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Debt warning rocks US economy
Yahoo ^ | 4/18/11 | Paul Handley - AFP

Posted on 04/18/2011 9:21:45 PM PDT by NormsRevenge

WASHINGTON (AFP) – Ratings agency Standard & Poor's has cut the outlook on US sovereign debt to "negative", raising doubts about Washington's ability to tackle its huge debt and fiscal deficits.

The move, the first time S&P has ever placed such a warning on the US's gold-standard AAA rating, raised the stakes as Washington's political leaders began grappling over how to address the government's yawning budget shortfall over the long term.

Administration officials said S&P "underestimates" political leaders' ability to agree a path out of the country's worst financial jam since the 1930s.

But S&P said it could not foresee any deal between Democrats and Republicans until after the November 2012 presidential and congressional elections, and that without one, the problem was only going to worsen.

"Because... the path to addressing these (problems) is not clear to us, we have revised our outlook on the long-term rating to negative from stable," S&P said.

With no action, S&P officials warned, within two years it could cut the US rating for the first time, a move which would send Washington's debt costs sharply higher.

Other countries with the coveted AAA rating and deficit challenges, like France, Germany and Britain, had all moved last year on their fiscal problems, they said, said S&P's Nikola Swann.

But "the US has yet to agree on a plan," he said .

US stocks and bonds plunged at the news, although the bond market subsequently made up the ground.

President Barack Obama's administration rebuffed the rating agency's warnings.

"We think that the political process will outperform S&P expectations," said White House spokesman Jay Carney.

...

Carney said, however, that S&P's negative outlook was a "reminder that it is important that we reach agreement on fiscal reform."

(Excerpt) Read more at news.yahoo.com ...


TOPICS: Business/Economy; Crime/Corruption; Government; Politics/Elections
KEYWORDS: debt; economy; rocks; warning
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To: NormsRevenge
A president and vice president. Both have had brain surgery. The Failed Democrat Party©
21 posted on 04/18/2011 10:29:31 PM PDT by April Lexington (Study the Constitution so you know what they are taking away!)
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To: Mariner

And likely there will be some side events as well. For example, if the dollar implodes, China will probably unpeg the yuan, creating a huge shift in trade balances and political power. Some countries will be largely unaffected (at least directly) by a dollar default, such as India, which holds very little US treasury debt, but holds large reserves of gold.


22 posted on 04/18/2011 11:01:25 PM PDT by Little Pig (Vi Veri Veniversum Vivus Vici.)
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To: Little Pig
We have nothing to worry about. Steve Liesman on CNBC said the US will not default, because all our debt is in dollars and we can print as many as we need to pay them off. How do you spell Zimbabwe?
23 posted on 04/18/2011 11:44:36 PM PDT by Oldexpat
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To: Oldexpat

“How do you spell Zimbabwe?”

G-e-i-t-h-n-e-r

alternate spelling:

B-e-r-n-a-n-k-e


24 posted on 04/19/2011 2:13:57 AM PDT by Little Pig (Vi Veri Veniversum Vivus Vici.)
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To: Little Pig

The politician’s M.O. will be to try to hide the default.

Crazy, right?

Well, just call it “restructuring”, start paying less interest than is owed, then stop paying interest, then stop paying back full principal, a little bit at a time, buried in long press releases that don’t make any sense.

“This is a great moment for our country.” :-)

This could drag on for a long time—but in the end the result will be the same.

Big trouble.


25 posted on 04/19/2011 3:05:35 AM PDT by cgbg (No bailouts for New York and California. Let them eat debt.)
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To: cgbg

And that is one of many reasons I don’t live inside the US at the moment.


26 posted on 04/19/2011 3:41:41 AM PDT by Little Pig (Vi Veri Veniversum Vivus Vici.)
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To: cherry
“when we default...what will exactly happen?”

We will see Wisconsin style demonstration in DC, as the budget gets trimmed. Then we can all go about our lives, business as usual.

27 posted on 04/19/2011 5:34:46 AM PDT by 2001convSVT (That Beck guy was right about gold, too.)
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To: NormsRevenge; RummyChick; TruthConquers; Quix; Joya; M. Espinola; investigateworld; Chunga85
Economic Woes Created By Elitists Behind The Scene

Excerpt:

* * * Like in other countries inflation is rising in Europe and it is going to get worse. Do not think for one second that a ¼% rise in official interest rates by the ECB is really going to change anything. The official EU inflation rate is 2.6%, whereas real inflation is 5.5%. In the US the official rate is 1.9% and the real rate is 8-1/2%. Realistically far higher rates are on the way for this year and next year and that means higher real interest rates. The US will see 14% real inflation this year along with England and 10% to 12% in Europe. Will the US see QE3, or an equivalent and will Europe and England do the same – probably? If they do not there will be hyperinflation. Those countries will go directly into deflationary depression.

The elitists who planned all this are quite well aware of the options. If the Fed stops buying Treasury paper the US will go into default. The same is true for Europe, but on a piecemeal basis. This is why if the Fed and the ECB are going to more quantitative easing they had best do it quickly before inflation makes it impossible to do so, Remember, all the monetary expansion done by the Fed and ECB over the past 2-1/2 years is still in the pipeline. A year and one-half from now you may not be able to sell sovereign debt.

Most analysts and economists look at all these events in a logical fashion. They say many mistakes were made, but few realize these were not mistakes. What we are seeing was deliberately created. The study of monetary and financial history shows you the way and lets you better understand what these elitists are up too. We are now entering a time frame that is going to be financially explosive. If you are not prepared you are going to be very unhappy. * * *

* * * Federal government revenues continue to shrink to less than 15% of GDP the lowest level since 1950. Thus, our opinion is that under some other name or guise quantitative easing, the creation of money and credit, known as monetization will continue as will inflation – that is very high inflation. This monetization is the lynch pin that is holding up the US and world financial system. As monetization runs amok, there is another side to the story and that is as bad assets continue to deteriorate. They would be MBS and CDOs that not long ago sold at par and now sell for anywhere from $0.15 on the dollar to $0.50, as the housing market gets set for another 20% fall and millions of foreclosures abound. Whether you realize it or not this tug of war has been going on for 11 years.

The Fed is accommodating to the tune of $2.2 trillion over just a year. Without stimulus by government that figure could be $3 trillion from just 6/11 to 6/12. Someone has to tell us how there can be an exit strategy or a tightening. It is impossible.

And Yada, Yada, Yada

28 posted on 04/19/2011 8:05:58 AM PDT by ex-Texan (Ecclesiastes 5:10 - 20)
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To: Mariner

Everything you said sounds accurate. I’m not too financially savvy, and I am baffled by the inflation/deflation debate.

I am one of those who suspect that at some point, there will be a flood of money along with a loss of confidence in money. The velocity of money is low now, the banks are hoarding their money rather than loaning it out to circulate freely.

I am very nervous that Bernanke will keep the spigot open for as many years as is necessary to induce high inflation. Yes, everything looks like deflation/deleveraging right now, but I think the govenment will win in the end and force inflation. They can keep printing forever until they get their way. There is only so much deleveraging that can occur - it is finite, while monetizing is theoretically infinite.

Since I can’t get my mind around the scale of the current deleveraging, I’m willing to accept that we deflate and go into a couple of lost decades like Japan. But I don’t believe that will happen. I believe Bernanke will keep monetizing until he gets the inflation he wants. We don’t have inflation now, but I fear it is coming some years from now. I don’t think we deflate.

But what do I know? I’m still very baffled by the argument. I do appreciate your comments on the subject.


29 posted on 04/19/2011 9:48:53 AM PDT by Freedom_Is_Not_Free (Don't confuse Obama's evil for incompetence.)
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To: cherry

“...when we default...what will exactly happen?”

That is a very good question, and you have had some answers.

One thing that I see occasionally is that there will be a new currency for the US. Some will say US dollars will only be used inside the US, and another currency will be used outside the US. This will mean that US citizens can’t use the outside money at all.

Sometimes, the thought is that a new money will be issued and used, while the dollar is devalued, maybe by half. Overnight your pay and savings will lose value.
The best overview for what happens with the last scenario, is this guy, http://ferfal.blogspot.com/ . He was in Argentina when their currency was devalued.


30 posted on 04/19/2011 11:10:00 AM PDT by TruthConquers (.Delendae sunt publicae scholae)
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To: Freedom_Is_Not_Free
"The velocity of money is low now, the banks are hoarding their money rather than loaning it out to circulate freely."

Banks aren't hoarding money. They can't find borrowers who are both willing and qualified. If they could they would loan to beat the band...it pays far more and is generally safer that the markets.

The American consumer has SHUT DOWN. Putting of car and home purchases. Paying off credit. Saving...buying only that which is essential.

Until the American consumer is back, deflation will rule. And, worse, deflation is self-reinforcing. The worse it gets the more folks put off purchases and save.

Nope, this will be a long, slow downward spiral...bubble after bubble of free-money bursting on the way down.

Debt deflation on steroids.

Now, if the Fed and DC had just left things alone in 2008 and beyond we would be at bottom scraping ourselves off and rebuilding again. Since they didn't, we'll take a lot longer to hit bottom and it will be much deeper.

31 posted on 04/19/2011 3:20:36 PM PDT by Mariner (USS Tarawa, VQ3, USS Benjamin Stoddert, NAVCAMS WestPac, 7th Fleet, Navcommsta Puget Sound)
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To: Mariner

And any attempts at false values (government work injections ), price essentials will shoot through the roof.


32 posted on 04/19/2011 3:31:43 PM PDT by Varsity Flight
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