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What Does the S&P Downgrade Mean, If France Is Rated Higher Than the U.S.?

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An ABC News ticker reads 'Standard & Poor's downgrades US credit rating from AAA to AA+' in Times Square on Aug. 5, 2011, in New York City. (Andrew Burton/Getty Images)

The decision by credit rating agency Standard & Poor’s to downgrade the United States after markets closed on Friday may have kicked up political consternation and triggered a market plunge, but it also raises important questions about the reliability of credit ratings and, for that matter, the firms that bestow them.

Just over a dozen countries currently have an AAA—or lowest-risk—rating from each of the three main rating agencies: Moody’s, Fitch, and Standard & Poor’s. Until this weekend, the United States was among them. (It’s now roughly on par with Australia, which also has two AAAs and one AA+.)

So, which countries are among the lucky few that still have perfect ratings from all three firms? The United Kingdom and France, just to name a couple. S&P apparently thinks that both the U.K. and France are safer investments than the United States.

The United States still has a higher per-capita GDP than most countries, including both the U.K. and France. Last year, the U.S. GDP grew 2.9 percent—almost double the U.K.’s 1.4 percent and France’s 1.5 percent. Between April and June of this year, the U.S. GDP grew 1.3 percent while the U.K. economy grew 0.2 percent. A June forecast from the Bank of France estimated that the country’s economy would grow 0.4 percent in the second quarter. (U.S. growth, granted, is still slower than it used to be.)

As a percentage of GDP, both the U.K. and France have a higher percentage of external debt, or debt owed to outside bondholders. In 2010—the latest year for which the Organization for Economic Cooperation and Development has numbers—U.S. external debt was 61 percent of GDP, compared to France’s 67 percent and the U.K.’s 86 percent. Austria also maintains a lowest-risk rating from all three firms, and its external debt was 66 percent of GDP last year. 

Let’s not forget unemployment. Our July 2011 unemployment rate figure was 9.1 percent. That’s higher than the U.K.’s, which has hovered around 7.7 percent, but it’s lower than France, which had 9.7 percent unemployment in June.

S&P, in explaining the historic downgrade—the first in U.S. history—cited both the U.S. debt burden and the political brinksmanship over the debt ceiling as reasons it lowered the credit rating of the United States to AA+, with a negative outlook.

So, what do the ratings mean, really? It seems to be a question that economists and investors are asking, too.

“France is not, in my view, a AAA country,” a UBS economist told Bloomberg. And yet there are no indications that France will face a downgrade, the Wall Street Journal reports. In fact, all three of the rating agencies recently affirmed France’s triple-As.

Credit rating agencies have taken a collective hit to their reputations for issuing flimsy triple-A credit ratings on securities that collapsed and helped trigger the financial meltdown. A Senate investigation earlier this year identified the firms as “a key cause” of the financial crisis. Documents released by congressional investigators also pointed to serious conflicts of interest that caused some ratings firms to bend to the wishes of the banks that paid for their ratings. 

As we’ve written, some of the same problems with company culture and inaccurate ratings have persisted. Meanwhile, the Office of Credit Ratings—an office created by Dodd-Frank, the financial reform bill, to oversee these firms—hasn’t even been set up because Congress didn’t allocate funds for it. Other efforts written into the measure to lessen U.S. reliance on ratings and open up the firms to more liability have been slowed or stalled altogether.

Wiping out the references to credit ratings in U.S. law is a “harder task than the legislation assumes,” said Barbara Roper, director of investor protection for the Consumer Federation of America. The downgrade, she thinks, may provide just enough impetus to keep those efforts moving.

I’m just cynical enough to believe that S&P wants Obama to be a one-term President and that’s why they did it.

Sue Moran:

And I am just cynical enough to believe you may be right. :o)

S&P is basically getting revenge for having to appear at a Congressional hearing where their dirty laundry regarding their contributions to the mortgage meltdown were made public.

Although I do agree with S&P’s statement that the U.S. should be more like France…. but it seems that S&P forgot that France has a Socialist government,.  universal government sponsored health care, a retirement age of 62, a 37 hour work week and a mandated one month vacation for all workers.

Moodys came out and said today that its rating of the U.S. was based on what happens with the Bush tax cuts for elites.  Now, I don’t buy all of the bull about S&P wishing Obama to be a one term president, Obama is doing just fine to ensure that on his own, but corporations and corporate personhood play a very substantial role in shaping neoliberal economic policy that serves corporate executives.  And I believe S&P’s decision was therefore highly political. 

S&P is useless and irrelevant.  It’s time to put them on credit watch cause the U.S. is going to be around a lot longer than S&P.

Obama, like most Democrats, is suffering from inertia and inept. When they had the Congress, they were spinless. They just kept bowing to special interests and money mongers. They appeased and appealed to the right wing politicians. They kissed ass. They tried hardest to “compromise”, and they could not fight the same fight with the party of ignorants, Republicans. He bailed the backers of the Republicans in the name of avoiding national crisis.  Republicans and the Tea Party sympathizers egged him and the Democrats at the end. Simple as it sound. He won’t have a chance to get re-elected. We need eight more years of cuts and cuts and cuts until such time that the low to middle income Americans standing up again for a few more years. At that time Democrats will have the majority in Congress and then losing again four years after!!

It sure would be nice if some of this info makes it into the local press.  Other than S&P lowered our rating, there has been no actual change in the US financial condition.  However the “run for the exits” response by the stock market is scary.  The sky is falling attitude becomes a self-fulfilling result.  As a retiree it can be stressful!

I made a huge mistake .... I used all of my available cash to buy stock on Thursday and Friday…. I should have waited until today as the prices were even lower…. Oh well… now to wait a few weeks to sell at a profit.

Interesting that the financial media and talking heads have missed the fact that unlike 1929 no stock shares put up for sale went unsold.which makes me wonder if much of the stock sold today was not sold at a profit.. e.g.: 2 years ago Bank of America stock was around $3 a share if one bought it then they could have doubled their money today as BAC was priced at slightly over $6.

Many have warn of the competence in Wasgington DC, here is one; http://armstrongeconomics.files.wordpress.com/2011/08/armstrongeconomics-sp-downgrade—080611.php. You can take it or leave it, but he has been there & done that!

Look at how congress acts & Obama him self, no ones wants to take blame, the infighting goes on as Rome Burns. Time to turn off the MSM & find when & where people are holding public meetings & ask the hard questions! It starts at the local levels & works it way up. These elected officals have a lot to answer for! 

Please ask you reps if they agree with CHAIN CPI Or If They Know What It is? There so much folks need to ask, it’s time to act. Good Luck Folks!

The tone of this article is interesting: so S&P downgraded the US, giving it a lower rating than Third-World countries like the UK, France and Austria! The US worse than France, how can that be? Wait, maybe they now use the WHO rating of health systems

http://www.photius.com/rankings/who_world_health_ranks.html

When you think about it, it just makes sense: the better a health system is, the longer people live, and the longer they can pay back for their debts/loans/mortgages. Smart, uh?

The upside of this downrating is: maybe it will have hurt the feelings of US citizens (and US journalists alike) enough that everybody will start wondering what good these agencies are.

@pdlane: France, a Socialist government??? Interesting…

I believe Australia’s rating is actually AAA from all three of the ratings agency. Recent comments from Wayne Swan (the Australian treasurer), and wikipedia both support this claim. Unfortunately I can’t get more proven sources, but you may want to fact check that claim that Australia has AA+ rating nonetheless.

First, this is just a “political” statement by the bond vultures who think they are the most important people on Gods green earth. Truth be told, these guys proved to be the most incompetent pigs at the trough when it was appropriate to call subprime CDO’s utter trash. No, I would still support rounding them up and putting them in the dock plus a public thrashing in the nearest city square.
Second, there is a serious debt problem (todays estimate: 78% of GDP, World War 2 debt on June 15, 1945 was nearly 123%, just for reference) and due to Bush squandering a surplus, his mega tax cut, two off-books wars and a Medicare Part D that the public hardly needed (I am on Medicare & doing just fine without it), we had to spend extraordinarily to keep teachers, firemen, police and government including unemployment compensation functioning. What is a moral nation to do? I reject any other method absolutely. I suggest we cut the military budget $100 billion per year until we get it down to a reasonable number, Target: 50% reduction. Stop the idiotic wars. Close 250 military bases worldwide. Rescind oil subsidy, ethanol subsidy cancel the Bush tax cut immediately. Mr. Obama, hope you are reading these comments. Get cracking.

S & P’s opinion is hardly gospel after their mistakes in 2008 cost many of us losses in Lehman bonds because we trusted their rating. United States businesses haven’t stopped growing, though it is slower than we would like. What happened in the stock market today occcurred because Americans were warned we should worry—about what? The strongest business foundation in the world is here.

Television news and radio talk hosts predicted a downward spin in the stock market and frightened Americans who have suffered so much uncertainty already reacted. Thus we had a bad day on Wall Street though most healthy businesses are showing profits. Congress needs to wake up and do its job. They must modify spending over time as well as reform inequities in the way we pay taxes so we can get on with the business of growth. No business expands until it has a handle on costs and know what changes will cost them.

most recently the stock market had a corrrection when the silver margins were manipulated and the big players took a nice chunk of the little guys equity.  This rating was designed and to allow big players to short positions and take billions from “joe trader”.  Our republicans (including Tea Party)want this in Obamas lap to help their cause,  Too bad Ike isn’t around to kick thier butts.  follow the $$$

Richard McDonough

Aug. 8, 2011, 11:24 p.m.

Inept gang, S&P, who said everythingbwas fine when the next day itvp was clear that many triple A clientsvwere about to bite the dust.  This is nonsensevandvthe manipulators adore the chance to buy cheap as the retail customers head for the exits.

Richard Schmidt

Aug. 9, 2011, 6:35 a.m.

Maybe it is the case that S&P sees France as having more adults in charge of the nation. We on the other hand are given to a practice in which we give all of our money to children and tell them to go play on the street. Then we elect those same children to political office and whine they behave like children.
Perhaps, given the beastly hot weather, we are all already living in hell, and just haven’t faced up to it yet?

I agree with many posters on here…. The S&P only did this to throw our countrys financial markets into a tail spin because they didnt get their way, and to blame Obama…Truth be told the debt ceiling was raised 17 times for Reagan, and 5 times for Bush jr, prior to Obama asking it to be raised once.  The debt was incurred by the previous Bush administration and Obama inherited it….the real people to blame is S&P, I would look into their financials and quit possibility of their whole company being shutdown for this.

They did not get whacked for rating $trillons in MBS as AAA which within weeks was junk…Why would they think they could not get away with this bias and illfounded payback?

Sell Sell Sell S&P..The IB’s have sent around word that they will no longer recommend S&P ratings to muni and corp issuers !

S&P wrote their own Obit!

This is Hollywood for the rest of the world.
US politicians know they will a) never be able
and b) never be willing to repay the enormous
debts of the US. To erase the debts, they must
ruin the dollar.
It is not possible to say that the billion(s) of
dollar in the hands of the Chinese are for the
waste. This would provoke a serious conflict,
because the Chinese would be bankrupt.
So the politicians have to play as if they would
be willing to save the dollar. Saving the dollar
and its value would mean being bankrupt because
of public debts accumulated up to now to 14 trillions,
and counting.
This is whyI cannot believe that the US politicians would like
to maintain the dollar, because this keeps their administration
imprisoned in their debts they never will be able to pay off.

I dont think this debt crisis is all that. Tax the richest fat cats out there who, don’t forget, have 95% of the money, at a flat rate, say 15%, and the debt will be paid off in a few years if not less.

Besides, if you saw Jon Stewart monday, it seems the BEST investment out there, the one EVERYBODY seems to be investing in is…........
U.S. Bonds!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Must be pretty bad, yeah?

Vince Amicone

Aug. 9, 2011, 12:38 p.m.

I don’t think all the panic on Wall Street came from the credit downgrade. But instead was a result of the skittish nature of the investors at this particular juncture. Also S+P is probably thinking they can play politics too, even if it’s downgrade is in someway considered significant in the scheme of the ruling people its effect is to inconsequential to have any momentum. Thus ending the ego centric charade of this Wall Street patsy.

Hi. People!
I keep hearing from every Sourse, media or otherwise that Obama could and should do more. What, how?

AND IF HE DOES HAVE, AND ACTS< : WILL THE MAJORITY OF AMERICAN CITIZENS BACK AND APPRICIATE HIM AS THE LEADER OF THIS COUNTRY?
Thanks for your reply

The Dollar is the World Reserve Currency. The Dollar is all but worthless(check currency rates) and the Fed Govt keeps printing more worthless paper. That is why we are AA+  We should be lower than that considering that Apple with their slave wage made ipads are out- competing the USA.

http://www.businessinsider.com/apple-has-more-cash-on-hand-than-the-us-government-2011-7&utm;_term=&utm;_content=

The Dollar is the World Reserve Currency. The Dollar is all but worthless(check currency rates) and the Fed Govt keeps printing more worthless paper. That is why we are AA+  We should be lower than that considering that Apple with their slave wage made ipads are out- competing the USA.

The comparaison with France is a good one, I do beleive that the Agencies are rating not only the external debt / GDP, but the evolution of that debt. France is on the way to introduce a rule into is constitution to reduce its debt, while the US are struggling to raise that debt.
Don’t get me wrong, I don’t believe that France really earns that AAA with its debt raising to the tops over the last years, but they sure now how to respond to those agencies with laws etc..

I view this credit drop with mild caution. The U.S. still has AAA from two other credit agencies, though they are not on the same financial level as S&P, they still count a great deal for U.S. reliability in borrowing. Other nations and major lenders are still going to lend to the U.S., because of the large economy, along with the purchasing power. Even though the U.S. is a nation with large amounts of debt they can still produce a sizable GDP with high standards of living, which reflects the borrowing.

The ratings of the US rating institutions are worth some comparison, in order to find out if they are not dominated by someone’s interest:
Greece is financially flat like a stamp, but represents about 2% of Europe’s economy, the 3 rating companies rate the Greeks down.
California is financially flat like a stamp and would be world’s 8-largest economy, if one would count all the 50 states of the U.S. for their own.
None of the three rating companies downgrades California. A lot of the 50 states of the U.S. would be bankrupt, if this would be possible.
The way how the three US rating institutions act shows clearly that there is a kind of cold economic war between the U.S. and Europe.
One would do better by listening Dagong, the Chinese rating agency.
They downgraded the U.S. already before S&P. This represents a high risk for the Chinese by saying the truth about U.S. economy, thus about the dollar, too. The Chinese hold billions of dollars in their hands, so that they will wish to not convert them to paper by saying too much.
This what they said through Dagong about the U.S. economy and the U.S. politics is hard nevertheless.

Seems to me like this article was written by a sulky kid who just wants to reassure himself (“this is so unfair”), which is not really the point here. The question that the US downgrade raises, as well as every Eurozone country downgrade of the past year, is : “Do these rating agencies have too much power ?”. And the answer to that can only be a joint action by (at least) the US and the EU.
  Meanwhile, I believe we all have debt issues to work on…

From mine point of view this rather sports-TVlike uninterresting AAA to AA+ looks like a situation created 100% by the US Congress and sportsreporters. The US economy can pay down debet, but the citizens are so used to low tax that a serius incident must occure. A rating campany is just a media event. Seroius trimming of the spendings must happen. US must fix their health care system that is more than double the price and same quality as in Norway per person. Stop waring around. Thats to 2 savings. But voters will probably send in a new triggerhappy republican who will start new costly wars. I guess Iran. So you guys must budget for another war. To finance that, taxes must up. US government should use more cash in projects other than wars like education and infrastructure. Railway, electric cars, powergrids etc.
And of course France cant have AAA. But this ratings are nonsence when big things happens as the seroiuse probs in Greece, Italy, Irland, Spain and Portugal.

I am just feeling impatient! The old days of doing politics when the main thing the public dream developer, nicely talking politicians had on their minds was nothing but making money for themselves are becoming history, if morality prevails over selfish dishonesty.
Now, we desperately in need of changing some old laws (Such as: legalization of official lies and tricks) made by some previledged groups with hidden purposes.More real life experienced true stories of how unscrupulously a few rich guys’ controlled “our North-American (including our monopolizing Canadian fund managers too without ethical standard or sense of morality) banking sector have become imbalanced” is coming up soon to be posted in everywhere right after I personally gather direct evidences from the Canadian side.
Canada and USA, yet under UK’s positive shade, are actually inseparable but because of some extremely selfish ego blind guys that includes some narrow minded unsmart francophones, we can’t immediately have same monetary currency on the both pieces of lands of the same territory! For sake of continuing our existence as a great North-American power at this time of massive global economic change, we need to be strongly united together in no time by sacrificing our smaller bipartisan political interests at homeland.

Today, a Standard and Poor executive issued a statement saying that the fact that politicians were even talking about thinking default was OK was the reason they did it (via DailyKos):

“A Standard & Poor’s director said for the first time Thursday that one reason the United States lost its triple-A credit rating was that several lawmakers expressed skepticism about the serious consequences of a credit default — a position put forth by some Republicans.

Without specifically mentioning Republicans, S&P senior director Joydeep Mukherji said the stability and effectiveness of American political institutions were undermined by the fact that “people in the political arena were even talking about a potential default,” Mukherji said.


“That a country even has such voices, albeit a minority, is something notable,” he added. “This kind of rhetoric is not common amongst AAA sovereigns.”

Rudy Prasetyo

Aug. 19, 2011, 6:16 a.m.

USA: Debt 200% GDP, but AA+ rating
Indonesia: Debt 26% GDP, but only BB+ rating

STRANGE ISN’T IT??

Rudy Parasetyo above can’t read. The article says: “U.S. external debt was 61 percent of GDP”

I don’t think that the difference between 200% and 61% is insignificant.

When GDP grows, the proportion of debt to GDP of course goes down.

The GOP is aware of this and is doing it utmost to ensure we have little to no growth, even just natural expansion along with the population, and has its corporate buddies pull stunts like Wall Street did to then say, we have to CUT CUT CUT.

I love how some US economists are jealous about France keeping its AAA…
:) :) :)

Guenther Poekl

Aug. 29, 2011, 7:16 a.m.

Why france has a better rating than the U.S.?
Because, believe it or not, France is in a far better shape than the U.S.,
even there is a lot to criticize. In France, nearly everybody has social insurance. In France, there are by no means much more than 10% of the population depending on quasi-food-ration cards like during war periods.
In France, no towns can be found which are surrounded by camps of former house-owners who have been thrown out of their houses by desperate bankers. The U.S. are slowly developping towards a feudally governed middle age realm, thus touching the Mullah States on the other side, without willing to be so comparable with them.

I support 100% the downgrade of the US. It may have the highest GDP plus a higher GDP per capita than France and the UK, but hey, these countries are never in jeopardy of default. They pay the monthly bill on time - that is why they still have AAAs. We were willing to procrastinate on legislation that would allow us to meet our obligations until the very last minute, literally!!! They didn’t downgrade us enough.

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