Whore in the Night: S&P Downgrades U.S. After the Fact.. More Nations To Follow

The headlines might seem shocking when you see that Standard & Poor’s has downgraded the United States’ credit rating to “AA+” from what was the sacred “AAA” rating.  This rumor was out today, but we are not even concerned with rumors.  The reality is that S&P has done two things that discredit its ability to even be relevant or timely (outside of missing the whole mortgage crisis).  First, it has done the obvious: after the last six weeks, the United States does not deserve its Triple-A rating. That was the first obvious scenario.  Second, it has proven that the ratings game is not just rigged but is nothing more than an after-the-fact mechanism.  S&P has become nothing more than a whore in the night.

The official news is that S&P has taken away its “AAA” rating from the long-term rating due to political risks and the rising debt burden.  The new rating is “AA+” from S&P. Not only that, but the outlook is NEGATIVE per its ranking system.

This week, we already ran the assumption that the full faith and credit of the United States was not just at jeopardy.  The United States is no longer worthy of its credit rating of “AAA.”  Our take is that the downgrade will not just hit insurance companies, banks, and municipalities.  If the United States loses its Triple-A rating, then there are several other key nations that are no longer deserving their Triple-A ratings as well. Here are the next nations to lose their Triple-A ratings.

So, the fall of the house of Uncle Sam is here.  What is funny is that it might not even matter.  The smart market participants already understand that “AAA” is not applicable toward the full faith and credit of the United States.  All S&P has done is shown that it caught the observation at the same time it did the great mortgage crisis from 2007 to 2009.  Nothing more than a whore in the night.

JON C. OGG