Notes of Note from John F. Ince

Thank you, Standard  Poor’s.

The rating agency’s warning about the possibility it may downgrade the credit rating of the United States is a welcome wake-up call.

Another one. A few weeks back, Pimco, the world’s biggest bond fund, said it was eliminating its holdings of U.S. government debt.

Then the International Monetary Fund lectured the United States in a tone that sounded more suited to a teetering Third World country than the fund’s largest shareholder. A “credible strategy” to stabilize the U.S. national debt is “urgently needed,” the IMF warned.

Now comes Standard  Poor’s to lower its assessment of U.S. Treasury securities from “stable” to “negative” — meaning at least a one-in-three chance the U.S. debt rating could be lowered within two years.

It cited a “material risk” that there could be no agreement on how to deal with medium- and long-term budget issues by 2013. If nothing happens by then, “this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns,” SP said.

In other words, our greatest intangible asset — the fact that the United States is viewed as the world’s safest investment — could evaporate. Pffft. Interest rates would rise. The economy would tank. The higher cost of servicing the debt and the accompanying collapse of tax revenue would make it that much harder to escape this decidedly unvirtuous circle.

Truth is, you don’t have to be in the ratings business to see how difficult it will be for the United States to avoid this fate. The dysfunctionality of the political system is evident to any casual newspaper reader.

via Standard & Poor’s financial storm warning – The Washington Post.

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