Breaking: S&P downgrades U.S. to AA+

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We told you so !!!

With a “negative outlook” to boot.

America is now a risky investment.

U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.

The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.

See the last few updates in the other thread for details on this afternoon’s drama between S&P and the White House. Supposedly the agency admitted privately that it goofed in using the wrong debt-to-GDP baseline — a $2 trillion error. But when you’re $14 trillion in the hole and set to add $6 trillion more by the end of the decade, what’s $2 trillion, really? A deadbeat’s a deadbeat.

Odds of that negative outlook turning into a further downgrade if the Super Committee chokes: High. Stand by for updates.

Update: A grumpy White House points to S&P’s math error and calls it “amateur hour.”

Update: Zero Hedge has the text of S&P’s statement. The debt-ceiling deal wasn’t good enough:

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade…

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability…

When comparing the U.S. to sovereigns with ‘AAA’ long-term ratings that we view as relevant peers–Canada, France, Germany, and the U.K.–we also observe, based on our base case scenarios for each, that the trajectory of the U.S.’s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.

Not only can’t the Super Committee fail, it’ll be under enormous public pressure to reach a grand bargain. That’s the silver lining in this cloud — they have to get serious now. They have no choice.

H/T Hotair


State of Tennessee could face credit downgrade from AAA rating

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Moody’s Investor Service will likely lower the credit rating of five states, including Tennessee, if it downgrades the United State’s government’s credit rating, which would happen if the federal government defaults on its debt.

Communications director of the Tennessee Comptroller of the Treasury said currently officials in that office are only providing a prepared statement on the issue.

“While we think Tennessee is deserving of a continued AAA rating, if a downgrade occurs as a result of a lowering of the federal rating, you can make no mistake, Tennessee will meet it’s obligations,” Spokesman for the comptroller’s office Blake Fontenay said in the prepared statement.

If Congress does not make a decision raising the government’s debt ceiling by Aug. 2, the United States will have to default on it’s debt.

On July 13, Moody’s placed the Aaa government bond rating of the United States on review for downgrade and announced that it would assess the ratings of 15 Aaa-rated states to gauge their sensitivity to sovereign risk.

Both the United States and Tennessee have currently have the highest rating, which is Aaa.

The United States has had the Moody rating of Aaa since 1917 and it would be unusual for the United States to drop lower than that, leaving some states with a better rating than the sovereignty.

Moody’s will review the ratings of the five states — Maryland, New Mexico, South Carolina, Tennessee and the Commonwealth of Virginia — on a case-by-case basis and announce any changes to the rating within seven to 10 days after a sovereign action, according to a news release from Moody’s Investors Service.

Moody’s spokesman David Jacobson said his company put Tennessee on review, in part, because Tennessee has a higher number of variable rate debt.