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MarketWatch First Take
April 18, 2011, 10:17 a.m. EDT
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By MarketWatch
WASHINGTON (MarketWatch) "” Standard & Poor's stated the obvious, and the market tanked.
The esteemed ratings agency said Monday that its AAA rating of U.S. debt could be threatened if Congress doesn't figure out a way to start living within its means. For now, the AAA rating on U.S. Treasury securities remains. But: We're warning you!!! Read our full story on S&P's downgrade of its outlook for U.S. debt.
Why should markets care? Interest rates would climb significantly if the United States were to lose its AAA rating.
S&P thinks there's a very good chance that the Republicans and the Democrats won't be able to reach an agreement to reduce persistently large budget deficits by 2012. Both parties have proposals on the table, but they are miles apart, and there's not much negotiating room.
An election is coming up "” isn't there always? "” and many politicians live in mortal fear that they'll be punished if they compromise too much. The Republicans, in particular, have said they will not compromise their insistence that the solution cannot involve higher revenues for the government.
Still, the outlook isn't completely hopeless. Another rating agency, Moody's Investors Service, came to the opposite conclusion in its own Monday report, saying that the recent proposals to shrink the budget deficit should be viewed "as a turning point that is positive for the long-term fiscal position of the U.S. federal government." Moody's thinks the parties can come to a deal.
S&P has sent a warning shot across Washington's bow. This isn't a game; it's a real problem that will require lots of political give-and-take. Everyone is going to bleed a little bit if negotiation is going to be successful.
So far, the markets are betting that Moody's is right "” that the politicians will find a way. But the market reaction to S&P's warning shows that some investors are betting a train wreck can't be avoided.
"” Rex Nutting
The media company's CEO has proved his worth negotiating the twin controversies swirling around Charlie Sheen and Katie Couric: Just check out the recent price action in CBS stock, writes MarketWatch columnist Jon Friedman.
11:16 a.m. Today11:16 a.m. April 18, 2011
"Zillow files for an initial public offering http://on.mktw.net/gTzczt" 1:20 p.m. EDT, April 18, 2011 from MarketWatch
"Gold ends at another record high of $1,492.90 an ounce http://on.mktw.net/h2ySgM" 1:20 p.m. EDT, April 18, 2011 from MarketWatch
"Insurance for earthquakes and other disasters via @amyhoak http://bit.ly/hutDtV" 12:21 p.m. EDT, April 18, 2011 from MarketWatch
"Stocks drop after S&P cuts U.S. outlook http://bit.ly/gU07d4" 11:20 a.m. EDT, April 18, 2011 from MarketWatch
"Stocks open sharply lower after S&P cuts U.S. debt outlook; 29 of 30 Dow stocks in red http://on.mktw.net/ibGkP8" 8:58 a.m. EDT, April 18, 2011 from MarketWatch
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