S&P Downgrade Warning: Goldman Sachs Damage Control Part 2

Submitted by Tyler Durden
04/19/2011 07:11 -0400
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For all those who read the initial attempt at damage control from Jan Hatzius over the S&P warning yesterday, this follow up from Goldman's Alec Phillips will come as no surprise. To all those who may have missed the prompt note which came out after Mohamed El-Erian FT oped, the below will still not come as a surprise. Bottom line: "Although the US already appears to be on the edge of AAA territory by rating agency criteria and further deterioration of those measures seems likely, policy credibility is likely to be more important than the level of fiscal ratios at any given time. While enactment of major structural reforms to entitlement programs or the tax code look challenging in the next year, today’s announcement from S&P may on the margin increase the likelihood that Congress enacts one or more fiscal rules along with the increase in the debt limit, which we already viewed as a good possibility. The most likely change would be discretionary spending caps, which could apply for multiple years and would be difficult to undo once put in place. A second possibility is some version of the “failsafeâ€