S&P Gives US a Thumbs UP

The S&P has upped the US.  It has raised the outlook for US debt from “negative” to “stable” which some take as an indication that we are unlikely to see a ratings slide like the one in 2011 that took us from AAA to AA+ anytime soon. The agency cited a lower federal deficit, the willingness of the Fed to stimulate the economy some more, and a slightly improved political climate as reasons. S&P also estimates, citing Congressional Budget Office data, that federal debt held by the public will stabilize at 84 percent of GDP in the near future. Congressional Budget Office projected the U.S. deficit will shrink to $642 billion this year, from over $1 trillion the past four years. Much of this, of course can be attribute to the tax increases, along with the sequestration cuts that kicked in March 1.

One of the ironies of the credit downgrade is that it also abraded a little of Standard & Poor’s brand. According to Treasury officials, the firm made an error in estimating discretionary spending levels at $2 trillion higher than what the Congressional Budget Office estimated. After being alerted, S&P lowered its calculations by $2 trillion but pressed ahead with the downgrade which irked many in the Treasury department.

The question is, does it mean anything? Many maintain that S&P’s downgrade two years ago had no consequences for U.S. interest rates, the stock market or the value of the dollar. Taking a look at the real estate industry, we see the foreign investment in the US actually increased with the first half of 2013 posting $7.97 billion, a 25% jump over 2012– evidence that global capital still believes in the US as a safe haven for their money. According to the OECD, the US economy will grow 1.9% this year and 2.8% in 2014.