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Ben Smith at POLITICO posts part of a BofA note predicting the (relatively) imminent end of the US AAA-rating:We expect the US credit rating to remain on negative outlook and for a downgrade to AA to occur only when the rating agencies believe there will be no serious follow through. This means a downgrade would not likely occur until after the six month period of negotiations which puts us in early next year. Following any federal downgrade, we would expect downgrades of insurance companies, government related enterprises and state governments that depend heavily on federal funding. S&P has taken a more aggressive stance then the others, and may downgrade to AA+ as early as August if there remain significant risks to implementing a $4 trillion longer term fiscal plan.
It’s sinking in. With no “Grand Bargain” looking likely, the AAA-rating is probably toast (and we’re presuming that we won’t default, in which case the AAA rating would definitely be reduced to D-status).
So at this point, rather than defending the inevitability of the AAA, people are focusing their energy on explaining why it doesn’t actually matter, why any regulations can be suspended if those regulations were to force a liquidation of Treasuries, and why US rates have nothing to do with the AAA rating.
And actually, we agree with all of this. The bigger threat to the economy isn’t the loss of the AAA, it’s the austerity that Washington will pursue in attempting to keep the AAA.