S&P Upgrades US Outlook From Negative To Stable On "Receding Fiscal Risks"

Tyler Durden's picture


In a confirmation that the S&P is starting to get worried about the drones surrounding the McGraw Hill building resulting from the ongoing litigation with Eric Holder's Department of Injustice, not to mention a reminder that US downgrades always happen after hours, while upgrades must hit before the market opens, Standard & Poors just upgraded the Standard & Poors 500 the US outlook from Negative to Stable. On what "receding fiscal risks" did the S&P raise its assessment of the US - the fact that the US is now at its debt limit, that there is no imminent resolution to the credit issue, or the 105% and rising debt/GDP - read on to find out. And of course, the countdown until the S&P wristslap settlement with the DOJ is announced begins now, as does the upgrade watch by Buffett's controlled Moody's of the US to AAAA++++.

The market's reaction is focused in the FX markets for now - but is fading...


From S&P:

United States of America 'AA+/A-1+' Ratings Affirmed; Outlook Revised To Stable On Receding Fiscal Risks


  • Under our criteria, the credit strengths of the U.S. include its resilient economy, its monetary credibility, and the U.S. dollar's status as the world's key reserve currency.
  • Similarly, in our view, the U.S.'s credit weaknesses, compared with higher rated sovereigns, include its fiscal performance, its debt burden, and the effectiveness of its fiscal policymaking.
  • We are affirming our 'AA+/A-1+' sovereign credit ratings on the U.S.
  • We are revising the rating outlook to stable to indicate our current view that the likelihood of a near-term downgrade of the rating is less than one in three.

Rating Action

On June 10, 2013, Standard & Poor's Ratings Services affirmed its 'AA+' long-term and 'A-1+' short-term unsolicited sovereign credit ratings on the  United States of America. The outlook on the long-term rating is revised to  stable from negative.


Our sovereign credit ratings on the U.S. primarily reflect our view of the strengths of the U.S. economy and monetary system, as well as the U.S.  dollar's status as the world's key reserve currency. The ratings also take into account the high level of U.S. external indebtedness; our view of the effectiveness, stability, and predictability of U.S. policymaking and political institutions; and the U.S. fiscal performance.

The U.S. has a high-income economy, with GDP per capita of more than $49,000 in 2012. We expect the trend rate of real per capita GDP growth to run slightly above 1%. Furthermore, we see the U.S. economy as highly diversified and market-oriented, with an adaptable and resilient economic structure, all of which contribute to strong sovereign credit quality.

We believe that the U.S. monetary authorities have both the strong ability and willingness to support sustainable economic growth and to attenuate major economic or financial shocks. As a result, we expect the U.S. dollar to retain its long-established position as the world's leading reserve currency (which contributes to the country's high external indebtedness). We believe the Federal Reserve System has strong control over dollar liquidity conditions given the free-floating U.S. exchange rate regime and as demonstrated by the Fed's timely and effective actions to lessen the impact of major shocks since the Great Recession of 2008/2009. Since 1991, the Fed has kept inflation (measured by CPI) in the 0%-5% range. In addition, the U.S. monetary transmission mechanism benefits from the unparalleled depth of the country's capital markets and the diversification of its financial system, in our opinion.

We view U.S. governmental institutions (including the administration and congress) and policymaking as generally strong, although the ability of elected officials to address the country's medium-term fiscal challenges has decreased in the past decade due to what we consider to be increased partisanship and fundamentally opposing views by the two main political parties on the optimal size of government. Views also differ on the preferred mix between expenditure and revenue measures in the quest to return the federal budget toward a more balanced position. Recent examples of impasses reached on fiscal policy include the failure of the 2010 National Commission on Fiscal Responsibility and Reform to obtain a qualified majority of its members in favor of its fiscal consolidation plan and the inability of the Joint Select Committee on Deficit Reduction to reach an agreement to specify specific fiscal measures to avoid indiscriminate cuts set down by the Budget Control Act of 2011 (BCA11).

That said, we see tentative improvements on two fronts. On the political side, Republicans and Democrats did reach a deal to smooth the year-end-2012 "fiscal cliff", and this deal did result in some fiscal tightening beyond that envisaged in BCA11, by allowing previous tax cuts to expire on high-income earners. The BCA11 also has engendered a fiscal adjustment, albeit in a blunt manner. Although we expect some political posturing to coincide with raising the government's debt ceiling, which now appears likely to occur near the Sept. 30 fiscal year-end, we assume with our outlook revision that the debate will not result in a sudden unplanned contraction in current spending--which could be disruptive--let alone debt service.

Aside from tax hikes and expenditure cuts, stronger-than-expected private-sector contributions to economic growth, combined with increased remittances to the government by the government-sponsored enterprises Fannie Mae and Freddie Mac (reflecting some recovery in the housing market), have led the Congressional Budget Office (CBO), last month, to revise down its estimates for future government deficits. Combining CBO's projections with our own somewhat more cautious economic forecast and our expectations for the state-and-local sector, and adding non-deficit contributions to government borrowing requirements (such as student loans) leads us to expect the U.S. general government deficit plus non-deficit borrowing requirements to fall to about 6% of GDP this year (down from 7%, in 2012) and to just less than 4% in 2015. We now see net general government debt as a share of GDP staying broadly stable for the next few years at around 84%, which, if it occurs, would allow policymakers some additional time to take steps to address pent-up age-related spending pressures. 


The stable outlook indicates our appraisal that some of the downside risks to our 'AA+' rating on the U.S. have receded to the point that the likelihood that we will lower the rating in the near term is less than one in three. We do not see material risks to our favorable view of the flexibility and efficacy of U.S. monetary policy. We believe the U.S. economic performance will match or exceed its peers' in the coming years. We forecast that the external position of the U.S. on a flow basis will not deteriorate.

We believe that our current 'AA+' rating already factors in a lesser ability of U.S. elected officials to react swiftly and effectively to public finance pressures over the longer term in comparison with officials of some more highly rated sovereigns and we expect repeated divisive debates over raising the debt ceiling. We expect these debates, however, to conclude without provoking a sharp discontinuous cut in current expenditure or in debt service. We see some risks that the recent improved fiscal performance, due in part to cyclical and to one-off factors, could lead to complacency. A deliberate relaxation of fiscal policy without countervailing measures to address the nation's longer-term fiscal challenges could place renewed downward pressure on the rating.

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Mon, 06/10/2013 - 09:07 | 3641700 firstdivision
firstdivision's picture

Wow, look at that.  I'm sure the timing has nothing to do with getting this out as a headline to drown out another headline.

Mon, 06/10/2013 - 09:14 | 3641734 Midasking
Midasking's picture

Yes we have a list of negative numbers a mile long and they will add up to a positive number in the end?  Just need to grow our way out of it I guess.. LOL http://tinyurl.com/mem7o7x

Mon, 06/10/2013 - 09:20 | 3641753 Vaiman
Vaiman's picture

Me thinks the big money is just keeping the wheels turning long enough to unload on the dumb money then BANG.  Time to start shorting and leave the bag holders behind.

Mon, 06/10/2013 - 09:24 | 3641762 MillionDollarBonus_
MillionDollarBonus_'s picture

I'm encouraged by the consistent performance of the S&P 500. This indicates that the collective wisdom of investment professionals and money managers around the world sees continuous long term growth the US economy. Also, the consistently weak VIX indicates that "tail risks" are in fact not a risk at all but rather a fantasy of masochistic zerohedgers.

Mon, 06/10/2013 - 09:44 | 3641795 LawsofPhysics
LawsofPhysics's picture

Consistent performance?  LMFAO!  The S&P has lost 50% of it's value twice in the last 12 years.  Halarious.  Come on MDB you can do better.  Here let me help you; "I'm encouraged by the consistent performance of gold and it's stable purchasing power."

Mon, 06/10/2013 - 09:37 | 3641815 Bearwagon
Bearwagon's picture

The fact that you are feeling encouraged frightens me. It indicates that the collective criminal energy of printer-machinists and professional rip-off artists continue to crush what little is left of the so called "middle-class" not only in America but worldwide. I may be a masochistic zerohedger, but shirley I'm not as delusional as you are ...

Mon, 06/10/2013 - 10:01 | 3641922 Hippocratic Oaf
Hippocratic Oaf's picture

S&P is just another fucking puppet.

The market is leaking, they plug a hole.

Mon, 06/10/2013 - 10:38 | 3642080 Never One Roach
Never One Roach's picture

Didn't S&P rate all of the DDD subprime crap as being AAA+

Mon, 06/10/2013 - 11:40 | 3642277 Cacete de Ouro
Cacete de Ouro's picture

Summer intern in S&P: "So explain it once more"

Junior worker at S&P: "OK, so we have to rate all this shit every so often using checklists and excel, and the issuers, which are the companies, pay us. We need to write some stuff also for the reports, like, write the same as last time is ok. Some stuff has to get higher ratings than other stuff, its all relative. We never change ratings, the senior managers might shuffle it around a bit. Thats it then. You get it?"

Intern: "Ye, but most of these securities are high risk, like, nearly everything."

Junior: "Ye, but don't fuckin' mention that, we do not ever say that, just learn the letters and keep your head down, trust me, you'll have a great summer and the barbeques are awesome"

Intern: "Cool, barbeques"

Mon, 06/10/2013 - 10:10 | 3641953 Monedas
Monedas's picture

Bear. It's not MASOCHISM .... when you're getting paid .... to troll and roil .... mean words mean things ..... that's why he calls himself MDB ?

Mon, 06/10/2013 - 10:10 | 3641955 Bearwagon
Bearwagon's picture

I'm not getting paid. Or do you talk of MDB? I doubt that anyone would pay him for such a measly performance.

Mon, 06/10/2013 - 09:48 | 3641871 fudge
fudge's picture

consistently weak

Describes your sox puppetry more than adequately of late .. not even any humor in your scribbles these days.

I think you've run outa steam,and a long vacation is needed.

Mon, 06/10/2013 - 10:00 | 3641918 Central Wanker
Central Wanker's picture

I'm impressed by your consistent performance.

Mon, 06/10/2013 - 10:04 | 3641934 EmileLargo
EmileLargo's picture

MDB, you must be an exponent of British irony. This is beyond ridiculously funny.  

Also, the consistently weak VIX indicates that "tail risks" are in fact not a risk at all but rather a fantasy of masochistic zerohedgers.


Mon, 06/10/2013 - 11:12 | 3642168 citrine
citrine's picture

Plus 1, MDB.

 "The collective wisdom of investment professionals" in this context is definitely a masterpiece!

In other interesting upgrading news, S&P just raised Latvia rating to BBB+ on Expected Adoption of Euro.

Mon, 06/10/2013 - 09:56 | 3641906 SunRise
SunRise's picture

Neg Numbers a mile long = a positive?  Yes - negatives are multiplying

Mon, 06/10/2013 - 10:24 | 3642006 sodbuster
sodbuster's picture

Upgrade? HaHaHa!!! Wait for it! KA-F'N-BOOM!!

Mon, 06/10/2013 - 10:19 | 3641989 DC3
DC3's picture

They're using multiplication to make the number positive :p

Mon, 06/10/2013 - 11:00 | 3642156 ejmoosa
ejmoosa's picture

Multiply two negatives and you get a positive....that's the strategy.

Mon, 06/10/2013 - 09:32 | 3641802 SheepDog-One
SheepDog-One's picture

And what 'good economic reads' are they talking about? We just got the worst bunch of data dumps ever, except for the gun to the head celebratory nature of the 'jobs report' which was garbage.

Mon, 06/10/2013 - 09:08 | 3641706 LawsofPhysics
LawsofPhysics's picture

Apparently the world will allow the Fed to buy 100% of all sovereign debt issuance...

Yeah, this should turn out well < sarc off >

Mon, 06/10/2013 - 09:19 | 3641752 pods
pods's picture

They have just upgraded the economy to doubleplusgood.


Mon, 06/10/2013 - 09:27 | 3641775 fonzannoon
fonzannoon's picture

I'm seeing 2.21% on the ten year. That thing hit's 2.25% and I think we run straight to 2.40% That should take the 30yr over 4% Laws?

They are going to have to put the brakes on this market hard. soon.

Mon, 06/10/2013 - 09:46 | 3641861 LawsofPhysics
LawsofPhysics's picture

2.4% = hard default or WWIII.  This is the corner that the Fed has painted us into.

Mon, 06/10/2013 - 10:14 | 3641963 tarsubil
tarsubil's picture

Isn't this crazy? No more wiggle room.

Mon, 06/10/2013 - 09:51 | 3641883 HungryPorkChop
HungryPorkChop's picture

One analyst believes they can no longer keep these yields or interest rates down.  Also, home loans continue to tick upwards and this could start a trend over the summer and fall months.  Higher interest rates will slow down the economy requiring another large QE Injection. 

I forget the numbers but each 1% rise in interest rates is pretty dramatic due to all the bank, govt, consumer and state debt. 

Anyway we'll know in a few months if rates are really ticking upwards.

Mon, 06/10/2013 - 10:30 | 3642040 Never One Roach
Never One Roach's picture

House sales have really slowed in my area with the rise in mortgage rates. Everyone is (rigtfully) scared sh*tless as rates go up the house prices will fall more and they lose more in an already weak market.

Mon, 06/10/2013 - 09:54 | 3641897 Its Only Rock N Roll
Its Only Rock N Roll's picture

2.40% is first stopping point, not for long...2.75%-2.90% is target area, unless Fed TAPERS or STOPS.  Yes TAPERS or STOPS.  It's the only way to gets rates back down, IMO.

Mon, 06/10/2013 - 10:16 | 3641971 RSloane
RSloane's picture

War or an unprecedented 'terrorist' attack on the US. Or as you mentioned yesterday, blaming cyber-terrorism for the gov't shutting citizen's access off to their own money or EBT cards. They have to keep US citizens living in fear. The bigger the fear, the better for the gov't and private banks like the Fed.

Mon, 06/10/2013 - 09:45 | 3641857 DeadFred
DeadFred's picture

They may be able to buy all the debt but TLT is at 52 week lows and not feeling like stopping its plunge. Target looks to be about 95. Of course they can strengthen treasuries by letting the precious S&P500 plunge. Hard choices. I bet they try to save the treasuries.

Mon, 06/10/2013 - 09:50 | 3641866 LawsofPhysics
LawsofPhysics's picture

The problem is that the Fed is buying all of the western sovereign debt (via dollar swaps and the ECB), not just U.S., hard choices indeed.  Treasuries fund the military and NATO, they have to try and save them.   The Fed is a banking cartel, they are dead without the military, and so is the dollar.

Mon, 06/10/2013 - 09:46 | 3641863 SheepDog-One
SheepDog-One's picture

The fiscal risks! They're viewed as receeding by the criminal banksters! YAYYY!!!


Mon, 06/10/2013 - 09:09 | 3641709 101 years and c...
101 years and counting's picture

i dont need to read this garbage.  the US has to print its debt.  if any rating agency had any integrity, US woould be rated junk. 

Mon, 06/10/2013 - 09:09 | 3641711 Bearwagon
Bearwagon's picture

Bullshit! Triple bullshit! How long until Egan Jones will be allowed to rate USA again? Yeah, thougt so ...

Mon, 06/10/2013 - 09:09 | 3641713 jubber
jubber's picture

...just as the was starting to rollover, nice

Mon, 06/10/2013 - 09:09 | 3641715 timbo_em
timbo_em's picture

LOL! Made my day!

Mon, 06/10/2013 - 09:10 | 3641717 ThunderingTurd
ThunderingTurd's picture


Mon, 06/10/2013 - 09:12 | 3641723 Headbanger
Headbanger's picture

It's amazing how quickly somebody changes their mind when there's a gun to their head.  Stalin would be so proud!

Mon, 06/10/2013 - 09:51 | 3641886 DeadFred
DeadFred's picture

Guns are not needed in our kinder and gentler world. Remember that every email the execs sent to any hooker or drug dealer, every visit to a kiddieporn NABLA site is recorded. All prosecutions and expose will be defered as long as they play ball

Mon, 06/10/2013 - 09:12 | 3641724 fonzannoon
fonzannoon's picture

S&P today upgraded Shit to poop explaining that shit sounds bad and poop sounds kind of funny.

Mon, 06/10/2013 - 09:14 | 3641729 LawsofPhysics
LawsofPhysics's picture

...good chuckle.  You slay me fonz, quick, to the other side of the boat!

Mon, 06/10/2013 - 09:15 | 3641733 Bearwagon
Bearwagon's picture

Soon it will be upgraded to "valuable fertilizer" ....

Mon, 06/10/2013 - 09:27 | 3641782 cro_maat
cro_maat's picture

"We view U.S. governmental institutions (including the administration and congress) and policymaking as generally strong" which is why we are crying uncle and sprinkling this "valuable fertilizer" with holy water.

Mon, 06/10/2013 - 09:56 | 3641905 Rainman
Rainman's picture

Hundreds of gubmint kleptocrats were aware weeks before a positive Medicare funding decision was released, causing a pre-announcement spike in health care stocks. Just the tip of a very large iceberg !



Mon, 06/10/2013 - 09:12 | 3641726 Its Only Rock N Roll
Its Only Rock N Roll's picture

May the farce be with you...

Mon, 06/10/2013 - 09:13 | 3641728 SheepDog-One
SheepDog-One's picture


Mon, 06/10/2013 - 09:14 | 3641730 kito
kito's picture

remember that a crisis cant be a crisis when everybody is bracing for one................a crisis comes at the peak hour of exuberance........of delusion.........of complete unpreparedness............this only confirms we are getting closer and closer...............but not there yet.........................

Mon, 06/10/2013 - 09:27 | 3641783 Unknown Poster
Unknown Poster's picture

What could go wrong? With elevated US equity margin debt and a JGB market with yields less than the targeted inflation rate, there seem to be at least a couple of things unstable. But with the Yen falling, last weeks unwinding of the carry trade will probably rewind over the short term.

Mon, 06/10/2013 - 09:31 | 3641794 SheepDog-One
SheepDog-One's picture

In the old days maybe that's true, but these days only more people are knowing it's all bullshit and are more prepared than ever so if they're waiting to catch everyone by surprise they'll be having to wait a very long time. 

Mon, 06/10/2013 - 09:39 | 3641826 Unknown Poster
Unknown Poster's picture

Sure it's all BS, but the bagholders have to grab the bag.


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