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S&p Faces Inquiry Over Us Downgrade

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Regulators are examining the models used by Standard & Poor's after the US government accused the ratings agency of a $2 trillion (£1.2 trillion) error when it downgraded America.


S&P said that the $2 trillion difference in future projections for the deficit was because it and the Treasury were using figures from the Congressional Budget Office to calculate the trajectory for the shortfall over different time frames.

And how accurate are CBO projections....


Let’s first look at recent history to see how reliable CBO forecasts have been. In 1999 the CBO issued its 10-year forecast for 2000-2009 (see charts below). It looked as though we were heading into ten years of prosperity that would rescue us from little worries like the trillions in unfunded liabilities of Social Security and Medicare.

As you can see in the charts titled “CBO Revenue Projections 2000 - 2009” and “CBO Outlay Projections 2000 - 2009,” the CBO expected a budget surplus in every year from 2000 to 2009. And not just that, but that the surpluses would grow at an annual rate of more than 13% and would accumulate to $2.5 trillion over the decade.


A second reason is that the “conservative” Bush administration went on a spending spree – passing Medicare drug coverage and No Child Left Behind, to name two big tickets. While the CBO anticipated ending the past decade with a net budget surplus of $2.6 trillion, the U.S. government actually accumulated the largest deficit ever, a staggering $3.2 trillion. So the difference between the CBO forecast and eventual fact was only $5.8 trillion. (And that's not counting for off-balance sheet unfunded liabilities, such as $60 to $70 trillion for Medicare and Social Security.)

I think the US govt may open up Pandora's box with this one.

The US govt could dig itself into a bigger whole, far better to just label S&P as terrorists and ship them off to Guantanamo Bay.

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Surely the real question is how their model ever gave it an AAA rating?

A better question would ask what any of the ratings actually mean - in clear, empirically testable, terms.

Without objective definitions, all further discussions are futile from the perspective of veracity. All that remains is a political pissing contest.

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Fancy a country getting within 48 hours of defaulting and being declared a tiny credit risk.

Are the US also going to be having stern words with the Chinese rating agency that down graded them months ago..

China's Dagong Global has cut the credit rating on U.S. sovereign debt to A from A+, Chen Jialin, general manager of the international department at the firm told CNBC on Wednesday. The agency has also put the U.S. on negative outlook.


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I daresay they'll be out to try and make an example of someone so Moody are too frightened to do the same.

I don't think it will work.

S&P are now virtually a household name thanks to their being first to downgrade to AA - Moody need to downgrade them to A to get back any publicity!!

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When a country gets indebted to the degree that the US are indebted the country always defaults because the debt is unsustainable. It defaults through the destruction of the currency by printing money.

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  • 334 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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