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Author Topic: U.S. Credit Rating Downgraded  (Read 4108 times)

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Offline OldSchoolGamerTopic starter

U.S. Credit Rating Downgraded
« on: August 05, 2011, 08:53:26 PM »
http://money.cnn.com/2011/08/05/news/economy/downgrade_rumors/index.htm

I think what I've been predicting for many years is beginning to come to pass: the wheels are coming off of the bus here in the United States.  Oh, not all at once, but this is like the RONK-RONK-RONK you hear just before the blowout.

I've read this story in several places, and the comments.  Some lambaste Obama.  Some the Tea Party.  There were calls to begin lynching bankers and CEOs from lamp posts on Wall Street.

Honestly, I think it's time for those of us who live in the USA to do a personal security and crisis survival assessment.  I'm not saying panic and head for the hills.  I'm just saying, start asking yourself some basic questions like, "How would I get by if services were interrupted for a couple weeks and I couldn't get to the grocery store?"  If there are items that you need to survive (like medication for chronic conditions), consider laying in a month's worth of "buffer" in case for whatever reason you can't get a supply.

Having said that, I think a collapse or widespread, major civil unrest in the next year is unlikely.  But the thing is, ten years ago, I'd have said it was "almost impossible."  Now it's just "unlikely."

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Re: U.S. Credit Rating Downgraded
« Reply #1 on: August 05, 2011, 09:22:30 PM »
I can say that if the grocery store around here shut down for two weeks, I'd be pretty well set.  Who knows, maybe I wouldn't even need to use any of my dwindling bank account - I'm sure that I could barter a couple of afghans for some supplies.  Gotta love farm country.

We could use a dose of civil unrest, though.  Right about now, everyone should be writing to their Congressmen and telling them that the only debt that their constituents care about is the one that's preventing them from making house payments and buying food for their families.  Flood their home offices with calls asking them for how they intend on getting America back to work - and ask for specifics!  Spam their email addresses and Facebook pages telling them to get out of their air-conditioned, paid-off living rooms and spend a day walking the streets of the poorest neighborhoods in their districts.  Walking, not driving in their 2012 model-year SUVs.

With apologies to Woody Guthrie and Paddy Chayefsky: can you imagine, three people walking into their Congressman's office, saying 'I'm a human being, and my life has value' and walking out. They may think it's an organization.  And can you, can you imagine fifty people a day walking into their Congressman's office, saying 'I'm a human being, and my life has value' and walking out.  They may think it's a movement.

Someone needs to start a recovery moving, and they've shown that they aren't the ones to do it.

Offline gaggedLouise

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Re: U.S. Credit Rating Downgraded
« Reply #2 on: August 05, 2011, 09:27:12 PM »
Sounds like a sensible thing to do, Gamer - though worrisome to many people. Actually I think it's going to be a long haul this side of the Atlantic too, and not just in those debt-stricken countries of southern Europe. You don't have to do rocket science to see that the costs of housing, of electricity and fuels are likely to climb here in Scandinavia (they're already high, only interest rates have so far stayed low) and in a lot of other places. And many retirees here - and elsewhere in Europe - are scraping by in silent poverty, too.

I think we badly need to do some things to avoid all becoming hostages of the banking business and other financial institutions that don't care about us - and their political cronies. Some rethinking of how to define values and assets - how much further can we go on pretending that assets, values, skills and work only exist insofar as they can be changed into bucks? - and about democracy.
« Last Edit: August 05, 2011, 09:35:27 PM by gaggedLouise »

Offline EbonyQueen

Re: U.S. Credit Rating Downgraded
« Reply #3 on: August 05, 2011, 09:29:06 PM »
Hmm, guess I am screwed then.

My insurance doesn't allow for more than 30 days worth of my heart medication. So I literally -cannot- get more than that. Guess if everything goes to hell overnight I'm as good as dead.

Offline RubySlippers

Re: U.S. Credit Rating Downgraded
« Reply #4 on: August 05, 2011, 10:23:43 PM »
The US is fine if we have to we can go to WW2 style rationing, seal off the borders and tuck in for decades getting by on our huge natural resource base. As long as you feed, house, clothe, give people work and some amusements most will fall into line and behave.

So we are fine in the long run we can get by as a nation alone if needed in a Fortress American style plan.

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Re: U.S. Credit Rating Downgraded
« Reply #5 on: August 05, 2011, 10:30:19 PM »
Panem et circenses?  We've seen how that worked out in the past.

Offline gaggedLouise

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Re: U.S. Credit Rating Downgraded
« Reply #6 on: August 05, 2011, 10:53:32 PM »
Well Ruby, I'm not sure the U.S. has near enough oil production to keep the nation going for a long time without massive import from the Middle East and other places. That's one substance which is used in much, much bigger quantities now than during WW2 - cars, heating, air travel, production of plastic stuffs, not least farming - modern mechanized agriculture is very dependent on oil. Even if Canada stood by loyally (I'm not going to presume an invasion of the friendly neighbour...) it's hard to see the U.S. bunkering up enough of petroleum reserves to keep the country in shape.

Offline OldSchoolGamerTopic starter

Re: U.S. Credit Rating Downgraded
« Reply #7 on: August 05, 2011, 11:31:16 PM »
Well Ruby, I'm not sure the U.S. has near enough oil production to keep the nation going for a long time without massive import from the Middle East and other places. That's one substance which is used in much, much bigger quantities now than during WW2 - cars, heating, air travel, production of plastic stuffs, not least farming - modern mechanized agriculture is very dependent on oil. Even if Canada stood by loyally (I'm not going to presume an invasion of the friendly neighbour...) it's hard to see the U.S. bunkering up enough of petroleum reserves to keep the country in shape.

We could...but the rationing would be tight, with some very profound changes to our lifestyle.

But that's never going to happen.  Can you imagine what the Tea Party and the lumpenproles who follow them would say?  They'd call whoever proposed it a communist.

Nope...America is going to go barreling right off the oil depletion cliff with the throttle wide open, shouting FREEEEDUMMMB!!!1!!1 all the way down to the rocks below.

But remember the threat here isn't America being isolated from the rest of the world.  It's the damage we'll do to ourselves to deny and blame-shift for what really is a fairly straightforward math problem.  Even S&P said the downgrade was provoked as much by the infighting and assclownery in Congress as it was by the financial situation per se.  If Congress had acted like grownups this could have been avoided. 

Offline OldSchoolGamerTopic starter

Re: U.S. Credit Rating Downgraded
« Reply #8 on: August 05, 2011, 11:36:37 PM »
The US is fine if we have to we can go to WW2 style rationing, seal off the borders and tuck in for decades getting by on our huge natural resource base. As long as you feed, house, clothe, give people work and some amusements most will fall into line and behave.

So we are fine in the long run we can get by as a nation alone if needed in a Fortress American style plan.

Not gonna happen.  Who is going to pay for all those entertainments?  We're not going to give anybody stuff for FREE, are we?  You're not going to make Bill Gates get by with only FOUR private jets to pay for this?  You're going to try to remove loopholes raise taxes on oil companies, aren't you.  LIBERAL!

You know full well that's what the Tea Party and Randroids would say the moment anyone seriously proposed any shared sacrifice to help balance the budget, right?

Offline Vekseid

Re: U.S. Credit Rating Downgraded
« Reply #9 on: August 06, 2011, 12:17:18 AM »
I imagine this will mean even less than their downgrade of Japan's debt. Which was about nil.

1) This is the United States, and not Japan. While we're certainly going that route, I think Americans will have less tolerance for another lost decade than the Japanese.
2) Rating agencies blew their trust a few years ago. I like how that's all been swept under the rug. I don't think the sorts of people who were in a position to lose millions are going to take S&P's word over their own informed opinion.

Offline Jude

Re: U.S. Credit Rating Downgraded
« Reply #10 on: August 06, 2011, 01:35:19 AM »
As Vekseid said, remember those derivatives and mortgage security packages that caused the implosion of the US economy a few years back?  We should probably try and remember what they were rated at by these agencies.

Offline consortium11

Re: U.S. Credit Rating Downgraded
« Reply #11 on: August 06, 2011, 06:27:23 PM »
I imagine this will mean even less than their downgrade of Japan's debt. Which was about nil.

1) This is the United States, and not Japan. While we're certainly going that route, I think Americans will have less tolerance for another lost decade than the Japanese.
2) Rating agencies blew their trust a few years ago. I like how that's all been swept under the rug. I don't think the sorts of people who were in a position to lose millions are going to take S&P's word over their own informed opinion.

I generally agree with you... not only did the agencies not see the crisis coming their actions actively worsened it by being so out of kilter with their ratings.

That said...

One only needs to glance over to the troubles befalling the Eurozone (and as they're colloquially known the PIGS) to see that ratings agencies still do carry a significant amount of influence. The economic situation in Portgual wasn't objectively worse on 4 April compared to 5 April... but because they had been downgraded their costs of borrowing shot up. Now, obviously Portugal is a very different country in a very different situation to the US so it's far from a perfect analogy... but it does so that a slip in the rating still caries a significant direct cost. Then there's the indirect cost... the very fact that a rating agency has downgraded a rating will lead to a fall in the markets and all that entails.

It's worth noting that there's news coming out that S&P got their calculations wrong in the realm of $2 trillion and essentially kept the downgrade regardless. Just S&P downgrading, with that lingering over them, and it may not have much effect. If the other agencies downgrade as well then the ripples will be far more widespread.

Online TheGlyphstone

Re: U.S. Credit Rating Downgraded
« Reply #12 on: August 06, 2011, 06:34:14 PM »
Not gonna happen.  Who is going to pay for all those entertainments?  We're not going to give anybody stuff for FREE, are we?  You're not going to make Bill Gates get by with only FOUR private jets to pay for this?  You're going to try to remove loopholes raise taxes on oil companies, aren't you.  LIBERAL!

You know full well that's what the Tea Party and Randroids would say the moment anyone seriously proposed any shared sacrifice to help balance the budget, right?

While your point is solid, can't you pick on someone other than Bill Gates? :-\ He donates a crapton of money to charities, and is probably one of the more civically decent uberrich.

Offline Vekseid

Re: U.S. Credit Rating Downgraded
« Reply #13 on: August 06, 2011, 07:48:29 PM »
I generally agree with you... not only did the agencies not see the crisis coming their actions actively worsened it by being so out of kilter with their ratings.

That said...

One only needs to glance over to the troubles befalling the Eurozone (and as they're colloquially known the PIGS) to see that ratings agencies still do carry a significant amount of influence. The economic situation in Portgual wasn't objectively worse on 4 April compared to 5 April... but because they had been downgraded their costs of borrowing shot up. Now, obviously Portugal is a very different country in a very different situation to the US so it's far from a perfect analogy... but it does so that a slip in the rating still caries a significant direct cost. Then there's the indirect cost... the very fact that a rating agency has downgraded a rating will lead to a fall in the markets and all that entails.

It's worth noting that there's news coming out that S&P got their calculations wrong in the realm of $2 trillion and essentially kept the downgrade regardless. Just S&P downgrading, with that lingering over them, and it may not have much effect. If the other agencies downgrade as well then the ripples will be far more widespread.

Or you know, the whole taking bribes thing.

The PIIGS actually are in a horrific position. Compare to Iceland, which got political flak for not fucking over its population - after a revolution - but economically is doing okay.

The structural problems of the US are exceedingly minor. Social Security needs a bit more funding. Medicare needs reforming. The country needs a program like the WPA. The only thing stopping this is political, and while it may seem insurmountable now, I don't think it will remain that way for the rest of the decade.

Offline alxnjsh

Re: U.S. Credit Rating Downgraded
« Reply #14 on: August 06, 2011, 08:38:44 PM »
I concur with Vekseid. The rating agencies are good for headlines and only help the media create further tantalizing stories on how the economy is in the trash. Meanwhile 1,440 of the richest in the U.S. paid absolutely no taxes and most major companies are showing double digit profits. It isn't that there isn't money, it's that the chasm between the rich and the poor is getting larger.

An interesting article I came across...

Quote
U.S. Credit Downgrade's Direct Effect Could Be Negligible, History Suggests

WASHINGTON -- The downgrade of the U.S.'s AAA credit rating by Standard & Poor's on Friday may end up having little to no effect on interest rates for U.S. securities, according to analysts who have examined past credit rating downgrades in other countries.

When S&P did the exact same thing to Japan in 2000, demand for Japanese bonds actually increased in the following months, analysts note, because the market still saw Japan as safe for investment relative to the rest of the world.

The history of downgrades in Japan, Canada and other countries suggests the U.S. market could well shrug off the downgrade, rather than consider it an indicator of any real change in the status of U.S. bonds as the ultimate safe investment.

"The U.S., downgrade or no downgrade, is still going to be the benchmark," Rick Rieder, the chief investment officer at New York-based BlackRock Inc., told Bloomberg earlier this week. "Even with a downgrade, I think the market would assume the safest asset you could buy in a portfolio was still Treasuries."

A muted market reaction to the downgrade would be "consistent with the market’s reaction so far to saber rattling by rating agencies," analysts for AllianceBernstein Global Wealth Management wrote in June. "The US dollar's special place as the world's reserve currency reinforces this perception."

It seems the more alarming the rhetoric gets, the more investors flock to Treasury bonds, rather than flee them. Yields on two-year Treasury notes were near an all-time low Friday, at 0.28 percent, while 10-year bond rates were at 2.58 percent.

There are other factors at work, as well. A Reuters story last week suggested that a downgrade would have minor effects simply because it "pales in significance with evidence of flagging economic growth."

Other analysts, such as Forbes' Tim Worstall, have predicted a muted response because "the move in the rating is simply confirming what the market already believes."

The Wall Street Journal reported last week that not only Japan, but also Canada and Australia and a few other countries have seen their sterling credit ratings downgraded, but "by and large, borrowing costs remained fairly steady and, in some instances, eventually declined."

The effect of even small interest rate increases on federal debt would be magnified, however, as they would lead to automatic increases in other lending rates, such as for mortgages, student loans and corporate debt.

http://www.huffingtonpost.com/2011/08/06/us-credit-downgrade-history_n_920280.html

Offline Vekseid

Re: U.S. Credit Rating Downgraded
« Reply #15 on: August 06, 2011, 08:49:31 PM »
This is even better, regarding S&P's wisdom:

http://www.cfo.com/article.cfm/12295579

Quote
Standard & Poor's is taking great pains to defend its "A" rating for Lehman Holdings Inc.

The rating company fired off a report Wednesday asserting that the recent collapse of the investment banking firm was a case of negative market sentiment — whether or not grounded in fundamentals — creating significant difficulties that led the company to the point of failure.
Related Articles

"In our view, Lehman had a strong franchise across its core investment banking, trading, and investment management business," S&P stated. "It had adequate liquidity relative to reasonably severe and foreseeable temporary stresses."

...

Offline Callie Del Noire

Re: U.S. Credit Rating Downgraded
« Reply #16 on: August 06, 2011, 09:02:33 PM »
I personally blame pretty much everyone in congress. The president did a fair amount at 'bridge building' but most of Congress and the Senate seemed to be 'My way or not at all'. That isn't to say that some blame couldn't be pointed towards the White House, but let's be honest.. only someone like Lydon Johnson could have shamed/blamed/yelled the various parties into sitting down and cooperating. And that type of president is gone for good. The opinion poll and media wouldn't let someone like him into power again, they would micro-analyse him into the ground.

Essentially though I blame all of us, the voters. We apparently didn't put out the right message in the last 2 election cycles that we wanted leaders and policy builders not more of the same stupid petty partisan foolishness. A lot of Tea Party folks promised a lot and then went straight into the 'we're in power, you HAVE to relent to us' and followed an agenda of stupidity, corporate accommodation and back room dealing. They have gone after anyone that didn't support them, tried to cripple education and unions.

They promised a lot and have delivered damn little.

We, the voting public, need to do things like send emails, phone calls and physical letters to our reps. Remind them that while they might suck at the teat of special interests they have to do something for us. Too long has corporate interest at our cost been their course of business.

In the last six months, I've contacted more of my reps than I have since I turned 18. I have been watching my new senator, my congressman and been looking hard at who is up for re-election. I very much doubt I'll like any of the candidates of this election season any more than I have for the last 12 years.

I'm speaking/writing up more to them to let those I vote for that I am watching and listening and getting tired of holding my nose when I got to vote.

I'm tired of voting for the 'lesser evil'. Most of the republicans I'd vote for are avoiding the offices and nearly all the moderate democrats I respect are doing the same. Too long the media has charged after candidates with an eye to tearing them down over every perceived weakness/flaw or error in their past.

I'm tired of the 'Saint JFK' and 'Nixon did no good things in his life' outlook of the media.

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Re: U.S. Credit Rating Downgraded
« Reply #17 on: August 07, 2011, 12:08:19 AM »
For those who may not be sure who their reps are, I happened to find this nifty little tool.  All you need is your ZIP code, and occasionally the +4

http://whoismyrepresentative.com/

Offline Callie Del Noire

Re: U.S. Credit Rating Downgraded
« Reply #18 on: August 07, 2011, 12:28:52 AM »
For those who may not be sure who their reps are, I happened to find this nifty little tool.  All you need is your ZIP code, and occasionally the +4

http://whoismyrepresentative.com/

Best post in thread!

Offline consortium11

Re: U.S. Credit Rating Downgraded
« Reply #19 on: August 07, 2011, 08:29:51 AM »
The PIIGS actually are in a horrific position. Compare to Iceland, which got political flak for not fucking over its population - after a revolution - but economically is doing okay.

Iceland is one of the few examples (the other being civil liberties) where people generally on the left and the (libertarian) right agree. In the short term Iceland suffered worse than other nations in a similar position (at one stage food riots looked likely) but since then have been one of the brightest stories of economic recovery. Not all of that can entirely be put down to not bailing out the banks in a display of crony capitalism and socialising loses as Iceland is also outside the Eurozone and thus has the freedom in their monetary policy but discounting it is likewise foolish.

Offline Vekseid

Re: U.S. Credit Rating Downgraded
« Reply #20 on: August 07, 2011, 12:55:09 PM »
Iceland is one of the few examples (the other being civil liberties) where people generally on the left and the (libertarian) right agree. In the short term Iceland suffered worse than other nations in a similar position (at one stage food riots looked likely) but since then have been one of the brightest stories of economic recovery. Not all of that can entirely be put down to not bailing out the banks in a display of crony capitalism and socialising loses as Iceland is also outside the Eurozone and thus has the freedom in their monetary policy but discounting it is likewise foolish.

I think what's going to happen in the US is just that - the rise of a progressive-libertarian alliance. Right now it only amounts to a couple of middling caucuses, but they're the only groups consistently growing.

Offline Matthew

Re: U.S. Credit Rating Downgraded
« Reply #21 on: August 07, 2011, 03:22:39 PM »
While your point is solid, can't you pick on someone other than Bill Gates? :-\ He donates a crapton of money to charities, and is probably one of the more civically decent uberrich.

Off topic slightly, but agreed... I'm getting quite tired of being told that we can't tax the billionairs who are sitting on vast piles of cash because they might use it to create a job or two at some point in the future... but Bill at least is one that's doing some good with his money... that, and he's actually asked to be taxed more :P

Offline Asuras

Re: U.S. Credit Rating Downgraded
« Reply #22 on: August 09, 2011, 12:56:20 AM »
Quote from: OldSchoolGamer
I think what I've been predicting for many years is beginning to come to pass: the wheels are coming off of the bus here in the United States.

They downgraded us to AA+ about which: “the long-term credit performance of ‘AAA’ rated versus ‘AA’ rated issuers,” says Fitch, “is statistically negligible”. Apparently S&P can't even do arithmetic, and then there are the really colorful ones claiming that "To say that S&P analysts aren’t the sharpest tools in the drawer is a massive understatement.".

And to make this whole thing even crazier, treasuries soared today on a - I can only call it a fucking paradox - "flight to quality" to the very thing whose downgrade caused the flight to quality.

Quote from: Callie del Noire
I personally blame pretty much everyone in congress.

Congress is universally hated. But we did vote for them. They really are the American people's fault.

So, with bitter cynicism: This is the Congress America deserves.

Quote from: Vekseid
I think what's going to happen in the US is just that - the rise of a progressive-libertarian alliance. Right now it only amounts to a couple of middling caucuses, but they're the only groups consistently growing.

We might hang out with different libertarians but the ones I hang out with overwhelmingly and passionately prefer the tea party/Ron Paul types to liberals.

Offline Callie Del Noire

Re: U.S. Credit Rating Downgraded
« Reply #23 on: August 09, 2011, 02:00:12 AM »

Congress is universally hated. But we did vote for them. They really are the American people's fault.

So, with bitter cynicism: This is the Congress America deserves.

We might hang out with different libertarians but the ones I hang out with overwhelmingly and passionately prefer the tea party/Ron Paul types to liberals.

No.. this is the Congress we ACCEPTED. Most folks don't realize that the price for freedom is eternal vigilance. Not all our foes are outside the country. Too many folks have let them change things to the way they are now. I am a hearty supporter of term limits, too many folks in DC are career politicians. That wasn't what was intended. It was supposed to be people representing people, not people being sponsored by folks like the Koch brothers.

My outlook is this.. there needs to be an incentive to get into office, not reassurance that once in you can make a career of it. My own take on the term limits is to have a mandatory 'season off' in it. IE.. Two terms, then sit one out. (or such)

I also think that President should be like that. Because, while I have disagreed with several of the men in the white house since I got the right to vote, I think some of them might have done a half decent job at points and eliminating the 'lame duck' onus might help a LOT

Offline consortium11

Re: U.S. Credit Rating Downgraded
« Reply #24 on: August 09, 2011, 04:07:33 AM »
We might hang out with different libertarians but the ones I hang out with overwhelmingly and passionately prefer the tea party/Ron Paul types to liberals.

If you get past the "OMG liberals = commies = they hate Amercia" and the "Libertarian = Nazis!" rhetoric that gets thrown around by both sides then on a number of key issues (modern) liberals and (classic) liberals/libertarians share a number of key positions... military intervention, civil rights etc etc (after all, the Cato Institute, one of the leading libertarian think tanks, stands against the Patriot Act, against the Iraq War, against restrictions on freedom of speech and for gay rights and gay marriage, all positions that most liberals support).

"Bailing out the bankers" is another one.

That's not to say that you'll suddenly see libertarians and liberals holding hands and singing around a campfire together... but once you get past the politically motivated rhetoric (both major parties want to fire up their base rather than their base realise they share positions) and the "I used to scream about the culture wars but now the Tea Party are the in thing I'll complain about the size of the government" types I'd hope that people would start to realise that on a number of issues liberals and libertarians agree... often for similar reasons.