Obama Advertised US AS “Dysfunctional” And Other Reasons For Our Fall From Tripple AAA Rating

Posted on August 5, 2011


Why is President Obama Smiling

With President Obama saying more than once on TV “Americans elected a divided government; not a dysfunctional one,” he put the Presidential imprimatur on the demise of the US.  Granted there is enough blame to go around in DC tonight but the buck really stops at the leader’s desk.

Without competent leadership at the top, the chaos in Congressional activities over the debt ceiling was something that horrified the global community.  China actually led the way in downgrading the US:

China’s leading credit rating agency Wednesday downgraded U.S. sovereign debt after putting it on negative watch last month.

The Dagong Global Credit Rating Company, which lowered the United States to A+ last November after the U.S. Federal Reserve decided to continue loosening its monetary policy, announced a further downgrade to A, indicating heightened doubts over Washington’s long-term ability to repay its debts.

It said the gloomy assessment — much lower than the AAA ratings given by the so-called “big three” Western agencies Moody’s, Fitch, and Standard and Poor’s — was inevitable given the level of market concern generated by the stalemate between Democrats and Republicans over the debt ceiling.

“The squabbling between the two political parties on raising the U.S. debt ceiling reflected an irreversible trend on the United States’ declining ability to repay its debts,” Dagong Chairman Guan Jianzhong told CNN.

“The two parties acted in a very irresponsible way and their actions greatly exposed the negative impact of the U.S. political system on its economic fundamentals,” he said.

Ironically, Dagong’s move could hurt not just the United States but also China, the largest foreign owner of U.S. debt with holdings worth almost $1.2 trillion. (CNN)

But as for Standard and Poor,  all you have to do is read the S & P’s assessment on which their downgrade of the US from AAA to AA.

“The downgrade reflects our opinion that the … plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”S&P also cited dysfunctional policymaking in Washington as a factor in the downgrade. “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.”

A Treasury Department spokesman pushed back on the rating change, saying that S&P’s analysis was flawed.

A source familiar with the matter said S&P initially miscalculated the growth trajectory of the nation’s debt, and then went ahead with its downgrade anyway.

The source also said S&P didn’t give enough credit for the debt-ceiling compromise, which paved the way for more than $2 trillion in spending cuts over the next 10 years.

However, one of S&P’s explicit criticisms of the compromise was that it didn’t address the biggest drivers of the nation’s debt — Social Security and Medicare — and didn’t allow for additional tax revenue. (“What’s wrong with the debt ceiling deal?”)

John Chambers, Head of Sovereign Ratings for S&P, told CNN that though S&P didn’t have a specific target in mind, the total debt reduction package was not sufficient. Chambers also noted that the plan did not take steps in the near term to boost economic growth. (CNN)

It remains to be seen what the total fallout will be for these changes in ratings.  US corporations and other entities here are dealing in a new landscape.  We all are.  Interest rates will no doubt go up for one thing.

A new credit rating demands a new government!

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