According to Warren Buffet, this decision is \u201cpure madness\u201d and the United States deserve a quadruple A rating.<\/p>\n
\nS&P\u2019s decision is still subject to huge controversy. According to Warren Buffet who is the main shareholder of Moody\u2019s, a competitor of S&P which has maintained its AAA rating of the USA, this decision can be described as \u201cpure madness\u201d. Mister Buffet contends that the USA deserves a quadruple A rating considering the fact that the T-Note remains the most sought after debt security in the world. He goes further by saying that the only consequences of S&P\u2019s decision will be an extension of the drop in equity markets and a growing risk for a new recession which was nonexistent until now. <\/p>\n
Several central banks have indicated that this downgrade will not impact their policies regarding investments in American debt securities. The Japanese central bank, the ECB and the Russian central bank have declared that they will maintain their T-Note investments and that there would be no change in the amounts allocated to banks bringing American debt securities as collateral. <\/p>\n
John Bellows, the deputy treasury secretary, has highlighted a 2000 billion dollar error from S&P in his blog and laments the fact that the rating agency did not review its decision. He also complains that S&P did not take an additional day to reevaluate its analysis. Mister Bellows added that the size of the error and the speed with which S&P changed its main justification when confronted with this error create major doubts on the credibility and integrity of the rating agency regarding the decision to downgrade the United States. <\/p>\n
Paul Krugman, an economics Nobel prize winner, considers that S&P analysts are in no position to judge the creditworthiness of the United States. He reminds the staggering amount of AAA ratings distributed by S&P and its competitors to evaluate \u201ctoxic\u201d financial products which subsequently caused the worldwide crisis during the fall of 2008. Robert Reich, the former employment secretary in Bill Clinton\u2019s cabinet, supports this view. He writes in his blog that S&P\u2019s intervention is highly ironic since a large part of America\u2019s current debt is directly or indirectly the result of S&P\u2019s failures. <\/p>\n
Europe arrives to the same conclusions! In an interview given last Sunday to the Spanish newspaper La Voz de Galicia, Jos\u00e9 Manuel Gonzalez Paramo who is a member of the ECB executive council argues that the three main rating agencies face huge conflicting interests and that greater competition in the rating agencies\u2019 sector is required to improve efficiency. He went further by saying that there is a big problem with rating agencies in that they can be bad or very bad in their recommendations as demonstrated during the past few years and that they do not take their responsibilities. <\/p>\n
Bill Miller, Chief Investment Officer of Legg Mason Capital Management wrote : “The downgrading by Standard & Poor\u2019s of the credit rating of the United States was precipitous, wrong, and dangerous. At best, S&P showed a stunning ignorance and complete disregard for the potential consequences of its actions on a fragile global financial system” According to him, There was no need for S&P to rush to judgment just
\ndays after a bruising political battle had secured a bipartisan agreement to raise the debt ceiling through the next election cycle and which initiated a process to begin to cut spending and address the
\nnation\u2019s long term fiscal imbalances.<\/p>\n
There are at least three reasons why S&P was wrong to downgrade.
\n– The contentious debate surrounding the debt ceiling succeeded in doing something important that had not been done before
\n– S&P apparently gave little or no weight, or certainly insufficient weight, to the unique role the United States plays in the global economy
\n– The market says S&P is wrong. The US enjoys among the lowest interest rates in its history coincident with the highest deficits and a daunting long term fiscal outlook. Yet when investors in a
\nhighly uncertain world are looking for safe assets,
\nthey invest in US Treasuries.<\/p>\n
Mohammed El-Erian, the CEO of Pimco, says that S&P\u2019s decision will fuel uncertainty on the world\u2019s economy core functioning since no other AAA country can replace the USA as the center of the world\u2019s financial system. This appears to be quite a paradox since Bill Gross, the founder of Pimco, the world\u2019s biggest bond manager, had previously indicated that he had given up any involvement in American debt because of the state of the country\u2019s finances. <\/p>\n
According to Claran O\u2019Hagan, a fixed income strategist at Soci\u00e9t\u00e9 G\u00e9n\u00e9rale, this decision will have severe consequences even if it was partly predictable. He fears that a Pandora box may have been opened as a result. Mister O\u2019Hagan believes that the downgrade will slightly impact risk free assets but that the biggest reaction will be on equities and on agency securities directly secured by the Federal government. <\/p>\n","protected":false},"excerpt":{"rendered":"
According to Warren Buffet, this decision is \u201cpure madness\u201d and the United States deserve a quadruple A rating.<\/p>\n","protected":false},"author":20,"featured_media":19682,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1470],"tags":[1655,1856,1858,1859,2073,1671,1676,1650,1910],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/19684"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/20"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=19684"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/19684\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/19682"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=19684"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=19684"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=19684"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}