Pronk Pops Show 24: April 19, 2011, Segment 0: S&P Rating Outlook Changed From “Stable” To “Negative” For U.S. Treasury Debt–Videos, Segment 1: Who is John Galt? Who is Ayn Rand–Videos

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Segment 0: S&P Rating Outlook Changed From “Stable” To “Negative” For U.S. Treasury Debt–Videos

U.S. Debt Clock

http://www.usdebtclock.org/

U.S. Debt Rating Drops to “Negative”

Why Did S&P Issue Warning on US Bond Rating?

Stocks Tumble after US Outlook Downgraded; Ron Paul Discusses

S&P Lowers U.S. Debt Outlook To “Negative”

S&P Downgrades U.S. Debt Rating to “Negative”

Fink Calls S&P U.S. Outlook Cut a `Warning’ to Lawmakers

Taxation is Theft

MacGuineas Says U.S. Should Take S&P Action Seriously

Eizenstat Says S&P Action a `Political Warning’ for U.S.

Standard and Poor’s

“….Credit Ratings Definitions & FAQs

Credit ratings are forward-looking opinions about credit risk. Standard & Poor’s credit ratings express the agency’s opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time.

Credit ratings can also speak to the credit quality of an individual debt issue, such as a corporate note, a municipal bond or a mortgage-backed security, and the relative likelihood that the issue may default.

Ratings are provided by organizations such as Standard & Poor’s, commonly called credit rating agencies, which specialize in evaluating credit risk.

Each agency applies its own methodology in measuring creditworthiness and uses a specific rating scale to publish its ratings opinions. Typically, ratings are expressed as letter grades that range, for example, from ‘AAA’ to ‘D’ to communicate the agency’s opinion of relative level of credit risk.

For more information view the detailed Ratings Definitions

What do the letter ratings mean?

Are Credit Ratings indicators of investment merit?

Why do Credit Ratings change?

Are Credit Ratings absolute measures of default probability?

What do the letter ratings mean?

The general meaning of our credit rating opinions is summarized below.
‘AAA’—Extremely strong capacity to meet financial commitments. Highest Rating.
‘AA’—Very strong capacity to meet financial commitments.
‘A’—Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.
‘BBB’—Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.
‘BBB-‘—Considered lowest investment grade by market participants.
‘BB+’—Considered highest speculative grade by market participants.
‘BB’—Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.
‘B’—More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.
‘CCC’—Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.
‘CC’—Currently highly vulnerable.
‘C’—Currently highly vulnerable obligations and other defined circumstances.
‘D’—Payment default on financial commitments.

Note: Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.

http://www.standardandpoors.com/ratings/gfir/en/us

DoubleLine says S&P warning “good” for US debt

By Jennifer Ablan

“…S&P revised its outlook on the United States’ AAA credit rating to negative from stable, citing the country’s deteriorating fiscal position. The shift reflects the rating agency’s belief that there is a one in three chance that the U.S. credit rating could be downgraded within two years.

Mohamed El-Erian, the co-chief investment officer at PIMCO, told Reuters Insider television that the S&P warning reflects the United States’ deteriorating standing in the global economy.

“The U.S. risks losing their AAA rating under our internal ratings,” El-Erian said. He added that the $1.2 trillion fund will continue to avoid long-term U.S. Treasuries, particularly at these “low” yield levels. Benchmark 10-year yields fell to 3.37 percent, marking the lowest since March 24. …”

http://www.reuters.com/article/2011/04/18/us-ratings-usa-gundlach-idUSTRE73H48Z20110418

A surprise warning about U.S. debt by credit rating agency Standard & Poor’s sent stocks plunging Monday and crystallized the threat that mounting federal budget deficits and national debt pose to the U.S. financial system and the American way of life.

“…S&P maintained the coveted AAA rating on U.S. government debt, but switched its outlook from stable to negative, a sign that the ratings agency has doubts about Washington’s prospects for taking effective action to curb deficits and debt.

“The negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” S&P analysts noted in their credit report. “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.” …”

“…Question: What is Standard & Poor’s, and why does its opinion matter?

Answer: S&P is a nationally recognized statistical rating organization. It rates debt, in this case U.S. Treasury bonds, in terms of the risk of default they pose to investors in them. U.S. government securities have long enjoyed the top AAA rating but are now viewed as at risk for a downgrade of creditworthiness.

Q: Why would a downgrade affect borrowing costs in the economy?

A: The ratings issued by S&P and its main competitors – Moody’s Investors Service and Fitch Ratings – are used by investors to calculate what sort of return they should demand in exchange for the default risk they assume when investing in a given security. A lower rating means a higher chance of default.

The issuer, in this case the U.S. government, would have to pay a higher interest rate to investors to market its lower-rated bonds. Since the government must borrow to pay off existing debt, the cost of that would snowball into an even more costly fix for our fiscal problems. …”

S&P’s Credibility Under Fire As Agency Issues US Debt Warning

“…, just last week a Senate investigations subcommittee ripped Standard & Poor’s in a comprehensive report on the financial meltdown. The bipartisan report — issued by Sen. Carl Levin, D-Mich., and Sen. Tom Coburn, R-Okla. — in part blamed S&P for the crisis, saying the agency had inflated ratings on mortgage-backed securities for their own profit, only to later downgrade those ratings, destroying the value of the securities and contributing to the crisis.

“It was not in the short-term economic interest of either Moody’s or S&P, however, to provide accurate credit ratings for high-risk RMBS and CDO securities, because doing so would have hurt their own revenues,” Levin and Coburn said in their report. “Instead, the credit rating agencies’ profits became increasingly reliant on the fees generated by issuing a large volume of structured finance ratings.”

In short, the senators say, “Inaccurate AAA credit ratings introduced risk into the U.S. financial system and constituted a key cause of the financial crisis.”

The credibility of S&P is especially significant in the wake of the rating agency’s statement on Monday that it was starting to lose faith in the government’s creditworthiness. While S&P maintained its best-possible AAA rating for US federal debt, the firm lowered its outlook from “stable” to “negative.” The statement means the agency now thinks there is a one-in-three chance that it will reduce the rating of the bonds in the next few years. …”

“We view President Obama’s and Congressman Ryan’s proposals as the starting point of a process aimed at broader engagement, which could result in substantial and lasting U.S. government fiscal consolidation,” S&P noted. “That said, we see the path to agreement as challenging because the gap between the parties remains wide. We believe there is a significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections.”

http://abcnews.go.com/Politics/standard-poors-credibility-fire-us-debt-warning/story?id=13407823

Background Articles and Videos

Senator Rand Paul on balancing the budget

Sen. Rand Paul Introduces Five-Year Balanced Budget Plan

Shelby Introduces Balanced Budget Amendment to Constitution

Which Budgets Are Fiscally Responsible?

Which Budgets Are Living Within Ones Means?

Democratic Party Budget Proposals

S-1 FY2012 President’s Budget(Nominal Dollars in Billions)
Fiscal Year	Outlays	Revenues	Deficits	Debt Held By Public
2011	3,819	2,174	-1,645	10,856
2012	3,729	2,627	-1,101	11,881
2013	3,771	3,003	-768	12,784
2014	3,977	3,333	-646	13,562
2015	4,190	3,583	-607	14,301
2016	4,468	3,819	-649	15,064
2017	4,669	4,042	-627	15,795
2018	4,876	4,257	-619	16,513
2019	5,154	4,473	-681	17,284
2020	5,442	4,686	-735	18,103
2021	5,697	4,923	-774	18,967
2012-2021	45,952	38,747	-7,205	n.a.

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/tables.pdf

Republican Party Budget Proposals

S-1 FY2012 Chairman’s Markup(Nominal Dollars in Billions)
Fiscal Year	Outlays	Revenues	Deficits	Debt Held By Public
2011	3,618	2,230	-1,388	10,351
2012	3,529	2,533	-995	11,418
2013	3,559	2,860	-699	12,217
2014	3,586	3,094	-492	12,801
2015	3,671	3,237	-434	13,326
2016	3,858	3,377	-481	13,886
2017	3,998	3,589	-408	14,363
2018	4,123	3,745	-379	14,800
2019	4,352	3,939	-414	15,254
2020	4,544	4,142	-402	15,681
2021	4,739	4,354	-385	16,071
2012-2021	39,958	34,870	-5,088	n.a.

http://budget.house.gov/UploadedFiles/PathToProsperityFY2012.pdf

Tea Party Budget Proposals

S-1 FY2012 Tea Party’s Balanced/Surplus Budget(Nominal Dollars in Billions)
Fiscal Year	Outlays	Revenues	Surpluses	Debt Held By Public
2012	2,500	2,500	0	10,900
2013	2,800	2,800	0	10,900
2014	3,000	3,000	0	10,900
2015	3,200	3,200	0	10,900
2016	3,300	3,300	0	10,900
2017	3,400	3,500	100	10,800
2018	3,500	3,700	200	10,600
2019	3,600	3,900	300	10,300
2020	3,700	4,000	300	10,000
2021	3,800	4,300	500	9,500
2012-2021	32,800	34,200	1,400	n.a.