An ‘Oh Please!’ Moment: Is S&P Running Interference for the Right to Help Crush Social Security and Medicare?

From This Can’t Be Happening:

by: Dave Lindorff
Mon, 04/18/2011

Today’sbreathless anxiety-inducing headline was that Standard & Poors, the rating agency, has issued a “negative outlook” warning on US sovereign debt, claiming that the US, in comparison with other countries with a top AAA credit rating, has “very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us”. S&P warned that there was a “a one in three chance that the US could lose its AAA rating in two years because of its mounting debt.”

The ratings firm–one of three global companies that Wall Street relies upon to establish the credit ratings of companies and nations around the world–said its analysts had “little confidence” that the Obama administration and the divided Congress would reach any agreement on a deficit-reduction plan before the next national election in the fall of 2012, and that they doubted that any such plan would be adopted until after 2014, two whole Congressional elections away.

So far, the other two ratings agencies, Moody’s and Fitch Ratings, have not followed suit. Moody’s issued a statement saying, ““Moody’s rating for the US is Aaa and remains stable,” though the company warns that “an upward debt trajectory and increasing fiscal pressures could increase the likelihood of an “outlook change” within “the next two years.”

Private ratings firms have awesome power. Are they playing political games with it?Private ratings firms have awesome power. Are they playing political games with it?

Meanwhile, Fitch Ratings, which unlike Moody’s and S&P, is based in Europe, took an even more sober stance, saying, “In Fitch’s opinion, the likelihood of the U.S. government failing to honor its financial obligations and in particular make due and full payments on U.S. Treasury securities is extremely low. Ultimately, the recognition of the dire consequences of failing to raise the debt ceiling in a timely manner will prevail over differences on the more fundamental issue of how best to place U.S. public finances on a sustainable path over the medium- to long-term.” Fitch goes on to add, “The brinkmanship over the debt ceiling and the 2011 budget will be resolved…Fitch does expect that the tough choices on tax and spending will be made – as is starting to be seen at the state and local level – that are necessary to place public finances on a sustainable path.” Unlike S&P and Moody’s, Fitch’s analysts note the critical point that “The U.S. ‘AAA’ status is underpinned by the flexibility and dynamism of its economy, as well as the exceptional financing flexibility that derives from the U.S. dollar’s role as the world’s predominant reserve currency.”

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One Response to “An ‘Oh Please!’ Moment: Is S&P Running Interference for the Right to Help Crush Social Security and Medicare?”

  1. Andrea B. Says:

    If rating agencies applied the same criteria to the US as they have applied to other countries, the highest rating the US would recieve would be junk, with distinct references to financial insanity.

    Some facts the author of that article has missed and does not understand due to most likely never having even left the USA. The US position as the worlds reserve currency has been shifting for over a decade now. It is being avoided more and more as time goes on. The Euro, Renminbi, Yuan and other currencies are rising in prominence, quite rapidly now, despite recent problems.

    Also outside the US a lot of people are asking why rating agencies have rated any US business as better than junk, let alone the US economy. An example is, all Ireland or Greece has to do is default and half of Wall Street will disappear overnight. That is who the majority of the borrowing was from. Less than a quarter came from European banks as the deals involved would have broken EU banking regulations on interbank loans. The only European bank that would take a serious hit would be Deuschte Bank which the German government could easily support. JP Morgan would disappear in a Flash, as would Bank of America. It was them who funded all the credit debt swaps to prop up Greek GDP so as to hide economic mismanagement and make it eligable to join the Euro, when Greece should have been headed for collapse from the late 90’s right through to 2008. That was to give the US banks a say in Greek economics, which in turn would give a say in how the Euro was run, which stopped a lot of restrictions and regualtion from coming in to oversee the Euro. They have now lost that influence and will never get it back, to the relief of a lot of business people in Europe.

    All major US business’s are over exposed to debt in every way. They are actually using debt as equity, which it is not. A lot of banks have there own debt on there balance sheets as actual equity. Someday it has to be repaid. That is where Neo-liberalism will come apart at the seams, but it will be to late for the ordinary US people as they will suffer a lot more than now.

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