Reuters Analysis: If U.S. debt is downgraded, will anyone care?

Reuters ^ | August 2, 2011 | By Ellen Freilich

[Oldeconomybuyer]

The United States could lose its triple-A credit rating from at least one rating agency this year, raising the question: Who cares?

Strange as it may sound, a downgrade could resound in financial markets more with a whimper than a bang.

Historical experience suggests a downgrade would produce none of the bond-market angst some fear. Japan lost AAA status more that a decade ago and it has some of the lowest interest rates in the developed world.

As it was with Japan, the big issue for markets is the weak U.S. economy, which could slow further due to the spending cuts in the deficit-cutting deal.

This fiscal restraint could curb spending, job growth and inflation -- the biggest drivers of bond yields.

Also, investors see the United States in a much different situation than crisis countries such as Greece. Awash in debt though it is, the United States is still able to pay its bills while Treasury bonds remain liquid and in demand.

But a well-telegraphed U.S. debt ratings downgrade pales in significance with evidence of flagging economic growth, including Monday's report showing U.S. manufacturing grew at its slowest pace in two years in July.

Consequently, a U.S. debt ratings downgrade would not cause yields to skyrocket, limiting the so-called knock-on effects on other interest rates, such as those on mortgages.

[Oldeconomybuyer]

[edpc]

The United States could lose its triple-A credit rating from at least one rating agency this year, raising the question: Who cares?

Would this question be in the headline or first sentence if the President's name had (R) behind it....? Somehow, I doubt it.

[Principled]

Next time, when we have to raise the debt ceiling [Jan 2013], we will have made ourselves legally able to borrow more but not as many will buy - THAT’S what will make rates shoot up.

[Arm_Bears]

Interesting—Now that the debt debacle is set to pass, a downgrade in our AAA rating is no longer a big deal.

Surprised I didn’t see that one coming :P

[_a_0_0_]

No. It only matters when those running the place have accountability.

[yldstrk]

In the short term no, in the long term, it is not good. At this point, the US is still the most reliable trading partner, military force, freedom protector, manufacturer, educator, etc.

Who would you rather have? Russia? China? India?

[dynachrome]

“economy, which could slow further due to the spending cuts”

What spending cuts?

[optiguy]

Now that the manufactured crisis produced the desired results, we’ll hear more of this. The question should be, “Does it matter if we don’t have a AAA president?” Yes, it does.

[Principled]

“economy, which could slow further due to the spending cuts”
What spending cuts?

The ignorance is breathtaking, isn't it?

Never was gonna be a default.
Never was gonna be any cuts.

I'm on my critter about baseline budgeting. It has to stop.

[greeneyes]

Apparently no one cares, because Egan-Jones already downgraded USA credit rating to AA+ weekend before last, and LSM did not bother to report it.

This is a small rating agency that turned bearish before the 2008 meltdown. Not even being talked about.

Now about that inflation: Among the causes are government spending and the printing of money, not phantom cuts in government spending.

[Cringing Negativism Network]

An equally important question:

Does anyone read al-Reuters?

[greeneyes]

The plan is for the IMF to issue SDR’s as the world's reserve currency. You know, the IMF becomes kinda like an International Federal Reserve.

Then the USA can no longer print its way out of debt. Truly will be trapped like Greece.

[yldstrk]

What on earth is an SDR?

[dfwgator]

The longer the inevitable is put off, the worse it will be when it inevitably happens. Like the old Fram Oil Filter commercial said, “You can pay me now, or you can pay me later.”

[Eagle of Liberty]

Strange as it may sound, a downgrade could resound in financial markets more with a whimper than a bang.

FUNNY how a story like this is written by Rooters AFTER the "deal" has been made!!!

Let's get the country in a panic over another CRISIS, but ah well, looking back, well, no, we weren't REALLY going to default, and well, no, the downgrade isn't really anything to look at either, so move along and wait for us to announce the next CRISIS that we can use to take away more of America from you poor saps.

[Eagle of Liberty]

the weak U.S. economy, which could slow further due to the spending cuts in the deficit-cutting deal.

HUH??!! The spending cuts are going to slow us down further? We have DOUBLED our debt in three years!!! And we still have THE SAME unemployment rate, pathetic growth, horrible consumer confidence, slow to negative new housing construction, etc.

Why is up always down in BizzaroWorld?!

[ken21]

you betcha!

yhe price of everything goes up.

[Buckeye McFrog]

translation: if they downgrade us to a C-minus, Europe will still be a DDD and the rest of the world pretty much an F, so what does it matter?

[Eagle of Liberty]

Does anyone read al-Reuters?

Yes, many idiots read, and more important, BELIEVE what is written in Reuters.....

[LibLieSlayer]

WE TEA PARTY HOBBIT TERRORISTS WILL CARE.

LLS