credit downgrade

[josh7328]

What is the significance of this new credit rating downgrade and stock market fall?

[UberTong]

The start of a new age. Lock and load.

[ShooterJM]

Generally it increases the borrowing costs of the entity that's been downgraded. That actually hasn't happened yet because bond rates are also viewed through a sort of relative strength prism. Because of the debt crisis in europe there is still a very high demand for US bonds thereby keeping the price and interest rates down.

Now that the US has been downgraded you'll see a waterfall of downgrades started with GSA's, States, Muni's, etc.

[Ronin13]

I just read that now that the downgrade has happened it'll open doors for Obama to raise taxes... truth to this?

[UberTong]

That would be nynco's dream if he did raise taxes Ronin. But according to Obama, it just don't matter what S&P says...

http://www.msnbc.msn.com/id/44059948.../#.TkBQfFt6B5Z

[ShooterJM]

Well, given that the downgrade was driven by the overall debt situtation, it could. It definately highlights that the debt situtation needs to be addressed either by real spending cuts or additional revenues.

I'm guessing the pub's will spin this as their plan didn't go far enough and the dems will spin this as "see I told you we needed revenue". I'd expect a lot more grandstanding, but little action until the US markets start looking worse then the European markets.

[Ronin13]

Just saw this:
http://www.facebook.com/l.php?u=http...R_H_nGudeVxHBg

[mutt]

The start of a new age. Lock and load.

Really? A downgrade hardly represents a collapse of American society. China is rated AA-, Japan is AA-, Russia is BBB+. I don't see those countries embroiled in chaos and economic collapse and they're ranked less than our now tarnished AA+ score. This is more of a rating on our political gridlock than our economic issues. And Standard and Poors were the ones giving AAA ratings to all those mortgage backed securities that turned out to be worthless and started this death spiral. Take what they have to say with a huge grain of salt.

I'm guessing the pub's will spin this as their plan didn't go far enough and the dems will spin this as "see I told you we needed revenue". I'd expect a lot more grandstanding, but little action until the US markets start looking worse then the European markets.

And this is exactly why we were downgraded. If our polarised political system can't reach a simple compromise on something a mundane as a 'debt ceiling', then it can't be expected to compromise on solutions to real problems. This has people nervous. Investors who buy sovereign debt don't like unpredictable and ineffectual political systems.

[ShooterJM]

Tomorrow will be interesting. Let's see if the Spanish and Itallian 5 years can stay under 5%....

[mutt]

Tomorrow will be interesting. Let's see if the Spanish and Itallian 5 years can stay under 5%....

Italy is the next great sucking sound you're going to hear from the EU. I believe they're the 3rd largest bond market in the world? If they go the way of Greece, I don't think the EU has the funds or the political will to bail them out.