The Mint: S&P Prepares to pass Judgment on US Debt, Unemployed for the long haul

Friday, August 5, 2011

S&P Prepares to pass Judgment on US Debt, Unemployed for the long haul

8/5/2011 Portland, Oregon - Pop in your mints…

Mercifully, today we have time for a brief Mint. It appears that the people at S&P are finally going to give the US Government a well deserved, long overdue, courtesy downgrade on their sovereign debt rating.

This will cause havoc with any investment policy, rule, code, law, etc. that relies on the US Government to maintain an untarnished reputation as the safest investment in the world. Ironically, an S&P downgrade will probably trigger a rally in US Treasuries. However, this phenomenon is more a testament to the ineptitude of the debt raters at S&P rather than any firming up of the nation’s finances.

But what if tax revenues began to increase? They almost have to, even if by accident, given all of the cash that is flying out of stock, bond, and money market funds and on to the streets. Word has it that over $66 BILLION left money market funds for parts unknown last week, mostly due to the debt ceiling debacle, which last week threatened to wreak the same havoc that a downgrade will likely cause on corporate short term cash investment policies across the globe.

For perspective, $144 BILLION ran out of money market funds the week that Lehman Bros declared bankruptcy. But that, by most counts, was a surprise.

As food for thought, we submit this scary chart for your perusal, courtesy of the Money Game: