The Real S&P Warning: A $4 Trillion Deal or a Downgrade

ksammut · July 22, 2011 6:10AM

The Real S&P Warning: A $4 Trillion Deal or a Downgrade

Washington better understand what is at stake. Nothing should be off the table when it comes to making cuts. I think most would be willing to feel some pain now and in the future if they really understood what will happen if Congress does not do what has to be done. My fear is that Congress will not do what really needs to be done and the dire predictions that many of us have made will come true.

Ken

cohodk · July 22, 2011 7:22AM

the dire predictions that many of us have made

Japan lost their AAA rating nearly 10 years ago and was futher downgraded earlier this year. Unless you live near the damaged nuke plant, things are hardly dire in Japan.

China has a lower credit rating than Japan.

Me thinks a lot of people are simply hoping for a default where the USA stiffs debt holders and leaves little old ladies to die in the street and their PM holdings go to the moon. Those folks are most likely to be severely disappointed.

Downtown1974 · July 22, 2011 7:59AM

I wonder how my bank would feel if I was unable to pay my mortgage because I racked up too much debt. I wonder what they would do if I walked away from the table as we were discussing a way to avoid me defaulting and losing my home.
I dont care anymore whose fault it is. Democrats and Republicans need to grow up, shut up and do the job you were elected to do. They are going to raise the damn debt limit so why must we listen to all of this cry baby propaganda.

Coins101 · July 22, 2011 8:32AM

They need to tax the very rich, tax the heck out of off-shore US Companies, like Microsoft, and kick the leaches of the government tete. I have a nephew who can't work because work gives him a headache. So he get a check from Social Security - get real! A fellow worker has a similar situation with someone he is related to.

There is so much waste and fraud in our Social programs and it is one of the biggest drains on the budget.

While we are at it, why not stop all the aid to other countries for a while. When ever you hear about cuts, it is the working middle class that have to bend over and get porked. Yet the leaches inside and outside the US keep getting their "entitlements."

BigE · July 22, 2011 9:18AM

<< I wonder how my bank would feel if I was unable to pay my mortgage because I racked up too much debt. I wonder what they would do if I walked away from the table as we were discussing a way to avoid me defaulting and losing my home.
I dont care anymore whose fault it is. Democrats and Republicans need to grow up, shut up and do the job you were elected to do. They are going to raise the damn debt limit so why must we listen to all of this cry baby propaganda.

--------------------BigE

Mesquite · July 22, 2011 9:54AM

<< Me thinks a lot of people are simply hoping for a default where the USA stiffs debt holders and leaves little old ladies to die in the street and their PM holdings go to the moon. Those folks are most likely to be severely disappointed. >>

Please tell me you are kidding. I have not heard that much bullsh*t since I last listened to Rachael Maddow. Clearly, if Obama does not get his desired debt ceiling increase he, and others, will have to make choices on how best to cut spending - the US will not (or at least does not have to) default on its debts. He may well choose to leave little old ladies to die in the street - that will be his choice. He could, however, begin to dismantle the leviathan he and others over schemed to create and so dearly love. Running us up to the debt limit over and over and over the past few decades was not done by mistake. It must stop - and now is as good a time as any to force it. What these politicians have done and are currently doing to my country must be reversed and the bridges along this ideological path must be burned. BTW, if my PMs go up, remain the same or drop by half really does not concern me near as much as salvaging this country's future.

CaptHenway · July 22, 2011 10:19AM

45 hours till the gold markets re-open. Then what?

pmcollectour · July 22, 2011 10:31AM

<< 45 hours till the gold markets re-open. Then what? >>

Good question, because we will be sailing in uncharted waters.

cohodk · July 22, 2011 10:50AM

<< 

<< Me thinks a lot of people are simply hoping for a default where the USA stiffs debt holders and leaves little old ladies to die in the street and their PM holdings go to the moon. Those folks are most likely to be severely disappointed. >>

Please tell me you are kidding. I have not heard that much bullsh*t since I last listened to Rachael Maddow. Clearly, if Obama does not get his desired debt ceiling increase he, and others, will have to make choices on how best to cut spending - the US will not (or at least does not have to) default on its debts. He may well choose to leave little old ladies to die in the street - that will be his choice. He could, however, begin to dismantle the leviathan he and others over schemed to create and so dearly love. Running us up to the debt limit over and over and over the past few decades was not done by mistake. It must stop - and now is as good a time as any to force it. What these politicians have done and are currently doing to my country must be reversed and the bridges along this ideological path must be burned. BTW, if my PMs go up, remain the same or drop by half really does not concern me near as much as salvaging this country's future. >>

Im not kidding. I truely believe that many people want nothing more than to see the USA fail. And I am saying that those people are so far from reality it makes the Simpsons look like 60 minutes.

This entire situation we are facing is what happens when prior generations borrow from the future. This isnt one person's or one party's fault. As a collective, America spent more than it earned and did so with borrowed funds. The ride was exhilarating. Now we need, and are going to, get back to reality. It wont be the end of the world, just the end of overconsumption. And as a result, many people will not gain employment and many will see handouts reduced. Big deal.

But back to the OP, this talk of default makes it sound like overnight the USA is going to become a 3rd world country. This is the most comical talk I've heard in years. Does anyone remember 1994 when Canada lost its AAA rating? Of course not. Because it wasnt the end of the world, but was a wake up call for Canada to clean up its terrible finances and high debt. And 7 years later they regained AAA status.

Spooly · July 22, 2011 11:25AM

Some people take this PM's investing way to personal. Alot of people will ride PM's all the way to the bottom. PM's are investments and some point in time it will be time to sell.

derryb · July 22, 2011 11:58AM

The fact that the US has a AAA rating should clue you in that the rating agencies are in bed with those that they rate. Their current threat is political and driven by polticians.

A default does not mean that no one gets paid. It means that Washington has to get serious about the money it blows. Default will force them to identify what they really don't need.

calleocho · July 22, 2011 12:17PM

Japan, Canada and China do not have the world's reserve currency.

I agree its not the end of the world ...and most certainly not the end of the USA.

but it looks like...."Winter is coming"

derryb · July 22, 2011 12:28PM

<< Some people take this PM's investing way to personal. Alot of people will ride PM's all the way to the bottom. PM's are investments and some point in time it will be time to sell. >>

It will take a strong dollar. Don't see that happening anytime soon.

cohodk · July 22, 2011 12:29PM

Japan, Canada and China do not have the world's reserve currency

I hear you, but firmly believe the US dollar would be the worlds reserve currency if the USA was rated BBB. It is highly doubtful the US dollar would entirely relinquish the role of reserve currency. It may be replaced by a "basket", but that basket would include the dollar, which would have a very heavy weighting. But none of this equates to the USA becoming a Banana Republic.

There are probably only 3 countries that can provide food and energy domestically for its citizens. And only one of the those could provide security for the rest of the world. Perhaps someday China will be willing to protect world order, but until then, the USA will be #1, regardless of any silly combination of letters.

ksammut · July 22, 2011 1:26PM

<< 

<< 

<< Me thinks a lot of people are simply hoping for a default where the USA stiffs debt holders and leaves little old ladies to die in the street and their PM holdings go to the moon. Those folks are most likely to be severely disappointed. >>

Please tell me you are kidding. I have not heard that much bullsh*t since I last listened to Rachael Maddow. Clearly, if Obama does not get his desired debt ceiling increase he, and others, will have to make choices on how best to cut spending - the US will not (or at least does not have to) default on its debts. He may well choose to leave little old ladies to die in the street - that will be his choice. He could, however, begin to dismantle the leviathan he and others over schemed to create and so dearly love. Running us up to the debt limit over and over and over the past few decades was not done by mistake. It must stop - and now is as good a time as any to force it. What these politicians have done and are currently doing to my country must be reversed and the bridges along this ideological path must be burned. BTW, if my PMs go up, remain the same or drop by half really does not concern me near as much as salvaging this country's future. >>

Im not kidding. I truely believe that many people want nothing more than to see the USA fail. And I am saying that those people are so far from reality it makes the Simpsons look like 60 minutes.

This entire situation we are facing is what happens when prior generations borrow from the future. This isnt one person's or one party's fault. As a collective, America spent more than it earned and did so with borrowed funds. The ride was exhilarating. Now we need, and are going to, get back to reality. It wont be the end of the world, just the end of overconsumption. And as a result, many people will not gain employment and many will see handouts reduced. Big deal.

But back to the OP, this talk of default makes it sound like overnight the USA is going to become a 3rd world country. This is the most comical talk I've heard in years. Does anyone remember 1994 when Canada lost its AAA rating? Of course not. Because it wasnt the end of the world, but was a wake up call for Canada to clean up its terrible finances and high debt. And 7 years later they regained AAA status. >>

2 part post:

I pray to God we do not default as the markets will go crazy, interest rates will rise, and things can snowball into another major recession and even higher unemployment. The default in itself may not be a big deal. It is the psychology of the situation that cannot be predicted.

We do not know how traders and investors will react. If they panic and the markets drop dramatically while interest rates rise, you better believe the US and most of the rest of the world will be in deeper economic trouble than we are already in.

With that said, I am fairly certain that something will be worked out and there will be no default and the debt ceiling will be raised. I believe whatever is worked out will not be the beginning of a solution to the short and long term debt problem. Our politicians do not have the will to do the right thing and make major cuts that have to be made. Our debt will continue to increase until there will be nothing anyone can do about it. Our credit rating may still be lowered even if default is averted.

2nd part of my response

Canada in 1994. You are comparing the US to Canada in 1994? I have a real fondness for our Northern neighbors but comparing Canada back in the 90s to the US is like comparing a minor league team to a major league team. Canada is rich in natural resources and goes up and down like a yo-yo depending on the world's need for those resources and how they are valued at any given time. Canada does do at least one thing better than the US; they drill for their own oil making themselves less reliant on other countries than we do.

You compare the US to Japan and China? Last I looked, neither country controlled the world's reserve currency and received the many benefits by having that control. Japan does not enjoy the standard of living it once did and things will only get worse as their economy remains stalled. China's standard of living has been so low that they only have one way to go and that is up.

I do not think my choice of the word dire was too strong (in the OP). We enjoy the world's best standard of living due to many hard working Americans but also thanks to easy credit, generous entitlements, and as previously noted, controlling the reserve currency. Should our credit rating be reduced due to our soaring debt, we may not be reduced to a third world country but we will feel pain that very few in this country are use to feeling. Most Americans who felt real economic pain are no longer with us. The last 60 years, for the most part, has been a wonderful time for most Americans. We had a few bumps and managed through them.

The past two plus years may be the harbinger of what is to come. Sadly, high unemployment has brought pain to some already. Our economy is too fragile to handle a shock. In my opinion, a lowered credit rating would be a shock and that economic pain that resurfaced a few years back will grow dramatically and for many, their situations will be dire.

I love this country and pray our politicians do the right things. I pray that all of us will take the time to learn and understand our debt problems and may have to live without some benefits we were counting on. It will be a collective effort on everyone's part to undo the mess we have gotten into.

Lastly, it is offensive when a few post that they believe some PM investors on these boards wish bad things for our country and hope these bad things happen so their PM investments go up. I believe I am like a good number of PM investors who see that there are major economic problems and it would be foolish not to protect themselves and their families by having some PM insurance in case they are correct about their economic concerns.

It is very easy to have strong emotions when it concerns your own well being, your family's well being, and the well being of the country you love. Just because we warn about a possible economic disaster does not mean we are hoping it will happen. Just the opposite. We want our warnings to be listened to so an economic disaster can be averted.

goingbroke · July 22, 2011 6:04PM

<< They need to tax the very rich, tax the heck out of off-shore US Companies, like Microsoft, and kick the leaches of the government tete. I have a nephew who can't work because work gives him a headache. So he get a check from Social Security - get real! A fellow worker has a similar situation with someone he is related to.

There is so much waste and fraud in our Social programs and it is one of the biggest drains on the budget.

While we are at it, why not stop all the aid to other countries for a while. When ever you hear about cuts, it is the working middle class that have to bend over and get porked. Yet the leaches inside and outside the US keep getting their "entitlements." >>

HEY! I am married and get headaches all the time! I wonder if I also can get Social Security?

Justacommeman · July 22, 2011 9:00PM

<< Japan, Canada and China do not have the world's reserve currency

I hear you, but firmly believe the US dollar would be the worlds reserve currency if the USA was rated BBB. It is highly doubtful the US dollar would entirely relinquish the role of reserve currency. It may be replaced by a "basket", but that basket would include the dollar, which would have a very heavy weighting. But none of this equates to the USA becoming a Banana Republic.

There are probably only 3 countries that can provide food and energy domestically for its citizens >>

Canada, US and Brazil? UK if you count the North Sea? MJ

renman95 · July 22, 2011 9:38PM

<< Japan, Canada and China do not have the world's reserve currency

I hear you, but firmly believe the US dollar would be the worlds reserve currency if the USA was rated BBB. It is highly doubtful the US dollar would entirely relinquish the role of reserve currency. It may be replaced by a "basket", but that basket would include the dollar, which would have a very heavy weighting. But none of this equates to the USA becoming a Banana Republic.

There are probably only 3 countries that can provide food and energy domestically for its citizens. And only one of the those could provide security for the rest of the world. Perhaps someday China will be willing to protect world order, but until then, the USA will be #1, regardless of any silly combination of letters. >>

I don't ever want to see the ChiComm's be the world police. Say goodbye to individual freedoms...

jdimmick · July 22, 2011 9:54PM

Tax the rich?, there the ones paying most of the taxes so the rest of the folks can draw off social programs

renman95 · July 22, 2011 10:00PM

I don't see what's so difficult about lowering spending by a 1/3. Our current Teflon Don raised spending into the trillions. Let's just cut back to those crazy Bush years. Somehow we survived on that budget (and I remember he was criticized for spending like a drunken sailor then and rightly so. "W"'s Prescription Drugs is a $20 trillion liability...check the bottom of the debt clock.)

I hope this "debt ceiling" issue will finally be owned by the Don. I'm tired of the blame game and the "we inherited this mess" whine. Just shut up and lead. He needs to own something once in for all.

As far as the debt, just default so we can identify the overspending and deal with it. The sun will still come up and shine on top of the Washington Monument.

CCC2010 · July 22, 2011 10:44PM

Running us up to the debt limit over and over and over the past few decades was not done by mistake. It must stop <<<<<<<

I totally agree with you BUT lets not forget which party was in charge when we had all the economic downturn due to the housing and banking crisis...Before this current president sat in office and inherited TWO ongoing wars on top of our economic problems. Why did we have to invade Iraq while we were after Bin Laden who was clearly in Afghanistan at that time? I am no fan of Suddam Hussain but he has no WMD's and was also an Enemy of Bin Laden. How much are we spending on Iraq daily on top of Afghanistan again? My how we quickly forget and quick to blame the current head of state. Yes both parties should get off their high horses and work together for the good of our country that much i can agree. But let us not forget who started all these in the first place. Like it or not its the Truth.

CaptHenway · July 22, 2011 11:35PM

Settle down, people. Both parties have done us wrong over many years. Let's not get into a piffing contest.

Let's discuss what will happen if no deal is reached by August 2nd, and let's do it calmly.

TD

2ndCharter · July 22, 2011 11:47PM

I believe I am like a good number of PM investors who see that there are major economic problems and it would be foolish not to protect themselves and their families by having some PM insurance in case they are correct about their economic concerns.

I would prefer that the value of my PM holdings would collapse because that would mean the government is getting its act together and the rest of my investments (and my pension) would be safe. However, with the current crew (in both parties) in there, I don't see that happening and that's why I've got my PM insurance policy.

CaptHenway · July 22, 2011 11:49PM

<< I believe I am like a good number of PM investors who see that there are major economic problems and it would be foolish not to protect themselves and their families by having some PM insurance in case they are correct about their economic concerns.

I would prefer that the value of my PM holdings would collapse because that would mean the government is getting its act together and the rest of my investments (and my pension) would be safe. However, with the current crew (in both parties) in there, I don't see that happening and that's why I've got my PM insurance policy. >>

Well said.

BigE · July 22, 2011 11:57PM

Maybe this is a test of how far they can push, before getting strong negative reactions?--------BigE

fishcooker · July 23, 2011 1:12AM

The best thing they could do is tax the poor. Get the other 1/2 of the people to care about fraud, waste, what government money is spent on, and why.

Overdate · July 23, 2011 1:50AM

<>

Not necessarily. We could see a replay of 2008, in which a credit crunch temporarily boosts demand for spendable dollars and causes most commodities (including gold and silver) to take a dive.

Konahead · July 23, 2011 2:38AM

<< 

<< Me thinks a lot of people are simply hoping for a default where the USA stiffs debt holders and leaves little old ladies to die in the street and their PM holdings go to the moon. Those folks are most likely to be severely disappointed. >>

Please tell me you are kidding. I have not heard that much bullsh*t since I last listened to Rachael Maddow. Clearly, if Obama does not get his desired debt ceiling increase he, and others, will have to make choices on how best to cut spending - the US will not (or at least does not have to) default on its debts. He may well choose to leave little old ladies to die in the street - that will be his choice. He could, however, begin to dismantle the leviathan he and others over schemed to create and so dearly love. Running us up to the debt limit over and over and over the past few decades was not done by mistake. It must stop - and now is as good a time as any to force it. What these politicians have done and are currently doing to my country must be reversed and the bridges along this ideological path must be burned. BTW, if my PMs go up, remain the same or drop by half really does not concern me near as much as salvaging this country's future. >>

Amen!

57loaded · July 23, 2011 3:45AM

we passed the economic fork in the road long, long ago. they are still in a field of pork and ignorance with their constituents.

it may though not even be a wake-up call to Washington. up there is an arrogance that blinds.

cohodk has his history and stats and a good argument. i tend to agree

as far as PM's we could have another 2008 type scenario late this fall, but it will not end the bull run of PM's. the situation is NOT getting better. a whole new paradigm shift would need to take place for PM's to lose their appeal.

yellowkid · July 23, 2011 3:49AM

My disgust with Washington is at an all time high, both sides are to blame. A great article in the Atlantic last month titled "How to turn Democrats and Republicans into Americans," I thought it was a good way of stating the problem.

Spooly · July 23, 2011 4:18AM

When does it stop?

renman95 · July 23, 2011 5:54AM

Too bad we can't recruit Merkel and Sarkozy to tackle our debt. At least in terms of getting the business done.

cohodk · July 23, 2011 6:54AM

ksammut, I agree with most of what you write. My only point of contention would be a phrase like "coming economic disaster".

I use Canada and Japan and China as points of reference as unfortunately, thats all we have to compare with. Canada was AAA rated and they lost it---their world did not end. Japan was AAA rated and lost it--their world did end. Neither has faced "economic disaster" either. Ever go to one of the big national parks in the West--Yellowstone, Yosemite, Grand Canyon? They are packed with Japanese visitors. Clearly if it was so bad they wouldnt be able to visit us.

Interest rates will not rise appreciably even if the USA was cut to A. And if the dollar were to fall it would cause most commodities to rise thus hurting global growth. It is going to be very difficult to achieve this hyperinflationary spiral that so many predict. If the USA dollar drops much more, the USA will look dirt cheap to foreign investors. There will be a tremendous inflow of foreign capital into our markets--equities, bonds and real estate alike. Already there are countless stories of Canadians buying up Florida real estate for cash. The Swiss will be looking to unload some of their inflated currency in the country as well.

Our world will not end with a downgrade or a default. However, many people who have had it very easy in the past--both rich and poor--will see the going a bit tougher. And maybe thats ok. Innovation is born of necessity, not of entitlement.

CaptHenway · July 23, 2011 7:06AM

(To the tune of the 1960's song "24 Hours From Tulsa")
.
.
"But I was only,
24 hours from meltdown!!!!!!!!!!!!!!!
only,
one day before gold explodes!!!!!"

Spooly · July 23, 2011 7:33AM

Japan was lucky in the fact it has a large export economy pumping money it to the system. Iceland, Ireland and Greece have not been so lucky.

BigE · July 23, 2011 11:23AM

From Spoolys chart, it looks like there was level debt ceiling for years until it started to be raised in 2002. --------BigE

Bear · July 23, 2011 1:48PM

We all know that the middle class and the poor are on the chopping block, for cuts and revenue

enhancement(Loss of tax benefits). What is wrong with having corporations like GE pay some tax, as well

as the wealthy pay the rate they paid under President Reagan. I am willing to suffer, If everyone and the

big corporations suffer a bit. We all sacrifice or we all go down the tube.

streeter · July 23, 2011 2:49PM

A lowering of our credit rating and national debt default might give this country the jolt it needs to wake up.

This is not 1985-2005 anymore. Collectively we either wake up pretty soon or 'they' will create a war to play Reveille.

stevek · July 23, 2011 3:32PM

<< The Real S&P Warning: A $4 Trillion Deal or a Downgrade

Washington better understand what is at stake. Nothing should be off the table when it comes to making cuts. I think most would be willing to feel some pain now and in the future if they really understood what will happen if Congress does not do what has to be done. My fear is that Congress will not do what really needs to be done and the dire predictions that many of us have made will come true.

Ken >>

Whatever are the short term negative consequences now, it would be much worse, MUCH WORSE, later if we continue to basically ignore the problem and continue this huge deficit spending. The Tea Party has got it exactly right, and thank goodness for them.

CaptHenway · July 23, 2011 10:15PM

"Nine Hours to Rama"

CaptHenway · July 24, 2011 5:29AM

Cue the popcorn icon.........

CaptHenway · July 24, 2011 6:11AM

CaptHenway · July 24, 2011 7:15AM

"TA DA!"

derryb · July 25, 2011 9:09AM

good reasons to think that a partial U.S. default is close at hand

CaptHenway · July 25, 2011 11:05AM

After watching the President and the Speaker tonight, I am reminded of something Bugs Bunny used to say:
.
.
"Of course you realize, this means war!"

Spooly · July 25, 2011 12:08PM

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.” …….. Senator Barack Obama

Spooly · July 25, 2011 12:09PM

<< From Spoolys chart, it looks like there was level debt ceiling for years until it started to be raised in 2002. --------BigE >>

The government had a budget surplus in 2002.

derryb · July 25, 2011 1:48PM

<< 

<< From Spoolys chart, it looks like there was level debt ceiling for years until it started to be raised in 2002. --------BigE >>

The government had a budget surplus in 2002. >>

"It should be noted here that budget surplus of the late Clinton years was really a deficit in disguise. It included the social security surplus, which the government has traditionally never saved, in spite of the actuarial certainty that the financing of social security is unsustainable in the long term. If 'unfunded liabilities' had been properly accounted for, there would not have been a surplus."

The Debt Ceiling Dance

derryb · July 25, 2011 1:51PM

<< “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.” …….. Senator Barack Obama >>

It would be interesting to see his rationale for voting against raising the debt limit while he was a senator.

CaptHenway · July 28, 2011 11:07PM

Picture this as a Bugs Bunny cartoon. The government is at 10,000 feet and falling. Elmer Boehner just pulled the ripcord on the parachute, and the only thing that came out of the pack on his back was last week's dirty laundry, including a lovely pair of polka dot shorts.
.
Now what?

giorgio11 · July 29, 2011 1:47AM

<< Picture this as a Bugs Bunny cartoon. The government is at 10,000 feet and falling. Elmer Boehner just pulled the ripcord on the parachute, and the only thing that came out of the pack on his back was last week's dirty laundry, including a lovely pair of polka dot shorts.
.
Now what? >>

I have to confess, I had some hope that President Obama would grow some nads and invoke the 14th amendment, unilaterally increasing the debt limit and then getting into some serious debt-reduction talks over a period of weeks with Congress, without a gun to anyone;s head. But am I mistaken, or did he go on TV yet again and say absolutely NOTHING? I am done, I am VOTING AGAINST EVERY INCUMBENT IN THE NEXT ELECTION.

The Real S&amp;P Warning: A $4 Trillion Deal or a Downgrade

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The Real S&P Warning: A $4 Trillion Deal or a Downgrade