United States Loses AAA Credit Rating

Standard and Poors, a once-excellent bond rating agency that now largely ignores economics and instead reflects market sentiment, downgraded the US to a AA+ rating this week. After holding back a big yawn, I took another sip of coffee and went to get a danish.

The Economist magazine said it best (with complete lack of emotion) a few weeks ago: "America's net indebtedness is a perfectly affordable 65% of GDP...the current problems, rather, are political." Yet, this reality has not stopped pundits and game-playing politicians from making it seem like America will go bankrupt tomorrow.

After the US Treasury pointed out that S&P had miscalculated by a couple of trillion dollars while making its decision, S&P responded that they have decided to maintain the downgrade anyway.

Ratings changes are great for business. S&P’s well-timed downgrade will give stockbrokers around the world a fantastic excuse to call their already-flustered clients on Monday to solicit new trades.

Panic and churn!

____


Churn (verb):

1) Agitate milk or cream in order to produce butter.
2) Excess trading of a client’s account in order to increase broker’s commissions.

____


"If anything, it may change my opinion on S&P."

Warren Buffett, when asked if S&P's debt downgrade will change his opinion about U.S. treasuries.

____

Boner's Crisis

Strategic oil wars and bailouts are expensive. During his presidency, George W. Bush raised the US debt ceiling 7 times.

Now, with a Democratic president in office, some Republicans have suddenly decided that deficits are bad, and to use the debt ceiling as a pawn in a game of brinkmanship.

Failing to raise the debt ceiling would raise US probability of default, which would in turn cause an increase in interest rates (investors buying US debt would wish to be compensated for the increased risk), and the economy would suffer hugely as a result. Those who are downplaying the repercussions simply don't know what they are talking about.

Personally, I don’t think it matters whose politics you believe, or whether you think taxes should be raised or not. Using a routine matter from one administration (raising the debt ceiling) to manufacture an artificial crisis in another is deplorable. Make no mistake, this "crisis" is as artificial as Boehner's tan.

In his native German, “Boehner” is pronounced, “Boner.” These days, it just seems so appropriate.

Stop the political posturing. Get it done.

____

“I can end the deficit in 5 minutes. You just pass a law that says that anytime there’s a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election. Now you’ve got the incentives in the right place.”

Warren Buffett
____

Related Link: (as often happens, The Onion describes the situation better than the real news).

Congress Continues Debate Over Whether Or Not Nation Should Be Economically Ruined

____

See also:

Tan Stewie from trevor on Vimeo.