S&P's Negative U.S. Credit Assessment Breaks
'Global Taboo'
"Up
to now, the economic situation in the United States was a taboo subject for the
financial markets. There was an unwritten agreement that the U.S. was to maintain
its credit rating - not because it's reliable, but because downgrading its debt
could trigger another collapse of the global economy."
The credit rating agency Standard
& Poor’s (S&P) just lowered the outlook for U.S.
credit from stable to negative - which is a very subtle warning. However,
according to Alfred Adamiec of Alfa brokerage, if economists wanted to be completely
honest with themselves, they would have lowered America's
credit rating, not just its credit outlook.
Up to now, the economic
situation in the United States has been a taboo subject for financial markets. There
has been an unwritten agreement that the U.S. was to maintain its credit rating - not
because it is reliable, but because downgrading its debt could trigger another
collapse of the global economy.
Posted by WORLDMEETS.US
If economists wanted
to be honest, they wouldn't just lower America's credit outlook, but its actual
credit rating. This fear of making too frank an assessment of the debt of the world's
largest economy demonstrates that the global financial system has yet to
recover from the crisis.
Nevertheless, in many countries,
increasingly honest comments are being heard. First of all, PIMCO
Investment Fund (one of the largest in the world), has already admitted to having
sold all of its U.S. bonds. Secondly, China's credit rating agencies have been
saying for quite some time that the credibility of the United States is overrated.
VIDEO: Standard &
Poor's seeks to force solution to U.S.
The main source of the
problem is the quarrel between Republicans and the Democrats. Each party has divergent
notions about how to rescue the American budget. The Republicans want to cut social
spending and taxes in order to get the economy moving, while Democrats would
rather raise taxes and the national debt limit. It's clear that within
the next few weeks, without action, the U.S. debt limit will be breached. If that
happened, it would mean de facto that the United States is bankrupt. On the
other hand, the mere raising of the limit won't mean much, because what's
important to economists are the numbers. If there is a growing debt, no changing
of "limits" will ever address it.