficit speech last week. “A campaign speech is no substitute for a serious, credible budget. The president and his party’s leaders must put an end to empty promises and work with us to avert this looming economic crisis,” Ryan said.
- Rep Eric Cantor, R-Va on Monday called the Standard & Poor’s downgrade of U.S. credit outlook “a wake-up call” against those seeking to “blindly increase” the U.S. debt limit. Cantor said the S&P action makes clear that any increase in the debt limit must be accompanied by “meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt.”
- President Obama has not commented on this event, instead sending a low-level Treasury official to say: “We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” said Mary Miller, Assistant Treasury Secretary for Financial Markets.”
Possible Consequences
- “Dominos? – Just The Numbers, Mam“
- “Portugal Bail-Out” – Thought Exercise: The EU will probably bailout Portugal, despite being very unhappy about it – because they have “skin in the game”. Question: Who’s likely to bailout the US?