23 Ventures Commercial Lending Blog

S&P U.S. Debt Downgrade: Implications For Commercial Real EstateAug. 6 2011 – 2:11 pm | 5,377 views | 0 recommendations | 3 commentsPosted by Chris MackeNEW YORK, NY – AUGUST 05: An ABC News ticker …Image by Getty Images via @daylifeTo understand the implications of Standard & Poor’s lowering the credit rating of U.S. government debt by one notch to AA+, we first have to understand why U.S. debt was downgraded, and maybe more importantly what was not part of the reason for the downgrade. Let’s start with the latter.The title of the statement on the downgrade is very revealing, especially the word order, “United States of America Long-Term Rating Lowered To ‘AA+’ On Political Risks And Rising Debt Burden.” In reading the S&P statement on the downgrade, the U.S. debt wasn’t downgraded because it didn’t have the ability to pay its debt obligations today; the U.S. does.U.S. debt was downgraded because it nearly didn’t have the go-ahead from U.S. leaders to agree to pay the debt obligations today. That is why S&P’s primary focus was on the process used to increase the debt ceiling. There is the ability to pay one’s debt, and then there is the choice to pay one’s debt.While I am not addressing whether the downgrade was warranted, I will say that S&P got it right when it focused on the political process. Think of the Republicans and Democrats as two partners in a real estate partnership or two members in an L.L.C. They had the means to borrow the money necessary to continue operations including servicing their debt; however, they very nearly weren’t able to agree to do what was necessary to pay the debt, i.e. raise the debt ceiling – that was the reason for the downgrade.

via S&P U.S. Debt Downgrade: Implications For Commercial Real Estate – Great Speculations – Buys, holds, and hopes – Forbes.