USA Loses AAA Credit Status on Debt Downgrade

[kidman232]

NEW YORK (Reuters) - The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday, in a dramatic reversal of fortune for the world's largest economy.

S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.

The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.

(Reporting by Walter Brandimarte; Editing by Jan Paschal)

[neilgin1]

Japan
Nikkei
9,299.88
–533.15
–5.42%
HangSeng
20,946.14
–1,494.11
–6.66%
ChinaShanghai
2,626.42
–75.31
–2.79%Data delayed at least 15 minutes

[neilgin1]

unless i'm reading this wrong, there will be HELL TO PAY on Monday....grim news.

[Rodebaugh]

where is that monday Neil has been jabbering about?.......oh yeah......8-8-11

[68Camaro]

unless i'm reading this wrong, there will be HELL TO PAY on Monday....grim news.

I believe there was intervention occuring behind the scenes today, only thing that prevented a second tanking. Market (Dow) was down nearly 240 right at noon when (I believe) a concerted effort to create a turn-around for the day was invoked. They shot the market up to positive territory, and for the balance of the day there was a biased saw-tooth over and over. As the market naturally took it down, it would reverse and turn sharply back up. Not natural. It did it at least 8 times in the last 3 hours. Behind the scenes direct intervention is well known, and I think we saw it today in an attempt to prevent a broad sell-off. Especially given that they knew of the S&P downgrade, which was to be announced after market close.

Yep, as I've been noting, Monday is going to be the test. If it doesn't tank then, then they may have found some intermediate stability. But I personally don't want to be in the market now, and I will suppose a lot of people will be considering that over the weekend. Fund managers that are required to hold AAA bonds, and having G-bonds for that purpose, will be going crazy this weekend.

[Treetop]

Ut oh. On the plus side i just won a bet I made only days ago with a friend. He swore the credit rating of such a cool country could never be changed....

[theo]

Behind the scenes direct intervention is well known, and I think we saw it today in an attempt to prevent a broad sell-off. Especially given that they knew of the S&P downgrade, which was to be announced after market close.

I agree. The market action today was very odd. And the fact that they announced this on a Friday night says A LOT. The Sunday talk shows will be used to calm the markets, but I doubt that they will be very successful. I expect that the vacations of a lot of fund managers are being cut short.

Its possible that the markets could absorb this news and continue on with business as usual, abeit with slightly higher interest rates. However, there is a real chance that this could be the shark bite that preceeds the feeding frenzy. We should watch for reaction from China and the Middle East.

[Rodebaugh]

So what happens now? Anyone have any ideas? how does this play out?

[68Camaro]

I'm thinking about it. Need to sleep on it.

[aloneibreak]

So what happens now? Anyone have any ideas? how does this play out?

start by calling your representative and giving him/her/it a good ass chewing

oh it wont do any good...

but you might feel better

[Tourney64]

It means more of our $$$ will be used to pay for an increased interest rate.

[Treetop]

So what happens now? Anyone have any ideas? how does this play out?

Im far from an expert, but this means our interest rates will go up doesnt it? anyone?

[Corsair]

So what happens now? Anyone have any ideas? how does this play out?

Im far from an expert, but this means our interest rates will go up doesnt it? anyone?

That's what I've been hearing. As for the value of metals, I can only imagine that this will cause them to go up. I'd love to hear the words of wisdom of the more educated members here.

[neilgin1]

So what happens now? Anyone have any ideas? how does this play out?

Dow 3,000
Dollar ICE index 50.00
bank Holidays
a few nasty terrorist events, real or false flags...does it matter.
civil unrest.
Silver 300.00 plus (for starters) Gold--??? i dunno

[Rodebaugh]

I have some ideas.....but I want to see someone else post them as confirmation.

[neilgin1]

So what happens now? Anyone have any ideas? how does this play out?

start by calling your representative and giving him/her/it a good ass chewing

oh it wont do any good...

but you might feel better

it might get you on the "see something, say something" list....heck ,membership on this forum, men who speak of bullion and hard money....you dont think we're part of the "profile"?

[Country]

The pattern so far is to SELL everything, GO TO CASH and BUY Treasuries, and maybe a little GOLD. During the 2008 debacle, SILVER and GOLD got trashed along with equities.

Until I see TREASURIES get trashed, I think we'll see more of the same old pattern. Frankly, I'd like to see some higher interest rate on my CASH holdings.

[neilgin1]

I have some ideas.....but I want to see someone else post them as confirmation.

from FERFAL dated 31 July:

Lets say the US economy crashes in a day. What kind of specific things should we expect in the first 72 hours? How can we best stay safe and out of harms way?
What quick last minute preps should someone who has followed your advice for years now take?
Thanks!
Burt

Hi Burt,
The worst case scenario would be one in which the debt ceiling isn’t raised by August 02. Even if that happens an actual default could take a few more days or weeks. In any case if you look at a worst case scenario it could be similar to what we saw in December 2001. Looks scary? Sure does. Can it be dangerous? Sure, even more so if you don’t know how to act in such cases. Is it the end of the world as Americans know it? No, and eventually order would be restored, but the political and economic reality in USA would be permanently crippled if it happens. Then again many of the things that concern people are already happening, even if it’s not as dramatic as an outspoken default.

What you would be looking at would be civil unrest in most mayor US cities and thousands of minor ones as well. Once the images of people looting and getting away with it hit the TV you’re looking at thousands of bums thinking of doing the same thing and rushing out the door to the nearest store. That gets bad pretty fast. You’re talking about looting, fires, closed stores, destruction of vehicles and private property, and given US context some gang related activity taking advantage of the lawless situation as well to settle scores. While invasion of residential properties wont be as common as the looting of commercial property, it can happen in several cases.
In this context the worst thing you can do is getting on a vehicle and travel to wherever you think might be safer. Traveling and being out there is exactly what you want to avoid. For thousands if not millions of people staying put back during the 2001 collapse was the best choice, even if they saw all this pandemonium happening through the window and right across the street. For that reason that’s exactly what I’d recommend. Lock the doors, have a flashlight in case the power goes down and a weapon in case some two-legged vermin gets any ideas.

This anarchic situation can last a few days but it eventually calms down. After that you may see sporadic cases of rioting and looting starting again, an overall sense of greater danger and criminal activity in general, but other than that things go back to “normal”.
Of course the economy being purely a psychological matter the stock market will fall like a ton of bricks, the dollar will fall, and the economic scenario will be dire to say the least. You’re looking at decades worth of recovery if something this serious happens in USA. When Argentina collapsed it was just another country, if a giant like USA collapses it may never get back on its feet and simply be a shadow of what it once used to be from that moment onwards.


What to do tomorrow?

If you’ve been following my blog for some time now you already know the points I constantly insist on such as having food and water, weapons for protection and some cash and precious metals.
Lets say I’m in USA and looking to round up my preps in case of a worst case scenario. What I would do first thing tomorrow would be to drop by my bank and get some of my money out of the account. How much? It depends. If you only have a few thousand bucks or so I’d close my account, then look for a PM dealer near buy and put half of it in gold and silver, keep the rest in cash. If you have more money then maybe just extract 40% or 30% of my money and do the same thing.

Being able to defend yourself being a priority, I’d already have a gun. This would be the time though to get a few more boxes of ammo if the amount you have isn’t adequate. After that I’d fill up my gas tank, take any jerry cans I have and fill those up if they aren’t already full. I’d go to the supermarket and stock up on canned food and water if you haven’t done so already for some reason. I would also buy a good amount of fresh meat and vegetables to consume in the following days. If you don’t have any extra fuel for emergencies, tomorrow would be the day to buy some jerry cans (the equivalent of an extra gas tank) and get those filled up too so as to have two full gas tanks worth of fuel. Use your credit card for buying all this and keep as much cash as possible. It may come in handy later. Drop by the pharmacy and stock up on medications you may need.
If a trip to the bank isn’t possible, at least get as much money as you can out of the ATM. If there’s trouble expect the ATMS to run dry within hours.

Once I’m home again I’d prepare everything security wise in case there’s trouble: No tools left around the house that can be used to break in, lock any exterior buildings like sheds and such, lock any windows that don’t need to be open and in general prepare for the possibility of trouble.
Finally, I’d call my family and loved ones to check on them, tell them what I’ll be doing and ask them what they’ll be doing the next couple of days. You do this so as to have more info in advance, in case there’s civil unrest, you call them to check that they are ok and you don’t find them, when in reality they had planned to be out of town for some other reason.
Basically I’d make the common preparations we talk about and simply stay put if there’s any degree of civil unrest.

[hobo finds]

So what happens now? Anyone have any ideas? how does this play out?

Dow 3,000
Dollar ICE index 50.00
bank Holidays
a few nasty terrorist events, real or false flags...does it matter.
civil unrest.
Silver 300.00 plus (for starters) Gold--??? i dunno

Throw a national Disaster in the mix. Big earthquake or Hurricane

[Country]

Maybe the investors that want physical PMs will go for it. But, the JPMs and other Wall Street guys may get some nasty margin calls if equities get really bad. If that happens, these crooks will liquidate their winners to cover their margin calls. I'm afraid it will be a DEFLATIONARY event whereby all asset classes get crushed if an equity crash ensues. Historically, that's what happened. Afterwards, and when the dust settles, things may be different. But, a crash takes everything down; Wall Street goes to CASH.

[68Camaro]

The pattern so far is to SELL everything, GO TO CASH and BUY Treasuries, and maybe a little GOLD. During the 2008 debacle, SILVER and GOLD got trashed along with equities.

Until I see TREASURIES get trashed, I think we'll see more of the same old pattern. Frankly, I'd like to see some higher interest rate on my CASH holdings.

Not sure what your point is here. What we're talking about here is the Treasuries themselves - which have been a previous safe-haven - having just been downgraded. That means any number of things, but the two major short-term ones are: a) further erosion of investor confidence in general, and further overseas loss of confidence in both the US and the dollar as reserve currency, and b) fund managers that own T-bills to fulfill fund requirements of AAA bonds will all be selling. (They will be discounted heavily initially. Then people will jump in and buy them at a discount.) Market should be hit hard on Monday. Dollar will probably fall significantly. I really need to sleep on this.

[68Camaro]

Maybe the investors that want physical PMs will go for it. But, the JPMs and other Wall Street guys may get some nasty margin calls if equities get really bad. If that happens, these crooks will liquidate their winners to cover their margin calls. I'm afraid it will be a DEFLATIONARY event whereby all asset classes get crushed if an equity crash ensues. Historically, that's what happened. Afterwards, and when the dust settles, things may be different. But, a crash takes everything down; Wall Street goes to CASH.

Only PM is real cash. Some event will eventually happen to cause broader realization of this. This may be one of those.

[beauanderos]

So what happens now? Anyone have any ideas? how does this play out?

Most pension funds are mandated by their prospectus to only invest in AAA graded debt. So if this plays out, you can expect a MASSIVE divestment of bonds this coming week... and most likely insufficient buyers to prevent a Bond Market meltdown.

[fusscharles]

this will reinforce people's thinking that the dollar is sinking. The downgrade does not say we cannot pay our bills (printing presses say otherwise), it just reminds us all that the worth of the dollar is compromise.

take it for what it is worth, but I think everything will raise monday- equities , pm's and cost of treasury (interest rates will fall). why the latter? because the world of finance automated. Machines will buy based on market trends and algorithmic tables.

[Oakair]

Why did this only hit the scene after the NYSE closed? It seems from the little Ive read since getting back home that this decision was made earlier in the day...