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News Link • Government Debt & Financing

S & P Downgrades Debt of United States Government

Update 1--Standard & Poors has downgraded the debt of the United States government to AA-Plus. Update2--The bonds now have a lower rating from S&P than bonds issued by countries such as the UK, Germany, France or Canada. Update3--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. Update4--Ramifications: Any pools of money that require money managers by bylaws or other agreements to hold only AAA debt may be forced to sell Treasury securities. It is unclear as to the size of such pools, since some may have clauses that require a top rating from one or two of the three major agencies, Moody's. Fitch and S&P. There are oddities to this downgrade, since the Federal Reserve has stepped in for decades and printed money whenever the Treasury had any difficulty selling debt. It appears that the real economik result of this downgrade will be that the government will much easier be able to claim that "taxes must be raised," for fear that the debt will be downgraded even further. Thus, this downgrade, especially with a negative outlook plays in to the hands of the tax raisers.

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