Tuesday, April 19, 2011

U S rating put on negative watch

The U.S. Government has been put on "Negative Watch" by Standard and Poors.  Their reasoning is that if the government can't come up with reasonable deficit reduction changes in two years, they will have to drop their AAA rating.

What this really means, it seems to me, is that the U.S. Government already should be rated less than AAA.  This is the same S&P that gave AAA ratings to toxic mortgage backed securities during the housing bubble, and to Bear Stearns and Lehman Brothers right up to the brink of their collapses.  

I may be overly concerned about the possibility that the big monies of China, the Middle East, Pension funds, etc. will start turning away from U.S. Treasuries and need higher interest rates on those bonds to attract investors.  In one sense, where else do they turn?  Japan, Europe, and other countries are probably in even worse shape than the U.S.  But, I find it of little comfort that if honest ratings were given out the U.S. would be mediocre and a little above worse ratings of the alternatives.

It really seems to me that our government is playing out the same script that Bear Sterns, Lehman, and AIG already played out.  Upper management had some notion that things weren't right with their finances but they diminished the problems, very publicly assured all of their investors that everything was under control, and then went over the cliff and collapsed totally.

Now we have the President and his administration reassuring us that we have nothing to worry about, everything is under control.  I say, look out below.

Our government has to come together and change.  I still believe we need both spending cuts and revenue increases.  If we don't, ratings go down, interest rates go up, and the economy spirals down, either dramatically or slowly, but down.  

I send positive energies and prayers that this is a wake up call for the management of this country, a country considered Too Big to Fail.