US Debt
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ohdaddy:
i think S&P is being too kind to US....the country USA is technically bankrupt many times over...the only thing still going for it is that it has many nuclear weapons and they can continue to print the dollars and China got no choice but to accept itSo we know where US stands with AA+, its peers are, among others:
Kuwait
Qatar
Saudi Arabia
http://www.standardandpoors.com/ratings/sovereigns/ratings-list/en/us/?subSectorCode=39 -
For those with keen interest, here is the full text… To help understand S&P point of view.
Aug. 5, 2011, 9:20 p.m. EDT
Text of S&P downgrade of U.S. rating
WASHINGTON (MarketWatch) — The following is the text of Standard & Poor’s downgrade of the United States.
“TORONTO (Standard & Poor’s) Aug. 5, 2011–Standard & Poor’s Ratings Services said today that it lowered its long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’. Standard & Poor’s also said that the outlook on the long-term rating is negative. At the same time, Standard & Poor’s affirmed its ‘A-1+’ short-term rating on the U.S. In addition, Standard & Poor’s removed both ratings from CreditWatch, where they were placed on July 14, 2011, with negative implications.
The transfer and convertibility (T&C) assessment of the U.S.–our assessment of the likelihood of official interference in the ability of U.S.-based public- and private-sector issuers to secure foreign exchange for debt service–remains ‘AAA’.
We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.
Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see “Sovereign Government Rating Methodology and Assumptions,” June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government’s other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.
We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government’s debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years.
The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.
Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a ‘AAA’ rating and with ‘AAA’ rated sovereign peers (see Sovereign Government Rating Methodology and Assumptions,” June 30, 2011, especially Paragraphs 36-41). In our view, the difficulty in framing a consensus on fiscal policy weakens the government’s ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher, the needed medium-term fiscal adjustment potentially greater, and the inflection point on the U.S. population’s demographics and other age-related spending drivers closer at hand (see “Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even More Green, Now,” June 21, 2011).
Standard & Poor’s takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.’s finances on a sustainable footing.
The act calls for as much as $2.4 trillion of reductions in expenditure growth over the 10 years through 2021. These cuts will be implemented in two steps: the $917 billion agreed to initially, followed by an additional $1.5 trillion that the newly formed Congressional Joint Select Committee on Deficit Reduction is supposed to recommend by November 2011. The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them.
The act further provides that if Congress does not enact the committee’s recommendations, cuts of $1.2 trillion will be implemented over the same time period. The reductions would mainly affect outlays for civilian discretionary spending, defense, and Medicare. We understand that this fall-back mechanism is designed to encourage Congress to embrace a more balanced mix of expenditure savings, as the committee might recommend.
We note that in a letter to Congress on Aug. 1, 2011, the Congressional Budget Office (CBO) estimated total budgetary savings under the act to be at least $2.1 trillion over the next 10 years relative to its baseline assumptions. In updating our own fiscal projections, with certain modifications outlined below, we have relied on the CBO’s latest “Alternate Fiscal Scenario” of June 2011, updated to include the CBO assumptions contained in its Aug. 1 letter to Congress. In general, the CBO’s “Alternate Fiscal Scenario” assumes a continuation of recent Congressional action overriding existing law.
We view the act’s measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future. Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow. Under our revised base case fiscal scenario–which we consider to be consistent with a ‘AA+’ long-term rating and a negative outlook–we now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is high in relation to those of peer credits and, as noted, would continue to rise under the act’s revised policy settings.
Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.
Our revised upside scenario–which, other things being equal, we view as consistent with the outlook on the ‘AA+’ long-term rating being revised to stable–retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.
Our revised downside scenario–which, other things being equal, we view as being consistent with a possible further downgrade to a ‘AA’ long-term rating–features less-favorable macroeconomic assumptions, as outlined below and also assumes that the second round of spending cuts (at least $1.2 trillion) that the act calls for does not occur. This scenario also assumes somewhat higher nominal interest rates for U.S. Treasuries. We still believe that the role of the U.S. dollar as the key reserve currency confers a government funding advantage, one that could change only slowly over time, and that Fed policy might lean toward continued loose monetary policy at a time of fiscal tightening. Nonetheless, it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021.
Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. From our perspective, the effect of these revisions underscores two related points when evaluating the likely debt trajectory of the U.S. government. First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher. Second, the revised data highlight the sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions. We believe the sluggish pace of the current economic recovery could be consistent with the experiences of countries that have had financial crises in which the slow process of debt deleveraging in the private sector leads to a persistent drag on demand. As a result, our downside case scenario assumes relatively modest real trend GDP growth of 2.5% and inflation of near 1.5% annually going forward.
When comparing the U.S. to sovereigns with ‘AAA’ long-term ratings that we view as relevant peers–Canada, France, Germany, and the U.K.–we also observe, based on our base case scenarios for each, that the trajectory of the U.S.’s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.
Standard & Poor’s transfer T&C assessment of the U.S. remains ‘AAA’. Our T&C assessment reflects our view of the likelihood of the sovereign restricting other public and private issuers’ access to foreign exchange needed to meet debt service. Although in our view the credit standing of the U.S. government has deteriorated modestly, we see little indication that official interference of this kind is entering onto the policy agenda of either Congress or the Administration. Consequently, we continue to view this risk as being highly remote.
The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction–independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners–lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government’s debt dynamics, the long-term rating could stabilize at ‘AA+’.
On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors.” -
in the 1997/98 asian financial crises, many sovereign countries had to take bitter pills and unpleasant restrictions from IMF for a life line.
as for the US, they can just walk away and continue to print useless papers that say "In God We Trust"…all others pay cash…
the US debt situation is unsustainable, and sooner or later the balloon will burst, willingly or otherwise -
I think they have designed it such that many others will burst before theirs, and more will burst with them.
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ohdaddy:
So we know where US stands with AA+, its peers are, among others:
Kuwait
Qatar
Saudi Arabia
http://www.standardandpoors.com/ratings/sovereigns/ratings-list/en/us/?subSectorCode=39
My daughter asked: Daddy, did the USA change batteries from AAA to AA? :rotflmao: -
verykiasu2010:
They can afford to print money to this extend while the asian countries can't because US$ is the reserve currency.in the 1997/98 asian financial crises, many sovereign countries had to take bitter pills and unpleasant restrictions from IMF for a life line.
as for the US, they can just walk away and continue to print useless papers that say \"In God We Trust\"......all others pay cash..
the US debt situation is unsustainable, and sooner or later the balloon will burst, willingly or otherwise -
WeiHan:
We WILL be overwhelmed by INFLATION...
They can afford to print money to this extend while the asian countries can't because US$ is the reserve currency.verykiasu2010:
in the 1997/98 asian financial crises, many sovereign countries had to take bitter pills and unpleasant restrictions from IMF for a life line.
as for the US, they can just walk away and continue to print useless papers that say \"In God We Trust\"......all others pay cash..
the US debt situation is unsustainable, and sooner or later the balloon will burst, willingly or otherwise -
to me, it is also another conspiracy theory
since US is in such bad shape $$wise, and their dollar is going to be cheaper and cheaper, and the only thing they could do is make others cheap / lose money as well by having another stock market melt down, like what has happened last Friday and today ...... so on the surface Obama is not happy with S&P downgrade, but behind the scene, Obama could be thanking S&P big time and invited S&P fellas to dinner at White House tonite :evil: :evil: -
Warren Buffett says \"tax me and my rich friends\"
WASHINGTON : Billionaire investor Warren Buffett urged US lawmakers Monday to raise taxes on wealthier Americans to cut Washington's huge budget deficit, saying the move would not dampen investments or jobs.
In a New York Times opinion article, the chief executive of Berkshire Hathaway proposed a tax increase on Americans who make at least $1 million per year and an additional increase on those making $10 million or more.
\"Our leaders have asked for 'shared sacrifice.' But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched,\" Buffett wrote.
\"While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.\"
The man known as the \"Oracle of Omaha\" said his federal tax rate was 17.4 percent last year, while some investment managers were taxed just 15 percent on income reaching into the billions. He then noted that the middle class is taxed up to 25 percent in its income bracket, along with \"heavy\" payroll taxes.
In contrast, Buffett recalled \"far higher\" taxes rates for the rich in the 1980s and 1990s, and yet nearly 40 million jobs were added from 1980 to 2000.
\"You know what's happened since then: lower tax rates and far lower job creation,\" he said.
\"People invest to make money, and potential taxes have never scared them off.\"
Americans are losing faith with Congress's ability to tackle the country's financial woes, Buffett warned, calling for \"immediate, real and very substantial\" action.
A protracted partisan battle between lawmakers culminated in a last-minute deal on August 2 to raise the $14.3 trillion US debt ceiling and narrowly avoid a US default.
\"My friends and I have been coddled long enough by a billionaire-friendly Congress,\" he added. \"It's time for our government to get serious about shared sacrifice.\"
- AFP/al
http://www.channelnewsasia.com/stories/afp_world_business/view/1147171/1/.html -
tankee:
Fabulous! Gives you the real measure of the man.Warren Buffett says \"tax me and my rich friends\"
\"My friends and I have been coddled long enough by a billionaire-friendly Congress,\" he added. \"It's time for our government to get serious about shared sacrifice.\"
- AFP/al
http://www.channelnewsasia.com/stories/afp_world_business/view/1147171/1/.html
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