Photo: David Blackwell via Flickr
The reactions to S&P’s downgrade continue to be interesting and varied.Deutsche Bank’s Jim Reid speaks in particularly dramatic terms about it:
Yesterday may never quite make it as a “where were you when you heard the news ….” type of day but in economic history it may eventually prove to be an important landmark. April 18th 2011 was the day that a super cycle of 30 years of private and then public sector leverage across the Developed World finally reached arguably the highest quality part of its capital structure as the US saw its AAA rating put on negative outlook by S&P. For the record S&P have rated the US at AAA since 1941 with the outlook stable since such a system was introduced in the early 1990s. Yesterday’s action now leaves us with 18 AAA rated Sovereigns with a Stable outlook. Technically speaking, the US’s AAA rating has been here before but very briefly when the Clinton-Gingrich shutdown incident back in 1995/1996 saw Moody’s place some US government bonds on review for downgrade. Fitch’s AAA rating on the US was also on Negative Watch in November 1995 until Spring 1996. This was largely due to a budget impasse rather than a structural bigger picture problems such as the one today.
The reality is that this story is more about headlines, in our view, than a story with particularly great immediate consequences. However we believe the pressure will increasingly build on the US until a convincing fiscal plan is laid out and acted upon. As we discussed in yesterday’s EMR, the Global Sovereign crisis in probably still in the early stages and is likely to run through most of this decade, and we will be looking at the US for a possible denouement to the unfolding Sovereign issues still to play out globally.
Pretty good, though we still like UBS’ take better.