Forbes Writes: Shutdown And Debt Ceiling Debate Prove U.S. Not Worthy Of AAA Credit Rating: S&P

 

With the U.S. government on the verge of a shutdown, credit rating agency Standard & Poor’s made it clear this level of brinksmanship in Washington is precisely why the U.S. isn’t triple-A rated anymore.  While S&P’s ratings services team indicated they don’t expect to downgrade the U.S.’ sovereign credit rating this time around, they warned that failing to reach an agreement by mid-October would most probably lead to the Treasury missing debt payments, and therefore the first-ever U.S. debt default.

 “The current impasse over the continuing resolution and the debt ceiling creates an atmosphere of uncertainty that could affect confidence, investment, and hiring in the U.S.,” explained S&P’s research team, indicating it expects a short-lived shutdown that won’t result in a new downgrade.  “This sort of political brinkmanship is the dominant reason the rating is no longer ‘AAA,’” they added.

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This is almost identical to the point I have argued in my blog post yesterday.  It took me a while but I finally came to a realization that most US Politicians are basically morons who do not understand the financial issues (or perhaps most issues) at hand.

It is not so much the shutdown of the Government or any perceived default that matter. As I have mentioned before, the US will not default.  It is an issue of confidence.  Standards & Poor’s is absolutely correct in that sense.  It is not about downgrading US Debt further, but shaking the confidence of foreign debt holders (US owes close to $17 Trillion).

Will this be the catalyst for the US Economy and the financial markets to start going down? Perhaps.  As of right now we do not yet have a confirmation that a bear market has resumed.  As far as I am concerned the damage has already been done. Now it is a simple matter of timing.

The outcome is clear. Higher interest rates, significant economic slowdown and much lower financial markets. Thanks a lot Washington.

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