Standard & Poor’s may downgrade the long-term credit rating of the U.S. once again in less than three months after sending shockwaves through the bond and stock markets by stripping the nation of its top notch triple-A rating last week, according to an emergency Sunday night conference call for clients of Bank of America Merrill Lynch.
“We do expect further downgrades,” said Ethan Harris, North American economist, on the call. “We doubt the newly appointed bipartisan commission will come up with a credible long-term deficit reduction plan. Hence by November or December we would not be surprised to see S&P downgrade the debt again from AA-plus to AA.”
Harris said that the U.S. should have avoided the downgrade in the first place by meeting S&P’s demands of a $4 trillion deficit cut and a “demonstrating a sensible budget process.” What they got instead was a “deficit cut of $2.1 trillion and a budget process that’s been extremely chaotic,” said Harris.
[…]”If a disorderly Treasury market leads to the Fed embarking on QE3, repercussions for the dollar will be catastrophic,” said David Woo, head of global rates and currencies research, on the call. “Investors will be quick to conclude that U.S. monetary policy has been subjugated by fiscal policy and the Fed’s independence would be placed seriously into question.”
In other news, Estonia has actually received a recent debt rating UPGRADE:
In the midst of a world embroiled in economic turmoil, a few nations have managed to do surprisingly well—among them, Estonia. After near economic collapse during the 2008–2009 financial crisis, the country has managed to successfully bounce backwith substantial GDP growth, a vibrant trade environment, and a notable budget surplus.
During the first quarter of this year, Estonia had the highest rate of growth in the EU and the biggest drop in unemployment. In July, its credit rating was raised by Fitch to A+, a reflection of substantial economic growth.
But how did Estonia get here? Estonia possesses a flexible, open economy and investment climate that encourages competition and economic growth. It remains one of the world’s freest economies, according to The Heritage Foundation’s Index of Economic Freedom. However, prudent fiscal policies have played the largest role in Estonia’s impressive economic performance, particularly in recent years. Still, the path to fiscal conservatism was not easy; it required a lot of rigorous, painful cutback involving 9 percent of GDP in fiscal adjustments and large cuts to nominal wages.
Notice that Estonia’s economic policies are tea party conservative policies, not socialist policies.
Meanwhile, the White House has yet to respond to our first credit downgrade.