Standard & Poor’s Outlook for U.S.

Monday, April 18, 2011
Posted in category Financial Markets

With all of the brouhaha over Standard & Poor “negative” outlook on the long-term AAA credit rating of the U.S., I have not come to the conclusion that this is a significant move. While the media bobbleheads and most independent bloggers seem to be scrambling to unwind the drama and make the case that politicians are being ‘put on notice,’ I see it differently.

One bond strategist was quoted in Bloomberg as saying,  “It’s truly a shot across the bow and a message to Washington, which has been clowning around on this and playing politics when they should toss ideology aside and focus on achievement.” This statement was made with the belief that there is a depraved political-ideological government on one hand, and, on the other hand, we have this creature called ‘good’ government wherein some magical powder can be sprinkled on the politburo to purge its kingpins of their affinity for all things megalomaniacal. All government, by definition, is political-ideological, and all politics, by definition, is coercion. A ‘non-political’ political structure does not exist. Why is that so hard to understand? Politics is the act of using one’s position and power to execute acts of theft, redistribution, and the promotion of advantage to selected recipients. Are people – even really smart people – just desperate to believe in something “good,” even if it is pure fantasy?

Getting back to the Bloomberg piece, the author points out that this “negative” outlook on the government’s long-term credit rating means the following:

The cost to protect against a default by the government and the nation’s banks jumped and stocks declined after the New York-based firm’s statement, which assigns a one-in-three chance that it will lower the U.S. rating in the next two years.

A 1-in-3 chance on a 2-year time horizon. Can you say ‘long shot?’ Or media showboating? Or is this perhaps a publicity stunt? Are all of the bears, reality hardliners, and independent thinkers being placated with this feeble concession? The Wall Street Journal reported this today: Standard & Poor’s analysts are about to host a call explaining some of the rationale for their decision to keep the U.S. at a AAA rating, but move the outlook to “negative.”  Oh the drama. And this rather weak statement (“negative outlook”) took how long to come to fruition? Meanwhile, I am seeing an abundance of quotes from bureaucrats who point out that Fitch and Moody’s haven’t budged. That is their best defense for a country whose fiscal policy is the Titanic on steroids.

Martin Weiss of Weiss Ratings presented this challenge to the three rating agencies about a year ago.

Dear S&P, Moody’s, and Fitch,

 You are the world’s three dominant rating agencies, largely controlling the ratings of bonds and debts issued by thousands of corporations, municipalities, and sovereign governments.

I am the chairman of Weiss Ratings, an independent rating agency. (See Weiss Ratings’ press release on MarketWatch or “Weiss Is Returning to Ratings Business” in the Wall Street Journal.)

And today, I challenge you to promptly take the bold action that you have so far avoided — to downgrade the long-term credit rating of the U.S. government in order to help protect investors and prod Washington to fix its finances.

As a reminder of how incompetent (or, better described as non-independent) these agencies are, here is a link to the 1994 Government Accountability Office study that determined the three largest rating companies failed to downgrade the obvious: failing insurance companies.

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5 Responses to Standard & Poor’s Outlook for U.S.

  1. clark says:

    April 18th, 2011 at 6:33 pm

    Saw this comment on the HBB:

    2011-04-18 13:21:17

    As posted above. FEDS goals are to pump banks full of cash.

    1. Food and Fuel inflation puts the spot light on the FED, making it’s job more difficult.
    2. Food and fuel inflation shifts spending patterns ie more on food and fuel less on manufactured goods and services. Thus more unemployment.

    Raising rates would be the hard way to do fix the food and fuel inflation problem and would have long term impact on economy. What about getting S and P to put out a statement about downgrades, and Goldman to call the top on commodity prices while triggering selling.

  2. Ernie Hopkins says:

    April 18th, 2011 at 6:58 pm

    Great piece on the ratings!!!! I note the US media was strangely silent on China’s ratings agency doing a more substantial downgrade, which is what I suspect forced S&P to give some kind of response! Since China is our survivng big debt owner, their response is much more critical. I seriously think we are all on our own, even though most are still trying to breath life into the corpse. The economy here is literally melting other than government/big corporate cartel types. True private sector is non existent. Prices are astronomical and climbing while incomes plumment with the exception of the above categories. The only good investment is keyboard money production and it is a limited monopoly. Keep your wits about you and your powder dry!

  3. Iluvatar says:

    April 19th, 2011 at 12:57 am

    Karen:

    I had an equal problem with this but for different reasons.

    Sure the ratings agencies completely screwed up the CDOs but that is not the reason I am having difficulty with this. It is succinctly stated here and here: (keep in mind we are sovereign monopoly suppliers of our fiat currency and we have (very little) non-US denominated debt (OK that currency swap window the Helo Ben opened up last summer during the Euro crisis – well, that’s about it):

    http://pragcap.com/the-ratings-agencies-become-even-more-useless

    http://pragcap.com/usa-credit-rating-in-trouble-bonds-rally

    But you know who should start to worry about the “Cavaliers of Debt” – Greece!@

    Check this out, 20% on the 2 YR!, oh MY!:

    http://globaleconomicanalysis.blogspot.com/2011/04/next-phase-of-sovereign-debt-crisis.html

    Them are wagon trains a’ circling your fort hoss!

    And the leader of Greece professes that he won’t “re-structure the debt”. How could he?

    Do you know much of that debt is tied to public pensions?

    Short answer: a TON.

    See what the gold market has had to say about that lately?

    Hmmmmmm……

  4. Jeannie Queenie says:

    April 20th, 2011 at 1:24 am

    A horrifying thought brought to you by Phoenix Capital Research
    Title this one…Down the Rabbit Hole. At the very least Alice in Wonderland would wonder how we could have gotten to this point of insanity. PCR says:


    The reason that the 2008 debacle happened was very simple. The derivatives market, the largest, most leveraged market in the world. Today, the notional value of the derivatives sitting on US banks’s balance sheets is in the ballpark of $234 TRILLION. That’s 16 times US GDP and more than four times WORLD GDP. Of this $234 trillion, 95% is controlled by just four banks. And they are… the TBTFs.”

    What I find even more chilling about this 234 trillion in derivatives is that some portion of it is embedded in sharia finance. If that doesn’t put a chill down your back, don’t know what would. China’s hold on us is tiny compared to this. Too big to fail is of course, a hugh joke on us all as they now talk about throwing out Fannie Mae and Freddie. All hail the Ivy Leagurers…it takes a degree from one of those schools to really fk up bigtime I would say, no? The clown Krugman, still tries to feed us a big line. I understand all to well why some students at Harvard refused to sign up for certain professor’s courses, that is, the lieftist liberal loonies who taught the PTB how to screw up bigtime, lie, cheat and steal. Thank god, there are some bright kids who see this sheista for what it is….a bigtime pile of brown smelling BS. This putrid pile of crap is largely determining these kids futures..they smell it, they see it and they don’t like it…smart kids!

  5. Iluvatar says:

    April 21st, 2011 at 12:20 am

    Didn’t I just say this!

    Doh!

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