Saturday, August 06, 2011

S&P publishes its rationale for downgrade; immediate effect on bonds may be rather minimal

Standard & Poor’s indeed has a nice tome explaining the downgrade for the US sovereign debt from AAA to AA+, PDF link here.  This does seem like a historic “Event”, NBC-style (with no Sophia).

S&P is very critical of the partisan political polarization within the U.S., and mentions the “demographic winter” problem (without using those words).  It’s pretty easy to imagine this whole problem dropping down, like a microburst, into a discussion of personal family and filial responsibility.  The article makes metaphors with “gray” and “green”.

But the United State is unusual in having a separate authorization (as distinct from original appropriation) to raise debt to pay bills it has already ratcheted up.  Removing a separate debt ceiling process could help restore some confidence in ratings agencies.

Will this cause higher interest rates immediately and cause the value of current bond portfolios to deteriorate?

It’s only one agency, with a questionable performance in 2008, and at least one major miscalculation in its numbers. And this event was no surprise. Generally, it would seem that the effect on the markets in the near future may be minimal. 

Nevertheless, some states and municipalities are already in serious trouble anyway (try Central Falls, RI).

Try this analysis, from “Short Takes” in late July, link here.     Note the discussion of “tipping points” and the downgrade certainly invokes such an inflection point.

CNN Money has a primer today that is moderately reassuring to private people, here. It's called "Your money in an AA rated U.S."  Actually, it's AA+ rated, but still on negative watch.

1 comment:

Anonymous said...

Movie tip: Demographic winter - the decline of the human family

Barack Obama and The Negro Project.

Abortion and Black Genocide.

Maafa 21: 13 episodes.

Human rights for the unborn.