Consumer agency wants oversight of debt collectors, credit bureaus 16FEB12

THIS is what democracy looks like! The CFPB is doing exactly what is needed for the benefit of the 99%, and the decision to rely on regulations rather than lawsuits to protect consumers shows Richard Cordray shows congress and the American people he is not interested in wasting time and tax-payer dollars in the courts but is committed to the mandate that created the CFPB, consumer protection. From the Washington Post.....

By Ylan Q. Mui

The Consumer Financial Protection Bureau on Thursday sought to bring debt collectors and credit bureaus under its purview, marking the first time the often controversial industries would be subject to federal supervision.
Under its proposed rule, the CFPB would oversee the nation’s largest debt collectors, the primary credit reporting agencies such as Experian, Equifax and TransUnion, and other lesser-known consumer reporting agencies. It is the first attempt by the watchdog agency to define which businesses in the vast swath of nontraditional financial institutions will be subject to the same examination process as banks.
“This oversight would help restore confidence that the federal government is standing beside the American consumer,” CFPB Director Richard Cordray said in a statement.
Cordray said a reason why they are targeting these firms is because they have expanded their reach into consumers’ lives during the recession. More people are now being pursued by debt collectors and have watched their credit scores slip.
Those scores have become crucial in the aftermath of the financial crisis. Some employers are even looking at credit scores as criteria for jobs. A car, a home, a college education are all financed by lenders that rely on the score to determine who gets credit and how much they pay for it.
For most consumers, those scores are based on records of loans they have taken out in the past and how well they have paid them off. This information is housed in the Big Three national credit bureaus — Experian, Equifax and TransUnion. Lenders use formulas developed by companies such as FICO and VantageScore to analyze the data and determine how likely each person is to repay.
Government regulators, financial firms and consumer advocates have launched extensive education campaigns in recent years to make sure that consumers understand what goes into their Big Three credit reports and how that affects the cost of a loan.
But little attention has been paid to the so-called “Fourth Bureau” firms that target the 30 million consumers outside the mainstream financial system. Often they are students, immigrants or low-income consumers who do not qualify for traditional loans or choose not to use them. Instead, they rely on a makeshift system of payday lenders, check cashers and prepaid cards — none of which show up in the Big Three. Without a paper trail of credit, these consumers are virtually shut out of the traditional banking system.
As a result, fourth bureau firms are increasingly using non-traditional and, at times, unreliable data, including auto warranties, cellphone bills and magazine subscriptions to come up with credit scores.
Yet federal regulations do not always require these companies to disclose when they share your financial history or with whom, and there is no way to opt out when they do. No one is even tracking the accuracy of these reports. That has left the most vulnerable consumers with little insight into the forces determining their financial futures.
The CFPB agency became the first federal agency to oversee so-called “nonbanks” after President Obama appointed Cordray as director late last year. But before it can use its power, the CFPB must set standards for which companies make the cut.
The proposed rule sets the bar for debt collection agencies at $10 million in annual receipts. The CFPB estimated that would encompass about 175 firms that account for about 63 percent of the debt collected from consumers each year.
For consumer reporting agencies, the CFPB proposed a standard of $7 million in annual receipts. That includes not only the three major credit bureaus but also roughly 30 smaller firms in the Fourth Bureau. The rule would give the CFPB authority over about 94 percent of the industry by receipts.
The power to oversee such firms and other nonbanks was a key component of the new agency’s design, and the CFPB has quickly flexed its muscle. It has already convened hearings on payday lending and plans to propose new rules for mortgage servicers.
The agency said it will continue to roll out guidelines employing a variety of criteria to define businesses that will be subject to supervision.
“This is going to be a very important way for us to interact with industry participants to know exactly what they’re doing,” Cordray said. He added that the power could be more efficient than using the “blunt instrument of lawsuits.”

S&P Downgrades The Credit Of Nine European Countries, Including France 13JAN12

THIS is not good news for the American economy. A stronger dollar makes exports more expensive, a weaker euro means less sold in Europe, downgrading European countries threatens the financial stability of American financial institutions and banks. Is this the beginning of the double dip? See my post on this blog from 29DEZ11

HARRY DENT OF HS DENT ON NIGHTLY BUSINESS REPORT, BEARISH ON THE ECONOMY 29DEZ11 

This from NPR.....

by Marilyn Geewax and Eyder Peralta

Enlarge Remy de la Mauviniere/AP A trader watches a figure showing the fall of the euro in Paris on Friday. The euro fell to a 17-month low against the dollar on news reports that France's credit rating was downgraded by Standard & Poor's.

Of course the news would come on Friday the 13th.
After a day of leaks and rumors, Standard & Poor's Ratings Services made it official late this afternoon. The credit-rating agency is stripping unlucky France of its AAA credit rating, knocking it down by one notch to AA+.
Also getting knocked down one notch each were Austria, Malta, Slovakia and Slovenia.
S&P gave even worse news to Italy, Spain, Cyprus and Portugal, marking down their debt ratings by two notches each. That downgrade kicked Cyprus and Portugal all the way to "junk" status, where Greece already resides. Ouch.

Those that escaped a downgrade included Germany, Belgium, Ireland, Finland, the Netherlands, Luxembourg and Estonia.
S&P issued a statement saying it lowered the credit ratings because it had determined that "the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone."
Earlier in the day, French Finance Minister François Baroin admitted the downgrade was coming, but S&P itself waited until after the markets closed at 4 pm ET in this country to make the formal announcement.
Baroin said France's debt problem is now pointed in the right direction, and added that his country would not allow a ratings agency to dictate fiscal policies.
Le Monde, a major French newspaper, reported that Marine Le Pen, leader of France's far-right National Front (FN) party, predicted the loss of France's AAA rating would be "the first step in the breakup of the euro area".
In recent weeks, European leaders have been scrambling to find ways to cope with the problem of too much debt in too many countries. They have managed to hold off any major banking crises, but have not taken any steps bold enough to convince credit raters that all defaults can be avoided.
Friday's downgrade news suggested European political leaders still have a long way to go to clean up massive debt troubles and get the European Union's economy growing again. For France's President Nicolas Sarkozy, the downgrade was an embarrassment that could diminish his chances for re-election this year.
Typically, a credit downgrade — even by just one rating agency — would hurt a country's ability to borrow money cheaply. Investors demand higher interest payments when risks are greater, so no country wants to have anything but the highest rating.
But gauging exactly how much this downgrade will hurt European countries is not exactly clear. Last August, S&P cut the United States' AAA rating for long-term debt by one notch — but interest rates did not shoot up on U.S. debt.
Whether investors go as easy on the European countries remains to be seen as they issue new bonds in coming weeks and months.

Baroin, speaking on French television, said the S&P action was "not good news." But he added that given how many other countries are having debt troubles, the downgrade was "not a catastrophe."
Although the official S&P announcement came after U.S. markets closed, Baroin's statements had been made while trading was still in progress in this country . The reaction was muted. In the end, the Dow Jones industrial average fell only 48.96 to 12,422.06. The value of the euro tumbled Friday to a new 16-month low against the dollar.
We live blogged the news as it happened. Read below for a blow-by-blow look. Note that we re-wrote the top of this post to reflect the news.
 
Update at 5:15 p.m. ET. What Happens Now?:
As we said when the United States' credit rating was cut in August, it's unclear how this cut will affect the Eurozone. But one thing to watch, reports the Wall Street Journal, is a Treasury bill auction the eurozone bailout organization known as the European Financial Stability Facility plans to hold on Tuesday.
Update at 5:13 p.m. ET. Good News For Five Countries:
The S&P also announced it affirmed the ratings of Germany, the Netherlands, Belgium, Estonia, Finland, Ireland and Luxembourg.
Update at 5:06 p.m. ET. Austerity Not Enough:
Reading deeper into the S&P announcement, it's clear the ratings agency is unhappy with the steps taken by European countries to curb the sovereign debt crisis. In short, it says austerity measures are not enough.
"We believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues," the S&P said.
Update at 4:55 p.m. ET. Lowering Ratings On Nine Sovereigns:
The S&P has made their cuts to France official and has added eight other European countries to the list. From their press release:

"We have lowered the long-term ratings on Cyprus, Italy, Portugal, and Spain by two notches; lowered the long-term ratings on Austria, France, Malta, Slovakia, and Slovenia, by one notch; and affirmed the long-term ratings on Belgium, Estonia, Finland, Germany, Ireland, Luxembourg, and the Netherlands."

Update at 4:23 p.m. ET. Downgrade 'Long Overdue':
Our Newscast unit just spoke to Peter Morici, an economist and professor of business at the University of Maryland. Morici said this downgrade "was long overdue."
Essentially he said, France has a "systemic risk." With the Euro, the northern countries have flourished, said Morici. In fact, he said if France was valued using its own currency it wouldn't be worth as much. So, now, as the southern European countries face defaulting and the risk of a eurozone split becomes real, any advantage the Euro gives France is gone.
"[The downgrade] is not the end of the world," said Morici. "But it is an indication that the stability and opportunity for growth promised by the creation of the Euro have not come to fruition."
Update at 4:03 p.m. ET. France's National Politics:
French President Nikolas Sarkozy is facing an election. This downgrade will no doubt have an effect on its politics. The Wall Street Journal's Angelique Chrisafis reports from Paris:

"With less than 100 days until the first round of the French presidential race, the credit-rating downgrade in Paris will seriously complicate Nicolas Sarkozy's already difficult bid for re-election.
"'If France loses its AAA, I'm dead,' Sarkozy told aides in October, according to Le Canard Enchaîné. The president has staked his re-election on convincing France that he is the only person with the guts, strength and character to save it from economic doom. The rating cut will seriously dent his image as the Caped Crusader of the financial world."

Update at 3:11 p.m. ET. Shouldn't 'Overrate The Assessments':
Quoting an interview on German television, The Wall Street Journal reports Germany's Finance Minister Wolfgang Schaeuble tried to minimize the significance of a downgrade saying, "In recent months, we have grown to agree world-wide that we shouldn't overrate the assessments of rating agencies. It's not new that there is a great uncertainty in financial markets regarding the euro zone."
Update at 3:09 p.m. ET. Rating The Same As The U.S.:
It's worth noting that a AA+ rating is the same S&P has assigned to the United States.
Update at 3:05 p.m. ET. 'Like Most Of The Eurozone':
In his interview with France 2, Baroin also said France's rating had been lowered one notch "like most of the eurozone."
The AP points out that there is no confirmation from S&P that any other European country has been downgraded. The Guardian runs through what that may mean:

"Of the 17 members of the eurozone, 15 were warned by S&P last month that they could be downgraded. We've heard strong denials from Germany, Finland, the Netherlands and - in the last few minutes - Ireland.
"That leaves ten on the table — Austria, Belgium, Luxembourg,Estonia, Italy, Malta, Portugal, Slovakia, Slovenia and Spain."

Update at 2:56 p.m. ET. The Markets:
As we've said, this announcement was widely expected, so the markets don't seem to be reacting dramatically. The Dow, Nasdaq and the S&P were down less than 0.75 percent.
The AFP reports on the European markets:

"European markets had expected the downgrade, which was widely reported during the day even if Standard and Poor's were not expected to confirm it until later in the evening, and stocks only slid back slightly.
"But the single currency itself was rocked by the news, which coincided with a breakdown in talks to agree a Greek debt writedown, and the euro slipped to 16-month lows against the dollar."

Update at 2:50 p.m. ET. AA Or AA+?
The AP is reporting that S&P cut the rating to AA, but several other news sources, including the Wall Street Journal, The Guardian and France 24, are reporting it's been cut to AA+. We're going with AA+ for now. But we'll revise if we need to.
Update at 2:35 p.m. ET. Rating Cut 'Isn't A Catastrophe':
The Wall Street Journal, which is running a live blog on the news, reports that François Baroin, France's finance minister, sought to minimize the effect the downgrade may have on the country and the eurozone.
In an interview with television station France 2, he said ratings "don't dictate French politics."
"Of course we would have preferred to keep our Triple A credit rating," Baroin said.
Update at 2:25 p.m. ET. No Confirmation From S&P:
NPR's Marilyn Geewax reports S&P has not yet confirmed the downgrade, but it is widely expected they will make an announcement at 4 p.m. ET., after the markets close.
This news was not unexpected. In December, Fitch, another of the major credit rating agencies, assigned France's sovereign debt a negative outlook.

Bachmann said Standard & Poor's downgrade proved she was right from POLITIFACT 12AUG11

HERE'S another Christian republican presidential candidate who finds it necessary to lie about, distort and manipulate information on the national debt and the recent debt ceiling "crisis". One might excuse her because she is stupid (and I think she really is stupid) but I don't buy that as an excuse. I think michele bachmann is a scheming FOTZE, a political whore who is completely controlled by the gop and tea-bagger political parties, serving their corporate masters. From Politifact...

The Truth-O-Meter Says:

When Standard & Poor's "dropped our credit rating, what they said is, we don't have an ability to repay our debt. ... I was proved right in my position" that the debt ceiling should not have been raised.

Michele Bachmann on Thursday, August 11th, 2011 in a debate in Ames, Iowa

Bachmann said Standard & Poor's downgrade proved she was right

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Rep. Michele Bachmann, R-Minn., was one of eight candidates to participate in a presidential debate in Ames, Iowa, on Aug. 11, 2011.

If you made a list of House Republicans who were the biggest opponents of raising the debt ceiling, Michele Bachmann would be near the top.

Bachmann, R-Minn., and a Republican candidate for president, said consistently that she would not vote for an increase in the debt ceiling -- the legal limit on how much money the government can borrow -- regardless of the terms of the deal.

She repeated her opposition at a Republican debate in Ames, Iowa, on Aug. 11, 2011, when asked if she was concerned about the United States defaulting and not paying its debts.

"If you had your way, the debt ceiling would not have been raised," said Susan Ferrechio, a debate moderator. "What do you say to analysts who insist that Americans' investments, their 401(k)s, their college funds would have been far worse off today?"

"I think we just heard from Standard & Poor's," Bachmann said. "When they dropped our credit rating, what they said is, we don't have an ability to repay our debt. That's what the final word was from them. I was proved right in my position. We should not have raised the debt ceiling. And instead, we should have cut government spending, which was not done. And then we needed to get our spending priorities in order."

Is that what Standard & Poor's said? And did the report support her position that the debt ceiling should not have been raised? Her statement was a disputed point in the post-debate analysis, so we decided to check it out for ourselves. (We should also note that her claim that the deal did not cut government spending is questionable at best. The nonpartisan Congressional Budget Office said that the deal would cut "at least $2.1 trillion" between 2012 and 2021.)

A little background: Standard & Poor's is a New York-based ratings agency that studies the financial markets. It issues guidance to investors and rates various investments for financial risk. On Aug. 5, it downgraded its credit rating for the United States one notch, from the top-rated AAA to AA+. (The other two ratings agencies, Moody's and Fitch, did not lower the U.S. rating.)

The Obama administration strongly objected to the ratings downgrade and disputed Standard & Poor's analysis. Others criticized the company for its performance in previous years, when it gave high ratings to mortgage securities that subsequently proved worthless.

The downgrade didn't seem to have much effect on investors' desire to hold U.S. Treasury bonds and other securities, which are still widely perceived as safe investments.

Bachmann said that when Standard & Poor's dropped the rating, "what they said is, we don't have an ability to repay our debt" and she said it supported her position that the ceiling should not have been raised and that spending should have simply been cut. Bachmann also opposed any type of tax increases, including closing loopholes, which Democrats supported.

To fact-check Bachmann, we read Standard & Poor's original report on why it issued its downgrade.

To put it in simple terms, Standard & Poor's had two main reasons for the downgrade: First, that the size of the U.S. debt is very large and growing, and second, that politicians seem unable to agree on what steps to take to reduce it. It called the political process "contentious and fitful," and said the firm was "pessimistic" that the White House and Congress would be able to agree on measures to significantly reduce the debt anytime soon.

"The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy," the report said.

The report does not say that the debt ceiling should not have been raised. If anything, there's an unstated assumption that increasing the debt ceiling was necessary. "The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy," the report said.

And in an interview on Fox News, Standard & Poors' managing director John Chambers seemed to express disapproval that it took so long for Congress to raise the debt ceiling. He said President Barack Obama "characterized the political system as dysfunctional, I think that's a good word. We got to a position where we were within 10 hours of having a major cash flow problem. This is not what happens in other countries," Chambers said on Aug. 8.

Another official with Standard & Poor's, director Joydeep Mukherji, told POLITICO that the stability of American political institutions were undermined by the fact that "people in the political arena were even talking about a potential default." He didn't mention who those people were. "That a country even has such voices, albeit a minority, is something notable," he added. "This kind of rhetoric is not common amongst AAA sovereigns."

As to which political party was in the right, the ratings agency did not explicitly tip its hand. The report said it took no position on whether taxes should be raised or spending should be cut.

In the Fox News interview, Chambers was asked if the tea party movement was responsible for the downgrade as Democrats alleged. He declined to take the bait and assign blame.

"I think that there's lots of blame to go around, and what we need to come to in the United States is a way of forging consensus, so that we can take the tough choices that lie ahead, because the fiscal situation in the United States is not sustainable," he said.

Bachmann said that when Standard & Poor's "dropped our credit rating, what they said is, we don't have an ability to repay our debt. That's what the final word was from them. I was proved right in my position. I was proved right in my position."

In fact, because the debt ceiling was raised, the United States is paying its debts. What Standard & Poor's actually said was that politicians in Washington can't agree on long-term solutions for how to reduce the debt -- not that the country is or was unable to pay its debts. The notion that the report supported her position is wishful thinking. For that, we rate her statement False.

China Blasts U.S. Over Credit Rating Downgrade, Debt 'Addiction' 6AUG11

PEOPLE don't like this, but there is some truth to what the government of the prc says concerning our fiscal policies (though they should have directed their criticisms at corporate welfare and tax cuts for the rich) and the government circus in D.C. They are typically hypocritical though because they refuse to float their currency, refuse to allow true economic freedom, impose restrictive tariffs on imports, refuse to enforce their own laws on labor rights and so keep production cost artificially low, have a huge income inequality problem that will cause more social unrest, and underfund their own social safety net programs (pensions, healthcare, etc) while spending massive amounts on their own military. The prc is a disaster just waiting to happen because of their own dysfunctional government policies. So they can express their opinions on the situation in the U.S., but before demanding anything from the U.S. they should consider their own precarious situation first. From HuffPost.....
BEIJING -- China, the largest foreign holder of U.S. debt, demanded Saturday that America tighten its belt and confront its "addiction to debts" in the wake of Standard & Poor's decision to downgrade the U.S. credit rating.
China currently owns $1.2 trillion of U.S. Treasury debt, the largest stake of any central bank. The commentary carried by the state-run Xinhua News Agency was Beijing's first official response to the S&P decision.
"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," Xinhua said.
It said the rating cut would be followed by more "devastating credit rating cuts" and global financial turbulence if the U.S. fails to learn to "live within its means."
"China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets," it said.
Xinhua said the U.S. must slash its "gigantic military expenditure and bloated social welfare costs" and accept international supervision over U.S. dollar issues.
Last month, China's top general, Chen Bingde, also linked America's financial woes to its military budget and asked whether paring back on defense spending wouldn't be the best thing for U.S. taxpayers.
Such comments reflect Beijing's desire that Washington reduce its military presence in Asia. The U.S., rattled by China's military buildup, also routinely chides Beijing for its fast-growing defense spending.
Xinhua also suggested a new global reserve currency might be necessary to replace the dollar, a position China has frequently advocated.

"Mounting debts and ridiculous political wrestling in Washington have damaged America's image abroad," Xinhua said. "To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means."
Jitters over the U.S. handling of its debt problems were also being felt elsewhere in Asia, said Kishore Mahbubani, Singapore's former ambassador to the United Nations.
The dean of Singapore's Lee Kuan Yew School for Public Policy said the last-minute agreement by the U.S. Congress to lift the debt limit and avoid default has policymakers in Asia questioning the stability of U.S. global leadership.
"It's definitely undermined U.S. credibility," Mahbubani said late Friday. "Everyone is wondering if you have such a dysfunctional political process, how can you provide global leadership. It's very dangerous for the world."
___
Associated Press writer Alex Kennedy in Singapore contributed to this report.

S&P downgrades U.S. credit rating for first time & S&P Downgrades U.S. Credit Rating From AAA 5 & 6AUG11

I doubt this will motivate Congress to put aside politics and get to the business of governing. The repiglicans and tea-baggers are to blame for the failed budget negotiations....I know an agreement was reached but they insisted in protecting the greed of the wealthy and corporate America and the democrats and Pres Obama lacked the moral courage to stand up to them and demand revenue increases be part of any agreement. The government has taken us one step closer to being a plutocracy and a Third World nation. From the WashPost & NPR....

By Zachary A. Goldfarb

Standard & Poor’s announced Friday night that it has downgraded the U.S. credit rating for the first time, dealing a symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system.
Lowering the nation’s rating to one notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.
“It’s always possible the rating will come back, but we don’t think it’s coming back anytime soon,” said David Beers, head of S&P’s government debt rating unit.
The decision came after a day of furious back-and-forth debate between the Obama administration and S&P. Treasury Department officials fought back hard, arguing that the firm’s political analysis was flawed and that it had made a numerical error in a draft of its downgrade report that overstated the deficit over 10 years by $2 trillion. Officials had reviewed the draft earlier in the day.
“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokesman said Friday night.
The downgrade to AA+ will push the global financial markets into uncharted territory after a volatile week fueled by concerns over a worsening debt crisis in Europe and a faltering economy in the United States.
The AAA rating has made the U.S. Treasury bond one of the world’s safest investments — and has helped the nation borrow at extraordinarily cheap rates to finance its government operations, including two wars and an expensive social safety net for retirees.
Treasury bonds have also been a stalwart of stability amid the economic upheaval of the past few years. The nation has had a AAA rating for 70 years.
Analysts say that, over time, the downgrade could push up borrowing costs for the U.S. government, costing taxpayers tens of billions of dollars a year. It could also drive up interest rates for consumers and companies seeking mortgages, credit cards and business loans.
A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising the cost of borrowing for schools, roads and parks.
But the exact effects of the downgrade won’t be known until at least Sunday night, when Asian markets open, and perhaps not fully grasped for months. Analysts say the initial effect on the markets could be modest because they have been anticipating an S&P downgrade for weeks.
Federal officials are also examining the impact of a downgrade in large but esoteric financial markets where U.S. government bonds serve an extremely important function. They were generally confident that markets would hold up but were closely monitoring the situation. Regulators said that the downgrade would not affect how banking rules treat Treasury bonds — as risk-free assets.
The ratings action immediately fueled partisan wrangling Friday night. Allies to President Obama said it underscored his call for a “grand bargain” that would trim $4 trillion from the federal budget involving a mix of tax revenue and spending cuts.
Republicans criticized Obama’s handling of the economy.
“Standard & Poor’s rating downgrade is a deeply troubling indicator of our country’s decline under President Obama,” Republican presidential candidate Mitt Romney said.
S&P has angered government officials with aggressive warnings during the past few months of a potential downgrade. S&P corrected its draft report Friday after Treasury raised concerns about the math.
Over the past few months, the multiple warnings from S&P have not worried government bond markets. What’s more, the two other major credit rating companies, Moody’s Investors Service and Fitch Ratings, have said they would preserve the nation’s AAA rating for now.
S&P’s downgrade was as much a political critique as a financial conclusion. It is based on a view that U.S. political leaders would be unable to come up with at least $4 trillion in savings, which is needed to bring the nation’s debt to a manageable level over the next decade.
The debt deal swung earlier this week proposed spending cuts in two phases. Democrats and Republicans agreed to the first round, worth nearly $1 trillion. But a congressional committee must decide on the remaining $1.2 trillion to $1.5 trillion — and S&P questioned whether that would ever happen.
S&P added that it expects that the upper income Bush-era tax cuts will continue, despite vows from Obama to end the breaks next year.
“The majority of Republicans in Congress continue to resist any measure that would raise revenues,” the firm said.
S&P’s downgrade served as an indictment of the gridlock that sent the nation to the edge of defaulting on its debt obligations. It is also striking in part because it reflects the tremendous power of a small group of financial analysts employed by a New York company — part of McGraw-Hill. Credit-rating companies’ reputations were sullied during the financial crisis.
In Europe, political leaders have taken aim at credit rating companies when they cut the ratings of governments struggling with heavy debt burdens.
S&P said the nation could suffer additional downgrades later on if the nation’s debt burden grows worse. “A new political consensus might [or might not] emerge after the 2012 election, but we believe that by then the government debt burden will likely be higher,” the firm said.
The company said the United States’s financial position was diverging from that of other AAA countries, including Canada, France, Germany and Britain.
Countries with a AA+ rating include New Zealand and Belgium. Among those countries with a AA rating, one notch lower, are Bermuda, Spain and Qatar.

Staff writers Neil Irwin and Cezary Podkul contributed to this report.

S&P Downgrades U.S. Credit Rating From AAA

by The Associated Press

The United States has lost its coveted top AAA credit rating.

Complete Coverage

S&P Lowers U.S. Long-Term Credit Rating Aug. 5, 2011

Credit rating agency Standard & Poor's on Friday downgraded the nation's rating for the first time since the U.S. won the top ranking in 1917. The move came after Congress haggled over budget cuts and the U.S. government borrowing limit — and failed to cut enough government spending to satisfy S&P. The issue has contributed to convulsions in financial markets.
The drop in the rating by one notch to AA-plus was expected. The three main credit agencies, which also include Moody's Investor Service and Fitch, had warned during the budget fight that if Congress did not cut spending far enough, the country faced a downgrade. S&P said that it is making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation. Moody's said Friday it was keeping its AAA rating on the nation's debt, but that it might still lower it.
One of the biggest questions after the downgrade was what impact it would have on already nervous investors. Many financial analysts said investors were expecting a downgrade. But some selling was expected when stock trading resumed Monday morning. The Dow Jones industrial average fell 699 points this week, the biggest weekly point drop since October 2008.
"I think we will have a knee-jerk reaction on Monday," said Jack Ablin, chief investment officer at Harris Private Bank.
One fear in the market has been that a downgrade would scare buyers away from U.S. debt. If that were to happen, the interest raid paid on U.S. bonds, notes and bills would have to rise to attract buyers. However, even without its AAA rating, U.S. debt is seen as one of the safest investments in the world. And investors clearly weren't being scared away this week. While stocks were plunging, investors were buying Treasuries. The yield on the 10-year note, which moves opposite its price, fell to a low of 2.39 percent on Thursday.
The government fought the downgrade. Administration sources familiar with the discussions contended that the S&P analysis was fundamentally flawed. They spoke on condition of anonymity because they weren't authorized to discuss the matter publicly. S&P had sent the administration a draft document in the early afternoon Friday and the administration, after examining the numbers, challenged the analysis.
In a statement, Treasury said, "A judgment flawed by a $2 trillion error speaks for itself."
S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade to AA would occur if the agency sees smaller reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period.
In its statement, S&P said that it had changed its view "of the difficulties of bridging the gulf between the political parties" over a credible deficit reduction plan.
S&P said it was now "pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics anytime soon."

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President Obama Calls on the American People to Make their Voices Heard 29JUL11

LEADERSHIP from Pres Obama. Though I don't always agree with him I do appreciate his leadership on this issue. john boehner ad eric cantor, pay attention....
This morning, President Obama spoke on the status of the debt ceiling negotiations from the Diplomatic Reception Room at the White House. The President urged Republicans and Democrats in Congress to find a bipartisan solution to avoid default that he can sign by Tuesday. Though we are almost out of time, the President made it clear that there are multiple ways to resolve this problem:

Now, keep in mind, this is not a situation where the two parties are miles apart.  We’re in rough agreement about how much spending can be cut responsibly as a first step toward reducing our deficit.  We agree on a process where the next step is a debate in the coming months on tax reform and entitlement reform –- and I’m ready and willing to have that debate.  And if we need to put in place some kind of enforcement mechanism to hold us all accountable for making these reforms, I’ll support that too if it’s done in a smart and balanced way.
So there are plenty of ways out of this mess.  But we are almost out of time.  We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time, as we always have -- bills that include monthly Social Security checks, veterans’ benefits and the government contracts we’ve signed with thousands of businesses.  Keep in mind, if we don’t do that, if we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills -- we do -- but because we didn’t have a AAA political system to match our AAA credit rating.

And make no mistake -– for those who say they oppose tax increases on anyone, a lower credit rating would result potentially in a tax increase on everyone in the form of higher interest rates on their mortgages, their car loans, their credit cards.  And that’s inexcusable.

President Obama reiterated that the power to reach a balanced solution is in our hands:

There are a lot of crises in the world that we can’t always predict or avoid -– hurricanes, earthquakes, tornadoes, terrorist attacks.  This isn’t one of those crises.  The power to solve this is in our hands.  And on a day when we’ve been reminded how fragile the economy already is, this is one burden we can lift ourselves.   We can end it with a simple vote –- a vote that Democrats and Republicans have been taking for decades, a vote that the leaders in Congress have taken for decades.
It’s not a vote that allows Congress to spend more money.  Raising the debt ceiling simply gives our country the ability to pay the bills that Congress has already racked up.  I want to emphasize that.  The debt ceiling does not determine how much more money we can spend, it simply authorizes us to pay the bills we already have racked up.  It gives the United States of America the ability to keep its word.

Finally, the President called on the American people to continue to make their voices heard in this debate:

Now, on Monday night, I asked the American people to make their voice heard in this debate, and the response was overwhelming.  So please, to all the American people, keep it up.  If you want to see a bipartisan compromise -– a bill that can pass both houses of Congress and that I can sign -- let your members of Congress know.  Make a phone call.  Send an email.  Tweet.  Keep the pressure on Washington, and we can get past this.
And for my part, our administration will be continuing to work with Democrats and Republicans all weekend long until we find a solution.  The time for putting party first is over.  The time for compromise on behalf of the American people is now.  And I am confident that we can solve this problem.  I’m confident that we will solve this problem.  For all the intrigue and all the drama that’s taking place on Capitol Hill right now, I’m confident that common sense and cooler heads will prevail.

But as I said earlier, we are now running out of time.  It’s important for everybody to step up and show the leadership that the American people expect.

President Barack Obama delivers a statement to the press regarding the ongoing budget negotiations in the Diplomatic Reception Room of the White House, July 29, 2011. (Official White House Photo by Samantha Appleton)