The old order changeth

by charvaka Fri Aug 05, 2011 11:10 pm

When I first heard about treasury bonds, credit ratings, and net present value, I was taught that the world's safest investment was securities issued by the US Treasury. The interest rate offered by treasuries was defined by my textbook as the "risk-free interest rate." The definition of the highest possible credit rating -- AAA -- was "anyone as creditworthy as the US Treasury is." So it felt quite surreal when I heard on the radio today that Standard & Poors has downgraded the US credit rating to AA+. In terms of symbolism, this one is hard to beat. As China and India keep getting upgrades (they are nowhere near AAA yet), the might US slips a notch.

What is the fallout for ordinary people like us? I have been considering buying a house this year. But will this mean that mortgage rates will shoot up? If that happens, how long will it take for that to ripple through the housing markets in terms of a downward correction?

I can see the political fallout being an interesting game at this point. It is easy to pin it on Obama -- after all, he is the man at the helm when what was unthinkable just 3 months ago actually happened. But the Dems can take the fight to the street and pin the blame on the Tea Party -- whose apocalyptic tactics are the real reason for the downgrade.

by truthbetold Fri Aug 05, 2011 11:30 pm

If one has a good job and down payment, this is the greatest time to buy a house in the last 25 to 30 years. Interest rates are so low that even if they go up a little bit, they will still be very low from a historical perspective. Don't forget location, location, location.

Short S&P downgrade is likely to have a minimal affect. There is now handing over of keys in the current world leadership struggle. US is still milatarily, economically strongest. There is no Bretten woods where US rewrote world economic rules.

This downgrade is another way of taking away the absolute economic power of US a little bit at a time. It is the start of the begining of a shared world economic leadership. China seems to be pushing its way into the seat next to USA.

by truthbetold Fri Aug 05, 2011 11:49 pm

http://money.cnn.com/2011/08/05/news/economy/downgrade_rumors/index.htm

IT is funny that UK and Australian treasuries are rated at AAA higher than USA.

by Guest Sat Aug 06, 2011 11:15 am

DUT this is the right thread to vent.

by Propagandhi711 Sat Aug 06, 2011 11:20 am

s&p is the same agency that rated subprime securities as AAA, just a few years ago? and they still rate UK ahead of US? the message might be right but the messenger is a dirty stinking rat.

I read somewhere that this will more of a problem for local govts and munis and you might start seeing the long overdue defaults ala orange county

by charvaka Sat Aug 06, 2011 2:45 pm

Does this mean another virtual credit crunch, in the sense that higher interest rates on treasuries ripple through as higher borrowing costs for everyone, including higher rates on business lines of credit? If that happens, we will have some businesses that are in precarious positions fall down, worsening unemployment even more.

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