This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

S&P: Losses Could Pile Up on Debt Standoff

BOSTON ( TheStreet) -- Standard & Poor's, which sent global stock markets into a tailspin with its unprecedented downgrade of U.S. government debt Friday, says there may be more turmoil if political leaders don't meet their debt-reduction plans in time.

Failure to hammer out a mutual agreement and a timetable to implement it could lead to additional market losses and higher borrowing costs of everything from books for a regional school district in Nebraska to the price of a General Dynamics (GD) F-16 fighter jet for the Navy. There could also be unpredictable fiscal austerity measures at all levels of government that often lead to contentious battles among politicians and their constituents. S&P made its remarks in a conference call Wednesday.

Standard & Poor's, which was excoriated for failing to warn investors about the subprime-mortgage debacle three years ago, took a giant step in cutting U.S. government bonds' top rating. After the ratings agency made the decision late Friday, the Dow Jones Industrial Average plummeted 635 points Monday and another 520 points Wednesday, dropping the benchmark index to 10,719. The company's remarks on the ripple effects of the downgrade comes at a time when businesses, local governments and individuals are already feeling the pain of an economy that may be headed toward another recession.

In Washington, a newly formed bipartisan Congressional committee is tasked with coming up with specifics of the debt-ceiling/debt-reduction deal, which includes cutting about $1 trillion in spending over the next 10 years, by Nov. 23.

S&P on Friday lowered the nation's credit rating to AA-plus from triple-A with a negative outlook, and threatened to cut it again in the next two years if politicians fail to meet deficit-reduction goals. The agency also said it's unlikely to upgrade the debt if standards of the plan are met, especially if economic growth remains weak.

Many government entities and companies with financing tied to U.S. Treasuries that are in the process of getting new financing or refinancing may well feel the pinch of higher interest rates sooner rather than later, since their own debt ratings may already have been indirectly reduced.

After downgrading U.S. Treasuries, Standard & Poor's lowered debt issues linked to them Monday, including those of the government-sponsored entities that finance home mortgages such as Fannie Mae (FNM) and Freddie Mac (FRM). Also included were municipal bonds that use Treasuries as collateral for financing or as a pricing benchmark, as well as some state and local municipal bonds that are highly dependent on federal aid.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs