S&P: United States of America 'AAA/A-1+' Ratings Placed On CreditWatch Negative On Rising Risk Of Policy Stalemate

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The highlights as far as I'm concerned... S&P saying if there is no 4 trillion deal then the rating will likely be cut. S&P saying turning the debt ceiling into a political football will be a rating cut. S&P saying Bush tax cuts should expire.

Overview

* Standard & Poor's has placed its 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on the United States of America on CreditWatch with negative implications.

* Standard & Poor's uses CreditWatch to indicate a substantial likelihood of it taking a rating action within the next 90 days, or in response to events presenting significant uncertainty to the creditworthiness of an issuer. Today's CreditWatch placement signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days. We have also placed our short-term rating on the U.S. on CreditWatch negative, reflecting our view that the current situation presents such significant uncertainty to the U.S.' creditworthiness.

* Since we revised the outlook on our 'AAA' long-term rating to negative from stable on April 18, 2011, the political debate about the U.S.' fiscal stance and the related issue of the U.S. government debt ceiling has, in our view, only become more entangled. Despite months of negotiations, the two sides remain at odds on fundamental fiscal policy issues. Consequently, we believe there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.

* As a consequence, we now believe that we could lower our ratings on the U.S. within three months.

* We may lower the long-term rating on the U.S. by one or more notches into the 'AA' category in the next three months, if we conclude that Congress

and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.

* We still believe that the risk of a payment default on U.S. government debt obligations as a result of not raising the debt ceiling is small, though increasing. However, any default on scheduled debt service payments on the U.S.' market debt, however brief, could lead us to revise the long-term and short-term ratings on the U.S. to 'SD.' Under our rating definitions, 'SD,' or selective default, refers to a situation where an issuer, the federal government in this case, has defaulted on some of its debt obligations, while remaining current on its other debt obligations.

* We may also lower the long-term rating and affirm the short-term rating if we conclude that future adjustments to the debt ceiling are likely to be the subject of political maneuvering to the extent that questions persist about Congress' and the Administration's willingness and ability to timely honor the U.S.' scheduled debt obligations.

...

Congress and the Administration are debating various fiscal consolidation proposals. At the high end, budget savings of $4 trillion phased in over 10 to

12 years proposed by the Adminstration, (separately) by Congressional leaders, as well as by the Fiscal Commission in its December 2010 report, if

accompanied by growth-enhancing reforms, could slow the deterioration of theU.S. net general government debt-to-GDP ratio, which is currently nearing 75%.

Under our baseline macroeconomic scenario, net general government debt would reach 84% of GDP by 2013. (Our baseline scenario assumes near 3% annual real

growth and a post-2012 phaseout of the December 2010 extension of the 2001 and 2003 tax cuts.) Such a percentage indicates a relatively weak government debt trajectory compared with those of the U.S.' closest 'AAA' rated peers (France, Germany, the U.K., and Canada).

We expect the debt trajectory to continue increasing in the medium term if a medium-term fiscal consolidation plan of $4 trillion is not agreed upon. If

Congress and the Administration reach an agreement of about $4 trillion, and if we to conclude that such an agreement would be enacted and maintained

throughout the decade, we could, other things unchanged, affirm the 'AAA' long-term rating and A-1+ short-term ratings on the U.S.

Standard & Poor's takes no position on the mix of spending and revenue measures that Congress and the Administration might agree on. But for any

agreement to be credible, we believe it would require support from leaders of both political parties.

Congress and the Administration might also settle for a smaller increase in the debt ceiling, or they might agree on a plan that, while avoiding a

near-term default, might not, in our view, materially improve our base case expectation for the future path of the net general government debt-to-GDP

ratio. U.S. political debate is currently more focused on the need for medium-term fiscal consolidation than it has been for a decade. Based on this,

we believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years. We view an inability to timely agree and credibly implement medium-term fiscal consolidation policy as inconsistent with a 'AAA' sovereign rating, given the expected government debt trajectory noted above.

http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DUnitedStatesofAmerica_AAAA_7_14_11.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243932109521&blobheadervalue3=UTF-8

[Mr. Big Dog 10,747]

Everyone sees it but the guys over on the right.

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Everyone sees it but the guys over on the right.

The progressive caucus is not happy about entitlements reform but the 4T price tag S&P is looking for makes it clear.. entitlement reform is going to have to happen as are tax increases.

[웃 910]

S&P saying Bush tax cuts should expire.

Why....Raising taxes will cause the federal debt to explode as shown clearly in this chart:

[mawilson 2,133]

Why....Raising taxes will cause the federal debt to explode as shown clearly in this chart

And that's why they should expire... for everyone.

[Mr. Big Dog 10,747]

The progressive caucus is not happy about entitlements reform but the 4T price tag S&P is looking for makes it clear.. entitlement reform is going to have to happen as are tax increases.

Of course there will have to be entitlement reform. We live longer and should enter the public retirement system later as a result. Social Security wasn't designed to accommodate a benefit for about a decade per person on average. For Medicare, we'll have to reform the health care delivery system much more than the program itself - an upward adjustment of the entry age notwithstanding. If the health care delivery isn't reformed, it's that system that will bring this country to it's knees long before Medicare or Social Security will do that. Health care consumes close to a fifth of our economy already and is still on a rapidly rising path. That's unsustainable.

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Of course there will have to be entitlement reform. We live longer and should enter the public retirement system later as a result.

Life expectancy gains are mostly due to lower rates of infant mortality. Of the group that turns 65, the number of years of continued life have not increased much over the last few decades.

So I frankly wouldn't be in favor of increasing the age at which people become retirement eligible per the SSA, but I would favor means testing or reducing benefits.

[mawilson 2,133]

Everyone sees it but the guys over on the right.

Obama and the guys on the left don't want to let the Bush tax cuts expire for everyone.

[웃 910]

SS is a scam that is meant for you to pay into your entire working life and then die before being able to collect (or die shortly after collecting).

Retirement age should be raised to 78 to 80...

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SS is a scam that is meant for you to pay into your entire working life and then die before being able to collect (or die shortly after collecting).

Retirement age should be raised to 78 to 80...

To rectify that, you ought to support reducing the age not increasing it

[Mr. Big Dog 10,747]

Life expectancy gains are mostly due to lower rates of infant mortality. Of the group that turns 65, the number of years of continued life have not increased much over the last few decades.

Life expectancy at age 60 was about 15 years (WM) and 16 years (WF) back in the days when Social Security was created. Today, it's 21 years (WM) and 24 years (WF) respectively. The trend is similar for other groups. So, you're looking at 6-8 years worth of an expanded lifetime not influenced by infant mortality. That's 35%-50% worth an increase which I would certainly call significant.

Edited July 15, 2011 by Mr. Big Dog

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Life expectancy at age 60 was about 15 years (WM) and 16 years (WF) back in the days when Social Security was created. Today, it's 21 years (WM) and 24 years (WF) respectively. The trend is similar for other groups. So, you're looking at 6-8 years worth of an expanded lifetime not influenced by infant mortality. That's 35%-50% worth an increase which I would certainly call significant.

I'm looking at http://www.cdc.gov/nchs/data/hus/hus10.pdf#022

and for both sexes, all races, i'm seeing a 4-5 year increase in life expectancy at 65 looking at data from 1950 to 2007. for black men it's only 2 years.

i can't support increasing the age by more than 2 years. i'd much rather see a reduction in benefits.

[Mr. Big Dog 10,747]

Obama and the guys on the left don't want to let the Bush tax cuts expire for everyone.

You don't have to do that to get to the revenues. Actually, I think rather than touching rates at all, we should be looking at tax spending. There's more than a trillion dollars annually that goes towards tax spending while there is only a few hundred billion a year in the tax rates.

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You don't have to do that to get to the revenues. Actually, I think rather than touching rates at all, we should be looking at tax spending. There's more than a trillion dollars annually that goes towards tax spending while there is only a few hundred billion a year in the tax rates.

"tax spending" is a ridiculous expression. i know the wh likes it but i'm surprised you do. let's call it what it is.. raising taxes. that's what you do when you remove deductions, you increase total tax liability, you don't reduce tax spending

[Mr. Big Dog 10,747]

I'm looking at http://www.cdc.gov/nchs/data/hus/hus10.pdf#022

and for both sexes, all races, i'm seeing a 4-5 year increase in life expectancy at 65 looking at data from 1950 to 2007. for black men it's only 2 years.

i can't support increasing the age by more than 2 years. i'd much rather see a reduction in benefits.

An increase in life expectancy at 65 from 13 to 18 years, that's almost a 40% increase. I don't see how that does not justify raising the eligibility age. And I wasn't talking about raising the eligibility age by more than 2 years. I was talking about raising it to 68 which would be a one year increase.

Edited July 15, 2011 by Mr. Big Dog