ABC News: US Preparing for S&P Downgrade

If not now, in the near future methinks. Among major US networks, ABC is generally adjudged more credible than the others. See what you make of it...

A government official tells ABC News that the federal government is expecting and preparing for bond rating agency Standard & Poor’s to downgrade the rating of US debt from its current AAA value.

Officials reasons given will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited.

The official was unsure if the bond rating would be AA+ or AA.

The worst case situation is that this rumour is premature, in which case forget about it (for now). Maybe the Yanks will now try some mafioso-inspired strong-arm tactics reminiscent of those being done in Italy.

UPDATE: The US Treasury is said to have pointed out a "mathematical error" made by S&P as the culprit for this move to downgrade American sovereign debt. It's a weird story that gets more curious heading into the weekend. If S&P is really of a mind to downgrade Treasuries, let's just say Treasury will have an opportunity to apply a full court press to change S&P's mind if an announcement isn't made before the weekend. From the WSJ:

A mathematical error discovered late Friday by Treasury Department officials has thrown into limbo — at least temporarily — plans by ratings firm Standard & Poor’s to downgrade the top-notch AAA credit rating the U.S. has held for 70 years, people familiar with the matter said. The wild back and forth between the Treasury Department and S&P Friday afternoon illustrated the dramatic stakes at play as the rating firm moved to downgrade U.S. debt for the first time in 70 years.

As of early Friday evening, S&P officials still had not decided how to proceed and could move forward with a downgrade despite the issues raised by the White House, people familiar with the matter said. S&P officials notified the Treasury Department early Friday afternoon it was planning to downgrade the U.S. government’s debt from the AAA rating it has held for decades, a government official said, and it presented its report to the White House. S&P has previously warned such a downgrade might come if Washington didn’t move to comprehensively tackle its long-term fiscal woes.

After two hours of analysis, Treasury officials discovered that S&P officials had miscalculated future deficit projections by close to $2 trillion. It immediately notified the company of the mistakes. S&P officials later called administration officials to say they agreed with the administration’s critique, though they did not say whether it would affect their rating. White House officials remained waiting Friday evening to see what the company would do.

As I said, perhaps not now, but inevitably a downgrade will come in the near future.