Next Comes The US Downgrade

Tyler Durden's picture

From SocGen:

The scaled-down deal passed in the Senate addressed the fiscal cliff but did nothing to address longer term fiscal health of the nation. This puts the US rating at risk for a downgrade. However, credit rating agencies may decide to wait and see what emerges from the subsequent talks. There is an implicit new cliff at the end of February related to the sequester and to the expected exhaustion of extraordinary measures related to the debt ceiling. This date is expected to be used by Republicans as leverage for spending cuts. President Obama has already signaled that a new round of spending cuts – those related to the sequester as well as entitlement spending – will have to be matched by additional revenue increases. Therefore entitlement and tax reform are likely to be at the center of discussions over the next two months.

And recall from Moody's in September:

Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the US government's Aaa rating and negative outlook, says Moody's Investors Service in the report "Update of the Outlook for the US Government Debt Rating."


If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable, says Moody's.


If those negotiations fail to produce such policies, however, Moody's would expect to lower the rating, probably to Aa1.


Moody's views the maintenance of the Aaa with a negative outlook into 2014 as unlikely. The only scenario that would likely lead to its temporary maintenance would be if the method adopted to achieve debt stabilization involved a large, immediate fiscal shock—such as would occur if the so-called "fiscal cliff" actually materialized—which could lead to instability. Moody's would then need evidence that the economy could rebound from the shock before it would consider returning to a stable outlook.


Moody's notes that it is difficult to predict when during 2013 Congress will conclude negotiations that result in a budget package. The Aaa rating, with its negative outlook, is likely to be maintained until the outcome of those negotiations becomes clear.


The rating outlook also assumes a relatively orderly process for the increase in the statutory debt limit, says Moody's. The debt limit will likely be reached around the end of this year, and the government's ability to meet interest and other expenses out of available resources would likely be exhausted within a few months after the limit is reached.


Under these circumstances, the government's rating would likely be placed under review after the debt limit is reached but several weeks before the exhaustion of the Treasury's resources. Moody's took a similar action during the summer of 2011.

Several weeks before the exhaustion of Treasury's resources is.... now.

For those still confused, nothing has changed on the US long-term sustainability picture. In fact, as the CBO announced yesterday, deficits will rise by $4 trillion (so really $10 trillion) over the next decade. But the music is playing and one must dance....

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Boilermaker's picture



GetZeeGold's picture



Is something wrong with the printer?

Boilermaker's picture

This time, they will really really really let it collapse.  They'll stop propping it up!  I mean it this time.  For real!


kridkrid's picture

They won't ever let it collapse, but it will collapse.  Hard to say what that will look like, when it will be, or what comes after that... but the global monetary system is in a state of suspended animation.

RockyRacoon's picture

Juggling to keep the big guys solvent was hidden in the legislation.  They're like roaches... they'll survive any apocalypse and more than just one in the woodwork:

Eight Corporate Subsidies in the Fiscal Cliff Bill, From Goldman Sachs to Disney to NASCAR

Matt Stoller

1) Help out NASCAR - Sec 312 extends the “seven year recovery period for motorsports entertainment complex property”, which is to say it allows anyone who builds a racetrack and associated facilities to get tax breaks on it. This one was projected to cost $43 million over two years.

2) A hundred million or so for Railroads - Sec. 306 provides tax credits to certain railroads for maintaining their tracks. It’s unclear why private businesses should be compensated for their costs of doing business. This is worth roughly $165 million a year.

3) Disney’s Gotta Eat - Sec. 317 is “Extension of special expensing rules for certain film and television productions”. It’s a relatively straightforward subsidy to Hollywood studios, and according to the Joint Tax Committee, was projected to cost $150m for 2010 and 2011.

4) Help a brother mining company out – Sec. 307 and Sec. 316 offer tax incentives for miners to buy safety equipment and train their employees on mine safety. Taxpayers shouldn’t have to bribe mining companies to not kill their workers.

5) Subsidies for Goldman Sachs Headquarters – Sec. 328 extends “tax exempt financing for  York Liberty Zone,” which was a program to provide post-9/11 recovery funds. Rather than going to small businesses affected, however, this was, according to Bloomberg, “little more than a subsidy for fancy Manhattan apartments and office towers for Goldman Sachs and Bank of America Corp.” Michael Bloomberg himself actually thought the program was excessive, so that’s saying something. According to David Cay Johnston’s The Fine Print, Goldman got $1.6 billion in tax free financing for its new massive headquarters through Liberty Bonds.

6) $9B Off-shore financing loophole for banks – Sec. 322 is an “Extension of the Active Financing Exception to Subpart F.” Very few tax loopholes have a trade association, but this one does. This strangely worded provision basically allows American corporations such as banks and manufactures to engage in certain lending practices and not pay taxes on income earned from it. According to this Washington Post piece, supporters of the bill include GE, Caterpillar, and JP Morgan. Steve Elmendorf, super-lobbyist, has been paid $80,000 in 2012 alone to lobby on the “Active Financing Working Group.” 

7) Tax credits for foreign subsidiaries –  Sec. 323 is an extension of the “Look-through treatment of payments between related CFCs under foreign personal holding company income rules.” This gibberish sounding provision cost $1.5 billion from 2010 and 2011, and the US Chamber loves it. It’s a provision that allows US multinationals to not pay taxes on income earned by companies they own abroad.

8) Bonus Depreciation, R&D Tax Credit – These are well-known corporate boondoggles. The research tax credit was projected to cost $8B for 2010 and 2011, and the depreciation provisions were projected to cost about $110B for those two years, with some of that made up in later years.

Conveniently the Joint Committee on Taxation in 2010 did an analysis of what many of these extenders cost. You can find that report here.

WhiteNight123129's picture

Yup, HPQ is the supplier and there are accounting issues there.


johnnymustardseed's picture

When the FED funds rate is at zero percent, it does not matter. Downgrade away

yogibear's picture

Nah, MOO-dy's won't downgrade. Their afraid to. 

Water Is Wet's picture

Woohoo!  S&P up 60 points in about 1 day of trading!

Boilermaker's picture

Could be 600 or 6,000.  They only have to do it.

SheepDog-One's picture

U.S. downgrade? SO then that means the DOW will go over 14,000 shortly?

SoundMoney45's picture

I thought the "fiscal cliff" script was solid, and the parts generally well played.  Finishing in the midst of new year's eve festivities was a nice touch.  

It will be interesting to see what is in the script for "debt ceiling 2013", as I am sure it will be equally well written and played.  Perhaps the script is out for final comments now.

kliguy38's picture

precisely.....very well crafted for the sheep and effective in the sense that an illusion of "governance" was involved....and yes now the game is to extend into the next distraction for the proles while the final arrangements are made before the end game are very perceptive

kridkrid's picture - When Money Dies... a great book from which you can read the script ahead of time.  It's "crisis" after "crisis"... each one "solved", only to face another version of the same a month or two later.  This is the playbook everywhere.

BullsNBeers's picture

I for one found it to be great theater! I laughed, I cried, hell... I was a kid again!



odatruf's picture

It was better than Cats!  I'd see it again and again.


swmnguy's picture

I turned it off before they all got together and sang "Auld Lang Syne," but yes, it was a lot better than most of the stuff on TV.  Addin Zooey Deschanel would be nice though.  She's cute, in that quirky way.

Zer0head's picture

Obama just issued a warning to Congress

"there will be no debate on the debt ceiling Congress has to pay the bills that they have racked up"

Boner was seen in the House Shower picking up a bar of soap

azzhatter's picture

was harry reid standing behind him?

Osmium's picture

I think it was Bawney Frank

digalert's picture

If only Wile E Coyote knew. The cliff can be moved.

BurningFuld's picture

Nah, they just keep lowering the ground which will mean a higher velocity impact.

j0nx's picture

Actually at this point it wouldn't matter since terminal velocity is reached after about 15 seconds of freefall. They can lower the ground all they want but the velocity at impact would still be the same as would the damage. Maybe that's their goal after all.

odatruf's picture

If you are going to splat at ~ 125 MPH, you might as well get a long ride (lots of iShit and Obamaphones) as a short one.


Disenchanted's picture


The Cliff Is Not a Credit-Rating Crisis

S&P put out a Dec. 28 bulletin, “Congressional Impasse On Fiscal Cliff Does Not Affect U.S. Sovereign Rating.”


lolmao500's picture

Get real, those rating agencies are bought and paid for.

yogibear's picture

Yep, keep the party going until the booze stops flowing.

RebelDevil's picture

haha that's probably the motto of the 1%!

HardAssets's picture

1% is too broad. If youre not an insider connected billionaire with your assets nicely sheltered in trusts and offshore - - - you ain't in the 1/100 of 1%. If you can't do all sorts of crooked shit including fraud, embezzlement, and laundering drug money without fear of reprisal - you ain't in the club either.

docj's picture

Pfft - if these bankster bootlickers had any credibility they would have already downgraded the US to junk status, but this should have been the final nail in the coffin. Let's face it, if this farce has demonstrated anything in perfect clarity it's that CONgress will literally move Heaven-and-Earth if necessary to avoid ever cutting spending. Period. So, to wit, spending will never, ever voluntarily get cut and it's mathematically impossible to close the roughly $1.6T current account deficit with taxes alone.

The US is, ipso facto, insolvent. A zombie. It's just that Doc McCoy hasn't yet shown up to declare "It's dead, Jim!"

chubbar's picture

Fed spending equals GDP. They cut fed spending and what few points they currently have to hang their hat on showing positive GDP goes away like a fart in a windstorm.

Peter Pan's picture

With such exuberance on the stock markets one might think that a herd of flying pigs was spotted somewhere in the vicinity of Wall Sreeet. Come to think of it, perhaps a flying pig should take the place of the bull on Wall Street.

tango's picture

Anyone with an atom of sense can see the consequences of our financial folly.  The securities game is simply one of timing.  You are fully invested until the bitter end when you choose the exact moment to exit, take your profits and retire to Tahiti or Montana or New Zealand (one of the few nations that can easily feed its citizenry). I don't understand those who refuse to participate in a bull mark out of ideology.  Make some money, take a profit and enjoy the small percent left after taxes and inflation.

HardAssets's picture

Maybe the bull and bear should be replaced with the bronze likeness of the excrement from those animals instead.

Dr Benway's picture

But haven't the rating agencies already proved they are morons? And isn't the current Aaa rating already a joke? And aren't 'markets' already completely disengaged from both reality and ratings?

zoggl's picture

yeah right, downgrade the US! Will never happen. Already forgott what happend last time?

azzhatter's picture

All according to plan for Barry Hussein. Lube up folks that was just the tip you felt

Boilermaker's picture

Right, because the Republicans really displayed a great deal of 'courage and conviction' last night.

By the way, Congress makes the laws and holds the purse.

odatruf's picture

While I agree, Boilermaker, what would you have them do?  Clearly the American people love the can kicking and irresponciblity, and who are the elected representative to deny them their iShit?


pragmatic hobo's picture

... what is up with UNG?

JPM Hater001's picture

I dont see how this doesnt deserve an upgrade frankly.  Look at the stability to the


I cant do it...Where's MDB?

busted by the bailout's picture

Another debt downgrade will mean about as much as the first one -- nada.  How can it matter when Ben is buying most of the new debt and every other country is just as bad or even worse than us?

San Diego Gold Bug's picture

A Perfect storm for Gold and Silver !

HungryPorkChop's picture

I would agree except the large banks have cornered the silver market using blind naked shorts.  They routinely dump 6 months and 1 years supply worth of paper silver on the market in 15 minutes to hold down the price.  So until this stops I don't expect the metals to do much except run up a little bit then get battered right back down.

jjsilver's picture

Globalists of the Bilderberg Group have called an emergency meeting in the city of Rome

optimator's picture

Invading armies taking over countries in a Blitzkreig is soooo passe.  These days countries are taken over very slowly, no armies required and the population doesn't even know it when they are finally taken over. 

CaptianSpaulding's picture

 The new and improved countdown clock complete with ads and egg timer should be up and running on marketwatch in 4,3,2,1...