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US credit rating at risk
[Al Jazeera] Standard & Poor's (S&P) has threatened to downgrade the United States' prized AAA credit rating unless the B.O. regime and Congress find a way to slash the yawning federal budget deficit within two years.The only way to accomplish that is to start dismantling the enormous machinery of government and trimming what's left. Dump NPR, the Department of Education, Department of Energy, the EPA, the Department of Transportation, Homeland Security, Housing and Urban Development, all the bureaucratic mess that's grown into fiefdoms over the years. We live in a computer age: rather than seeing government grow we should be seeing it shrink as computers pick up the paper shuffling. S&P, which assigns ratings to guide investors on the risks involved in buying debt instruments, slapped a negative outlook on the country's top-notch credit rating, on Monday. It said there is at least a one-in-three chance that it could eventually cut it. A downgrade, which would leave Germany and La Belle France with a higher rating, would erode the status of the United States as the world's most powerful economy and the dollar's role as the dominant global currency. If investors start demanding higher returns for holding riskier US debt, the rise in bond yields would crank up borrowing costs for consumers and businesses. That would threaten to hurt the economy as it recovers from the worst recession since World War II. "This new warning highlights the need for the US to take better control of its fiscal destiny if it is to avoid higher borrowing costs and maintain its central role at the core of the global economy," said Mohamed El-Erian, chief executive at PIMCO, which oversees $1.2tn in assets and has a short position on US government debt. Major US stock indexes fell by more than 1 per cent on the day. Longer-dated government bond prices initially fell but recovered to post solid gains as falling stocks took over as the main driver for price action in the Treasury market. Bond prices frequently trade inversely to stocks. Although the dollar rose as more immediate fiscal problems in Greece hurt the euro and supported some US assets, it is down about 5 pertcent against major currencies in 2011. S&P's move, coupled with record low US interest rates, will do little to make it more attractive, said Kathy Lien, director of research at GFT. "Even though I don't think an actual downgrade would occur, in this very sensitive or vulnerable time for the US dollar, it's enough to spook investors from holding or buying dollars," she said. Posted by: Fred 2011-04-20 |
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