Don Bauder 9:30 a.m., July 25
U.S. Loses AAA Rating from S&P
Standard & Poor's today (Aug. 5) downgraded the rating on United States debt from the highest AAA to AA+, and said the outlook was negative. The recently announced plan to narrow the deficit fell short of S&P's threshold. Significantly, S&P said "The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges." In short, S&P is saying that the U.S. government is not up to the financial tasks facing the nation. There was a rumor today that the White House had challenged S&P's numbers, and it had backed off. Some think that had a lot to do with market volatility today. The irony is that, in my opinion, S&P itself deserves a rating of CCC — about the lowest you can get. It and the other rating agencies gave high ratings to junk paper — a major factor in the financial crisis of 2007-2009 that appears to be rearing its ugly head again. U.S. Treasury paper is considered a safe haven. It's difficult to say how the market will react to this downgrade.