S.&P. Downgrades U.S. Long-Term Debt “from AAA to AA+, with a negative outlook.”

S.&P. Downgrades U.S. Long-Term Debt – NYTimes.com.

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One Response to “S.&P. Downgrades U.S. Long-Term Debt “from AAA to AA+, with a negative outlook.””
  1. Cristy Dwyer says:

    In reaction to Standard Poor’s downgrade of the U.S. credit rating from “AAA to AA+ with a negative outlook,” Paul Krugman’s New York Time’s “Conscience of a Liberal” blog post was swift and succinct. Krugman’s observations (pasted below) provide us with some behind the scenes details of what will arguably become the latest burdens and barriers for the average American forced to navigate an unending tsunami of bad economic indicators.

    Whether or not the downgrade was warranted and why the Administration didn’t get in front of this red flag before it became another missed opportunity will, for now, remain unanswered questions. More importantly, as the country’s credit rating declines, can an increase in personal credit card and home mortgage interest rates be very far behind? How will this affect the 13.9 million Americans who are looking for work? And how will the 2 million long-term unemployeds over 50 cope with yet another seemingly insurmountable cost of living increase? – Cristy Dywer 8/5/11 10:12pm

    ###

    PAUL KRUGMAN
    New York Times “Conscience of a Liberal” Blog Post
    August 5, 2011, 9:19 PM

    S&P and the USA
    “OK, so Standard and Poors has gone ahead with the threatened downgrade. It’s a strange situation.

    On one hand, there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency.

    On the other hand, it’s hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?

    Just to make it perfect, it turns out that S&P got the math wrong by $2 trillion, and after much discussion conceded the point — then went ahead with the downgrade.

    More than that, everything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term. What matters is the longer-term prospect, which in turn mainly depends on health care costs.

    So what was S&P even talking about? Presumably they had some theory that restraint now is an indicator of the future — but there’s no good reason to believe that theory, and for sure S&P has no authority to make that kind of vague political judgment.

    In short, S&P is just making stuff up — and after the mortgage debacle, they really don’t have that right.

    So this is an outrage — not because America is A-OK, but because these people are in no position to pass judgment.”

    http://krugman.blogs.nytimes.com/2011/08/05/sp-and-the-usa/?smid=tw-NytimesKrugman&seid=auto

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