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August 8, 2011

Special Bulletin from Neiman & Associates Financial Services, LLC :

S&P Downgrades US Debt

 
Greetings!

We are issuing this bulletin in response to Standard and Poor's lowering the credit rating on US debt.  This appears to be more of a political maneuver than an economic one in that the justification of the downgrade was based primarily on Congress' inability to govern versus the country's ability to repay its obligations. 

Another thing to keep in mind is that S&P and the other credit rating agencies rated collateralized mortgage obligations (CMOs), a key catalyst to the financial market meltdown, AAA (the highest rating possible) and continuted to maintain this rating even as mortgage defaults escalated and the viability of these securities quickly spiraled downwards.

Perhaps S&P thought it best to do something than nothing (like last time). But, one has to question its credibility, since the analysis contained a $2 trillion error (yes, trillion) in its estimate of future US deficits.

Below you will find a summary of what this means to you and the markets.  Feel free to contact me with any questions or concerns.

 

We appreciate your sharing this with like-minded people.

 

 

Regards,
Deb Neiman

 

S&P Lowered The United States Credit Rating: Now What?

 

Key Highlights:

 

the positive:

  • A rating of AA+ still represents very strong capacity to repay debt
  • The other credit rating agencies (Moody's and Fitch) are maintaining their highest ratings on US debt
  • The Treasury has the ability to print more dollars in order to repay the debt
  • US Treasuries remain among the world's safest investments
  • The US dollar is still the world's reserve currency
  • US short-term debt is still rated AAA by all three credit agencies
  • Most financial institutions will continue to treat US debt as AAA rated
  • Downgrade won't likely force selling by  institutions holding long-term US debt

...and the negatives: 

  • China and other foreign countries may demand a higher interest rate in order to hold US debt
  • Consumers could end up paying more for mortgages, car loans, and student loans

 

 

The bottom line is that this is not a cause for anxiety.  People overreact and the market will be volatile, but this is nothing new.  In fact,  events like this often signal good buying opportunities. 

 

"Look at market fluctuations as your  friend rather than your enemy; profit from folly rather than participate in it."

 

- Warren Buffet

 

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Neiman & Associates Financial Services, LLC
 
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Debra A. Neiman, CFP(R)
 Principal & Founder 

phone: 781.641.5700

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