Standard & Poor's has become the first of the major credit rating agencies to move on the credit ratings assigned to the US. On Monday, S&P changed the outlook on the AAA rating assigned to the US to negative from stable. This means there is a one-third chance the rating will be lowered over the next two years. Not that this means much in itself, but it is a sign that at least one ratings agency has run out of patience. Moreover, now that the Securities and Exchange Commission may be about to install record-keeping on the accuracy of the rating agencies' ratings, Moody's and Fitch may be quick to follow suit. Could this be the beginning of the end? There is no doubt that the credit metrics of the US do not compare favourably with those of other AAA-rated sovereign states. The only justification the agencies have been able to come up with to support the maintenance of their ratings is the position of the US dollar as the world's premier reserve currency. It is worth noting that the Chinese credit rating agency, Dagong Global Credit Rating Co, downgraded its rating on the US to A+ a little while back. It rates the Chinese Government AAA. But, with a rapidly depreciating dollar, which the US Government needs to have any chance of managing its debt burden, and growing calls for a new global reserve currency (perhaps one based on special drawing rights) it's not certain how long this position can be maintained. Furthermore, maintaining their huge foreign currency reserves in US-dollar dominated securities, primarily US Treasury bonds, is looking like an increasingly unattractive (and losing) position for both China and Japan. We know China is actively trying to diversify its foreign currency reserves into other currencies, but it must manage the process very carefully for fear of wiping out the value of its still massive US holdings, of about US$1.5 trillion. All of these considerations and more caused credit spreads on US sovereign credit default swaps to blow out to 50 basis points from 43 points on the day. The cost of selling US Treasury bonds will now rise, and it will make the task of selling the desired quantities just that much harder. Moreover, this will make the Ponzi scheme that is quantitative easing that much more obvious. Perhaps this is why PIMCO has been maintaining a short position in US Treasuries for a couple of months now. In announcing the outlook change, S&P made the now mandatory statement that "the economy of the US is flexible and highly diversified, the country's effective monetary policies have supported output growth while containing inflationary pressures, and a consistent global preference for the US dollar over all other currencies gives the country unique external liquidity." However, S&P acknowledged that the US has, relative to its AAA peers, very large budget deficits and rising government indebtedness. It said the path