Several credit rating agencies around the world have downgraded their credit ratings from the US federal government, including Standard & amp; Poor's (S & P) which reduced the state rating from AAA (outstanding) to AA (excellent) on August 5, 2011.
Video United States federal government credit-rating downgrades
2011
S & amp; P 2011 is the first time the government is ranked under AAA. S & amp; P has announced a negative view about the AAA rankings in April 2011. A rating downgrade to AA came four days after the US Congress 112 voted to raise the federal government's debt ceiling through the Budget Control Act of 2011 on August 2, 2011. Later, the US Government began an investigation into S & P's role in the ratings of mortgage-backed securities that played a role in the 2008 financial crisis. To improve its relationship with the US government, S & P asked his CEO to withdraw, just 18 days after the US downgraded. S & amp; P announced on August 23, 2011 that Deven Sharma will resign as Head of Standards & amp; Poorly effective September 12, 2011, and will leave the company at the end of the year.
The downgrade was criticized by the US Treasury, both Democratic and Republican political figures, and many businessmen and economists.
Both Fitch Ratings and Moody's, designated as S & P; P as a nationally recognized statistical rating organization (NRSRO) by the US Securities and Exchange Commission (SEC), maintains a triple-A U.S. rating. Moody's, however, turned its view to negative on June 2, 2011 and Fitch turned his view to negative on November 28, 2011.
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Credit ratings are issued by credit rating agencies (CRAs). The credit rating set for US sovereign debt is an expression of how likely CRA determination assumes that the US will repay its debt. The credit ratings set for US debt also affect interest rates that the US pays for its debts; If the debtholders know that the debt will be refunded, they should not set a possible default price into the interest rate. However, it should be noted that these ratings sometimes measure different things; for example, Moody's considers the expected value of debt if there is a default in addition to the possibility of default. Some lenders also have contractual terms only to hold debt above a certain credit rating.
The US government enjoys the highest credit rating ("AAA"/"Aaa") of the two Big Three CRAs. The US enjoys the triple-A triple-A triple-grade "gold standard" of the three institutions (Fitch, Moody's and S & amp; P) since their recognition as a standard by the SEC to the S & P at the beginning of August 2011.
Government agencies such as the Government Accountability Office, the Congressional Budget Office, the Office of Management and Budget, and the US Treasury Department all report that the federal government faces a series of important financial challenges. In the short term, tax revenues have declined significantly due to the severe recession and choice of tax policies, while expenditures have been extended to wars, unemployment insurance and other safety net expenditures. In the long run, expenditures associated with health care programs such as Medicare and Medicaid grow much faster than the overall economy as population grows.
Warning about downgrade
On April 18, 2011, a US-based rating agency S & amp; P issued a "negative" view of the US "AAA" debt rating (highest quality) for the first time since rating agency started in 1860, indicating there was a one-in-three direct rating reduction opportunity over the next two years. S & P is considered a government budget deficit of more than 11 percent of gross domestic product (GDP), and net government debt rose to about 80 percent or more of GDP by 2013, becoming relatively high compared to other "AAA" countries. According to S & amp; P, meaningful progress to balance the budget will be needed to move the US back to a "stable" prospect. S & amp; P stated: "We believe there is an important risk that US policymakers may not reach an agreement on how to overcome medium and long-term budget challenges in 2013, if an agreement is not reached and meaningful implementation does not start at the moment, it will, in our view, making the US fiscal profile much weaker than its 'AAA' ruling counterpart. "
In June, Moody's followed suit, warning that if Congress did not immediately raise the debt ceiling above $ 14.3 trillion, the agency might reduce its debt rating. Moody's also commented on the political process, warning that high polarization on both sides increases the risk of default. On July 14, 2011, S & amp; P publishes a research update that puts US debt on CreditWatch 90 days.
On July 16, 2011, Egan-Jones Rating Company, a smaller CRA, cut its rating from AAA to AA, the first NRSRO to do so.
Reason S & amp; P for downgrade
On August 5, 2011, representatives of S & amp; P announced the company's decision to grant its first downgrade to US debt, downgrading one level to "AA", with a negative outlook.
Governance and policy-making stability
S & P directly criticized the governance and policy-making process, which brought the US into a default gap as part of the US debt crisis of US ceilings in the same week:
- "Broadly speaking, downgrades reflect our view that the effectiveness, stability, and predictability of American policies and political institutions have weakened as the ongoing fiscal and economic challenges to a higher level than we imagine when we are assigning a negative view of the ratings on April 18, 2011. Since then, we have changed our view of the difficulty in bridging the gap between political parties over fiscal policy, which leaves us pessimistic about the capacity of Congress and the Administration to be able to increase their approval this week into a broader fiscal consolidation plan that stabilizes the dynamics of government debt in the near future. "
- "Political battles in recent months have highlighted what we see as an American government and policy-making become less stable, less effective, and less predictable than what we believe in. The debt limit of the law and the threat of default has become political bargaining in the debate on fiscal policy.Although this year's debate is vast, in our view, the differences between political parties have proved extremely difficult to bridge, and, as we have seen, the resulting deal falls far short of comprehensive fiscal consolidation. programs that some supporters have imagined until recently, Republicans and Democrats were only able to agree on a relatively modest savings on discretionary spending while delegating to the decision of the Selected Committee on more comprehensive measures.It seems that for now, new income has come down from the policy options menu.S In addition, the plan only envisages minor policy changes in Medicare and little change in other rights, the detention that we and most other independent observers consider to be a key to long-term fiscal sustainability. "
Revenue
S & P revised the earnings assumptions that underlie one of their projected levels of debt in the future:
- "Compared to previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire at the end of 2012, remain in place." We have changed our assumptions about this because the Republican majority in Congress continue to reject any action that will increase revenue, a position we believe Congress is strengthened by passing legislation. "
Improving your rating
The report specifically refuses to take a position on the combination of policy options necessary to improve or maintain a credit rating:
- "Standard & Poor's does not take a position on the mix of expenditures and earnings measurements that Congress and Administration may conclude is appropriate to put US finance on a sustainable footing.
Criticism
Both Democratic and Republican politicians criticized S & P's decision; as well as placing mistakes with other parties. Few blame themselves even though there is a partitional congressional responsibility to pass the budget deficit from 2002 and a significant deficit for the 2012-2021 period in President Barack Obama's 2012 federal budget.
From the Obama administration
Almost immediately after S & amp; P announced the downgrade, first reported after 8 pm. on Friday night, Obama administration officials began to criticize S & amp; P openly.
Of Republican political figures
The Republican strategy blamed the Democrats for the decision of the rating agencies, and many Republican presidential candidates blamed Obama's actions:
- Tim Pawlenty: Pawlenty blames Obama, calling him "incompetent when it comes to creating conditions or job creation and economic growth". He asked for new directions and the president.
- Jon Huntsman: Huntsman blames "out-of-control spending and lack of leadership in Washington" noting that the country needs "a new leadership in Washington committed to fiscal responsibility, balanced budgets, and work-friendly policies."/li>
- Mitt Romney: Romney blames Obama's failed "leadership on the economy". He noted that "the only way to get better is with the new leadership in the White House."
- Rep. Michele Bachmann: Bachmann notes that Obama "has destroyed the credit rating of the United States through failed economic policies and its inability to control government spending by raising the debt ceiling". He asked Obama to seek the resignation of US Treasury Secretary Timothy Geithner and "to submit plans with a list of cuts to balance this year's budget, change our economy and put Americans back to work."
From Democratic political figures
Democratic politicians place blame for a downgrade on Republicans or Republican elements.
- Senator John Kerry calls this a "Tea Party downgrade," blaming the severity of the Republic about revenue and ignoring the consequences of default.
From the commentator
In addition to criticism of the Obama administration, some liberal commentators, among them billionaire Warren Buffett and Nobel Peace Memorial laureate Paul Krugman, also criticized the downgrade. Michael Moore demanded that Obama "show courage" and have a Standard & amp; Those arrested.
According to Mike Allen Politico Playbook , "As a result of a mistake in building the discretionary spending rate underlying the analysis, the deficit is $ 2 trillion higher for 10 years than would be expected by the Congressional Budget Office.a difference with the S & P, who admitted mistakes. "
Commentators point out that the decline could lead to an increase in interest rates needed to finance US debt, potentially raising interest costs.
An August 7, 2011, editorial by Bloomberg mentioned that some other countries downplayed the downgrade.
Market consequence
Global stock markets declined on August 8, 2011, after the announcement. The three major US stock indices fell between five and seven percent in a single day. However, US treasury bonds, which have been the subject of a downgrade, actually rose in price and the dollar strengthened against the Euro and British pound, showing a general flight to safe assets amid concerns about Europe's debt crisis.
However, based on historical information from Bloomberg, the cost to guarantee US debt against default has increased from an average of 25 basis points in 2007 to a range of 55 to 75 basis points in 2011. Higher insurance costs are usually associated with an increase default risk.
Maps United States federal government credit-rating downgrades
2012
While none of the Big Three are taking downgrade action in 2012, Egan-Jones lowered the ratings two more times. After an initial downgrade on July 16, 2011 from AAA to AA, Egan-Jones cut its ratings for the second time on April 5, 2012 from AA to AA "due to a lack of real progress in addressing problems and sustained increases in debt to GDP." On 14 September 2012, Egan-Jones cuts its ranking for the third time from AA to AA-, the lowest of what is considered "high quality", in reaction to QE3.
2013
On October 15, 2013, Fitch credit agencies warned that they might cut US credit ratings, citing political turmoil over an increase in the federal debt ceiling.
On October 17, 2013, the Dagong Global Credit Rating downgraded the United States from A to A-, and maintained a negative outlook on state credit.
2014
Fitch Ratings on March 21, 2014 raised its outlook for the US AAA credit rating, removing the country from a downgrade watch after politicians delayed debt-fighting borders until next year. The company, one of the top three credit rating companies, turned the rating outlook steady from the negative watches that came into effect in October.
Potential consequences for credit rating agencies
Two weeks after August, downgrade S & amp; P 2011, the SEC and the Justice Department announced that the S & P was under investigation. Columnist Bob Sullivan of NBC News asked whether "ratings derived from Standard & Poor's [can] be seen as a backlash to governments that have taken a lot of shots in the ratings industry lately." And two years later in 2013, S & amp; P "condemned a $ 5 billion fraud action by the US government in retaliation for 2011's decision to remove the country from its AAA credit rating."
Two weeks after the second downgrade by Egan-Jones in April 2012 to AA, the SEC chose to take administrative action against the company in connection with its many years of activity. Mr Egan said at the time, "We will not be intimidated by anyone from issuing timely, accurate ratings." After Egan-Jones agreed to a settlement in 2013, SEC director Robert Khuzami said in a press release, "EJR and Egan misinterpreted the issuers' actual experience ratings of supported assets and government securities is a serious breach that undermines the integrity of the NRSRO registration process [Information Organization National Statistics] SEC. "In response, Fox Business Network editor raised the question of" government retaliation "and Egan-Jones spokesman issued a non-apology apology stating that" the SEC solution allows us to focus on what we do best - generate the most accurate and independent ranking in business. "
See also
- The debt crisis of the United States 2011 debt
- The US debt crisis of 2013
- United States national debt
References
External links
- S & amp; P Official
- Research Update: United States AAA/A-1 Rating Affirmed; Revised Outlook Be Negative, April 18, 2011
- Fiscal Challenges Weighing Sovereign 'AAA' Credit Ranking In the United States Government, April 18, 2011
- Credit FAQ: A Closer Look At Outlook Revisions At US Government Rankings, April 18, 2011
- Criteria | Government | Sovereigns: Government Country's Rating Methodology And Assumptions, June 30, 2011
- Research Update: AAA/A-1 Rankings United States of America 'Placed on Negative CreditWatch Against Increased Risk of Policy Deadlock, 14 July 2011
- Special Report: US Negative Credit Placement Placement And The Effect of Beats, July 18, 2011
- Implication Suspicion of US Debt Ceiling for Global Financial Institutions, July 21, 2011
- US Debt Release Can Spell Worldwide - With Or Without Agreement, July 22, 2011
- Research Update: The United States Long Term Rankings Are Being 'AA' At Political Risk And Increased Debt Burden; Negative Outlook August 5, 2011
- "Press Release: Standard & Poor Clarification Assumptions Used in Discretionary Spending Growth", August 6, 2011
- Rank In Select GREs And FDIC- And Debt Secured NCUA Declines After State Logging, August 8, 2011
- Ranking in US Central Custodian and Three Clearing Decreases After US State Logging, August 8, 2011
- Video S & amp; P Official
- "Standard & amp; Lower US Country Credit Ratio To 'AA' Concerning Debt And Budget Worries; Negative Outlook". August 7, 2011, video with David T. Beers, Standard & amp; Poor Global Head of Sovereign Ranking, and John B. Chambers, Chair of the Sovereign Ranking Committee
Source of the article : Wikipedia
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