Late Friday, S&P Downgrades US Debt Rating
By Jane Dudley | Friday, August 5th, 2011 | Policy
After the close of Wall Street trading today, after an ugly week and a volatile day in the markets, Standard & Poors says:
– We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.
– We have also removed both the short- and long-term ratings from CreditWatch negative.
– The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.
See more from the Wall Street Journal.
Cynical take on what the White House may say:
1. It’s okay, it’s not a big deal, Moody’s hasn’t done anything [most Americans won't notice this, it's too technical for them, let's ignore it...]
2. Wall Street is evil. Those financial industry types are deeply resistant to the positive change that Obama wants, so of course they oppose him at every turn [class warfare - Big Business is out to harm The People and their Leader].
Aaaaand, I just now heard on CNN, Wolf Blitzer on the phone telling Anderson Cooper that he thinks the White House may spin this as: “the Tea Party forced Wall Street into this by ignoring the obvious necessity of tax increases.”
Folks, time to prepare for some naked class warfare get ready, it’s-a-comin’. And remember, if you’re a Tea Party type, i.e., in favor of prudent government spending, you are greedy and this is your fault. Your wish to be thrifty [with tax dollars] is in fact greed. Got it?
—
A few more thoughts:
From the S&P Press Release
http://blogs.wsj.com/marketbeat/2011/08/05/sp-downgrades-u-s-debt-rating-press-release/
1. The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. 2. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. 3. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. 4. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. 5. It appears that for now, new revenues have dropped down on the menu of policy options. 6. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.
I numbered the sentences of this key paragraph, for the purposes of discussion. The major media are all over sentence #1′s “political brinksmanship” and #3′s “differences… difficult to bridge” and are claiming that it is those intransigent R’s who are the inflexible obstacles to the harmonious land of peace and plenty offered by Obama. Sentence 5 worries about the lack of emphasis in the recent debt ceiling deal on new revenues. The White House will soon start to say, “See that? We need new taxes!” but a growing economy would bring in revenues, without the imposition of new taxes.
The administration will also be ignoring Sentence #6, on entitlements, “the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.”
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About the author
Jane Dudley has enjoyed conservatism and photography for over 30 years. After looking around at the mediocre state of affairs of political photography as it exists on the right, she decided to start making better images, to document Virginia Republicans and to inspire them to make more of an effort to put a fine face on their fine ideas. She is a graduate of the University of Virginia and works in new media.
Comments
36 Responses to "Late Friday, S&P Downgrades US Debt Rating"
Let’s make something clear: the actual financial condition of the country is the thing that has changed the discussion. The Tea Party groups have merely been effective at forcing legislators to recognize it. We began demanding recognition of this reality years before the ratings agencies. We were actually hoping to force DC to change before this rating action would become necessary. In this, we failed.
History continues to prove us correct.
As for S&P: better late than never.
Practically speaking, unless the Dems are prepared to vote for and endorse balanced budgets and something like Mack’s Penny plan (I’m no fan of Ryan’s plan), I don’t see the justification in agreeing to any tax hikes whatsoever. Obama and the Dems are going to spend any and all revenue. They have to spend spend spend just to accommodate Obamacare, let alone their other left wing fantasies. If Italy can consider balanced budget requirements why can’t we? However I see zero likelihood of Obama doing that. I think he’s betting that he can get 51% sold on the idea of having the other 49% pay for them lock stock and barrel.
Jamie, Dana Loesch on Twitter said: @DLoesch: Either tea party is irrelevant fringe or large enough to mastermind downgrade. No worky both ways.
Heh.
They did the “debt deal”… and they told us that this wasn’t supposed to happen! Obama now has the singular distinction of being the first US President to have a ratings downgrade in his administration. I wonder where this honor is going to end up in the Obama Presidential library.
If comments about the downgrade are any indication, the first thing that Keynesians are going to do is to shoot the messenger and call S&P’s credibility into question. The downgrade is just too much reality for most people to handle all at once, too many people didn’t seem to even realize we had a debt problem until a few weeks ago. Well, surprise, we have a debt problem. You can’t just keep manufacturing money out of thin air and spending it with wild abandon, eventually those bills add up and creditors start worrying that they aren’t going to get paid back. I don’t know why any of us should expect more, the government’s finances are just a reflection of the average U.S. citizens finances. People with an average savings rate of less than 1% over the past decade are going to elect politicians who do exactly what politicians have been doing, borrowing and spending, running up debt, with no end in sight.
This will destroy Real Estate (residential and commercial), stock market, and Treasury prices. It’s a good thing I’m not invested in any of those things, and haven’t been for several years.
I wonder when we are going to see White House furnishings, paintings and collectibles showing up on Ebay to pay for the parties and interest on the debt. The Chinese repo men are on the way…
Temporary says “If comments about the downgrade are any indication, the first thing that Keynesians are going to do is to shoot the messenger.”
Why limit it to Keynesians? Repubs who voted for the Boehner/McConnell two step plan are just as outraged. I’ve heard them tonight. Doesn’t S&P know that when Congress says it will cut $2.5 trillion it means just that? (Don’t worry about the tiny bit of small print related to baselines and outyears.)
Val, I know just what you are saying. It’s embarrassing. Boehner and McConnell and the rest of the lot should be embarrassed for themselves and their deal. All of these high deficits go back for decades, back even to Reagan, and the lot of them should be embarrassed about it. This debt wasn’t built over night. But the ones who should be most embarrassed about it are Bush who fought a war without cutting spending or raising taxes, and finally, of course, Obama, who not only didn’t reduce spending when the recession hit, he increased it, and fought to keep it when all evidence says it is completely unsustainable.
Obama and his Democrats will feign outrage but relish the opportunity to exploit this situation politically by blaming the Republicans for not raising taxes. Obama and his Democrats will make these attacks comfortable in the certainty that they will have the cooperation of the establishment “news” media in this effort.
The Republicans had better have their communications plan in place and not screw this up. In this case, the best defense is a good offense, and the GOP must relentlessly go after Obama and his Democrats for adding nearly $5 trillion to the national debt in just 2 years.
Here is some daunting language from the S&P report that the GOP should trumpet: “The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.”
Here’s the link to the report: http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DUS_Downgraded_AA%2B.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243942957443&blobheadervalue3=UTF-8
Ken,
If they raise taxes they will not get any significant “revenue” out of it. So, even if they actually succeed in raising taxes, the fiscal; condition of the nation will not improve and will only diminish further.
You can only raise revenues by increasing production or by blowing another bubble (tech bubble, housing bubble…).
Enter the Fed. QE Infinity, anyone?
The people who should be most embarrassed about the credit downgrade are the American people, it is their gullibility and willingness to listen to people who tell them exactly what they want to hear that makes all of this nonsense possible. People live in a fantasy world where the deeds of their grandparents and great grandparents somehow translate into entitlement, honors, and prestige for themselves. They enslave themselves with debt and hand their leash over to anyone willing to take it, exercise ZERO self control over their own decisions, and then cry like the children they are when things don’t go their way. It’s embarrassing, and the fact that so few people find it embarrassing makes it even more embarrassing. Accept your new credit rating, America, you have truly earned it.
I am waiting for Mike to deny that they have low confidence in Obama’s leadership. Who in their right mind would invest here Mike?
Jamie,
Why do you think that they intend to get revenue? Nothing they have done has help the business sector anyway. In all actuality, it seems the small business owner is the target. It would be nice if you only had to deal with a few company figureheads. Then you don’t have to mess with all the anarchists.
I guess the government bubble is in full swing now.
Temporary,
It is tough to weed through all the spin and overcome the propaganda. And if it’s not that then your getting lectured by a bunch of know-it-alls who talk down to others, not within their circles. So, I can sympathize with why people would tend to their own needs even though your analysis is correct. We have allowed them to do it.
Tim J.,
I don’t think you need to worry about Obama hocking the White House furnishings. I believe he will take them with him when he leaves the White House a la Bill Clinton. Matter of fact, I believe that the Clintons took some of the silverware also, didn’t they? After all, all things belong to number one in Obama’s thinking, do they not?
A lot of this mess will also wind up on the “establishment” Republicans (as it should) like Darth Boehner of Ohio and his lap dog, Eric Cantor of Virginia…and Scott Rigell. It’s bad enough that this nation has to deal with the socialist Democrats, but the gutless, fearful Republican establishment types who are so afraid that they are going to be blamed that they decide to join in with the other side and not stand up to SPENDING AND TAXING AND NO BALANCING OF THE BUDGET.
Oh, yeah, tell me again how they are going to stop the foreign national in the White House? And when the next threats to smear the Republicans arrive…what exactly is Darth Boehner going to do that he hasn’t already done?
Rally on, Independents. Rally on Conservatives. Rally on Tea Partier’s. Never say die. Never give up. Boehner and Cantor will not be there in power for very much longer.
“QE Infinity, anyone?”
What good is that going to do? We can inflate the crap out of our paper to make it look like we are rich, but the repo man only takes hard assets.
On the sun baked rocky bluff, a man holding a small yellow flag above his head leads his large group of tourists to the edge of the precipice.
?????????????????????????????
(This is the Grand Canyon. We get this. Stupid Americans did not make their monthly payments.)
“?????????????????????????????”
Typical establishment blog. Censor anything that doesn’t fit the talking points. ‘) That’s ok. You don’t have to read Chinese to anticipate the drama that will occur when their wrecker pulls on to the White House lawn.
Try saying “?????????????????????????????” on Blue Virginia and you will be banned. To be fair, BD filters are generally appropriate.. not quite censoring.
Where did we censor you?
Darrell – you’ve commented on here for years – when have we ever censored you?
From time to time, we’ll have things stuck in our filter or go to moderation because of how the comment was crafted, but we approve the comment 99% of the time.
As for your comments here, Darrell, I just visited the blog now and everything you wrote seems here. I’ll look under-the-hood to see if there is a comment I need to approve.
Darrell, you’ve been bitter for a long time. Quit taking it out on us. We’ve provided you a platform to share your thoughts and have never limited it.
John J,
I agree, there is a general war declared against small business, and it has been going on for decades. One of the purposes of the confounding and time-consuming regulatory state is to tilt the economics of scale in favor of mega-business. However, the dems probably still believe in skittles-crapping unicorns and that tax increases mean more revenue.
Darrell,
It’s not going to do anyone any good, but they’re going to do it anyway.
Temporary,
Are you in or near Richmond? We need to do lunch. stonewall@cavtel.net
KF says “The Republicans had better have their communications plan in place and not screw this up.”
Why does everyone seem to feel the need to add this plea?
Do you think Boehner and McConnell are so opposed to “raising revenues”? Wasn’t Boehner itching to make a “grand bargain” before Obama got too pushy? Of course Obama compounded his foolishness by openly putting Medicare on the table. No wonder the Left was outraged.
BTW it’s interesting that the defenders of the administration, among them Warren Buffett, are saying that there is no risk of default because the US can print all the money necessary to pay the bills. I kid you not. In their world hyperinflation is not a default because they gave you colored paper.
@Conservativa
“Either tea party is irrelevant fringe or large enough to mastermind downgrade”
- I’m confused, which of those is a good thing? Is irrelevancy a good thing or is it masterminding the downgrade? This would be a contributing reason why most people in the middle and on the left people consider the Tea Party crazy and not influenced by the economic realities or common sense.
A default (thankfully didn’t happen) or downgrade (unfortunately did happen) is never good for a country or an economy. And, many to most economists will tell you that cutting spending and balancing budgets without asking for more revenues by the wealthy isn’t good during a recession/depression or in a struggling economy.
Can you hear us now?
ToR, that was tortured at best. I have to call you out on the obvious.
You know full well that neither are considered good. A Tea Partier would disagree with both assessments. The quote used by Conservativa points to the contradicition that screams out to everyone. First they want to talk the Tea Party down as a small group of kooks. The contradiction comes to play when all of a sudden………BOOM! THE TEA PARTY IS A WELL OILED MACHINE CAPABLE OF ORCHESTRATING SUCH AN EVIL PLOT!
Did they pressure the Republican moderates? Yes! As you can see, however, the result was displeasing to us. So………masterminds capable of forcing anything the Tea Party is not. You need to face what the Republicans years back would not. ^our party is stinking bad and insisting you tow the line and sell your soul to the party do or die.
Your statement as to “many to most economists” saying more taxation is a must is wrong! Huge immediate cuts can damage as well as new taxes that will stifle growth. I don’t care what those talking points say, new taxes is wrong. Taxation is a retardent. You kill the goose laying your eggs. The longer you play kick the can the more cuts you have to make. Cutting can be healthy and restore balance, but short term, yes there is pain. So, get it right and that won’t be needed. Wait too long and you doom yourself. All this crap for what? Vanity? Political gamesmanship? REAL people are involved here. Govt needs to grow up and do their job. We the People need to toss the bums out!
Heh… The filter doesn’t like Chinese characters. Too bad the nation isn’t as good as the filter.
Reading the denials from the right wingers on this forum is almost comical. Now that you own this and the slow growth in the economy, you must of course change the narrative. Now that you share responsibility for the downgrade and the poor performance of the economy, you still refuse to acknowldege the harm caused by the circus in Washington, but more to the point, by your continued allegiance to yoru mantra when it clearly is part of the proglem. Every bi-partisan has said the same thing; we must reduce the deficit by cutting expenditures, growing the economy, and raising additional revenues, just what the President has advocated, yet we are still stuck in partisan blockage of what actually has to happen. The American people know this, and the failure of the posters to this page, as representative of republican party thinking, shows their mantra, enforced by Grover Norquist, will lead our nation to continued fiscal chaos.
You own it? Hahahahaha! Who owned it getting us to this point, Mike. Do you assign any blame to Obama and the Democrats? Talk about denial.
Shoot, Tim Kaine will be forced to deny his own words.
@ Britt
The Tea Party is certainly a group of “kooks,” I don’t think that’s debatable. Now, as for size, they certainly have some influence, as for that being a good thing, I would say well as long as its only a small bit of influence.
Seriously though, I’m assuming you’ve been to a Tea Party rally. It’s a bunch of crazy people. Tell me that they’re not a bunch of “kooks,” just as much as Code Pink, maybe even more so. But maybe if some Tea Party-ers and Code Pink-ers started dating we could resume letting common sense people in the middle run the show.
ToR, I have been to 2 or 3 Tea Party event in Virginia Beach. One event in Chesapeake, one in Norfolk where former councilwoman Daun Hester, I believe, opened the event, and the fantastic Tea Party convention in Richmond.
I can only speak for the events I have attended in Virginia, but the Tea Party from my obsevations are certainly NOT kooks. It doesn’t even closely compare to the antics I have seen Code Pink. However, I am sure there were some decent people in code pink that were quietly embarrassed.
The kooks are the Leftists trying so incredibly hard to infiltrate the Tea Party and cause scenes for the camera. Never happened at events I have been to. It happend enough for event staff to train on how to respond to a fake Tea Partier trying to make us look bad. You have fiscal conservative Republicans, fiscal & social conservative Republicans, Libertarians, and Ron Paul libertarian Republicans. There was ZERO signs of racism. In fact there were non-white speakers at every event I went to. Bishop Jackson for example (powerful speaker, btw, and candidate for Senate).
Maybe there are some bad eggs out there in other areas, but what I have seen with my own eyes makes the “kook” ad hominem hurlers look like complete liars. Virginia Tea Partiers should be proud. I am Libertarian first, but darn proud to be apart of the Tea Party movement.
Hey, if you think I am a kook, that is you right. I don’t believe in thought control, political correctness, or Party correctness. We are free to disagree, are we not?
Britt
It’s like when the whales suddenly beach themselves. You may not know why they did but you do know that something must be going on out there in the ocean.
The leftists have been acting just that way here for the past month.
OT (or is it?):
Zerohedge: “It Just Went From Bad To Far, Far Worse As Germany Says Italy Is Too Big For EFSF To Save, Refuses To Carry Euro Bailout Burden.”
If this is true, think about looking for a hole to hide in. The Germans’ most recent experiences with economic catastrophe have both been hyperinflationary. The Germans, knowing what it means, therefore fear it more than deflation. On the other hand, deflation was our most recent economic catastrophe. Therefore, our solutions tend to be inflationary while theirs exhibits a willingness to allow deflation to take hold. Deflation benefits savers, as prices fall and that saved money increases in buying power. The only way to make the EU bailouts work is for the ECB to almost literally turn itself into an SPV, lever up to the hilt, and start spreading around massive loans created on an almost comparably nonexistent capital base, thus putting the currency itself at risk. The Germans, apparently, have said “No Mas.”
Monday should be fun. The phones are ringing at 33 Liberty.
Germany is the only soul in the water with a life vest. They aren’t going to take it off and commit suicide. And that is what backing some other country’s debt with your entire GDP would be.
More people should be reading Zero Hedge. Then maybe they wouldn’t be so Rah Rah for the two party liars.
The issue, of course, is obvious: how many mortal economic blows does it take to wake up the political class that thinks it is smart enough and powerful enough to manage the world’s economy? And the answer, too, is obvious: at least one more.
The paradigm is too deeply entrenched, too dear, and too useful. It enables the looting by the banks and makes possible the intoxicating illusions of power and omniscience for the pols. The whole thing is a sham, of course, and that is what the entire system is struggling with now. How can we avert reality just one more time?
THE REAL SOLUTIONS TO OUR PREDICAMENT ARE ALSO OBVIOUS, BUT REMAIN POLITICALLY IMPOSSIBLE. This means our problems are political, not economic:
1. Paying people to do nothing destroys motivation. We must stop doing it. This is impossible, as politicians have made a business of buying votes with the public treasury.
2. Fiat currencies always collapse, destroying savers. We need sound money; this will encourage savings and capital formation. This is impossible, as it will render banking much less profitable, and banking and finance are now the largest single contributors to our GDP and the largest asset holders (from corpwatch): “In 1995, the assets of the six largest banks totaled 17 percent of the nation’s gross domestic product. Now they have assets amounting to 63 percent of G.D.P. Measured another way, the share of all banking industry assets held by the top 10 banks rose to 58 percent last year, from 44 percent in 2000 and 24 percent in 1990.”
3. The regulatory state has grown too large, too intrusive, too expensive, and too layered. Anyone who tries to run a business or is self employed knows what I am talking about. Plus, all of these regulators are paid with tax dollars, which means they are essentially carried as overhead on all business’ books. Only they are a bit worse: not only do they suck profit, but they actually make it harder to do productive work. More regulators = more government power, and this is why the dems’ solution to all problems is always more regulation.
4. Too Big To Fail is a political decision, not an economic one. By arguing for TBTF status, the banks are in fact arguing that their service is an essential utility function and that they should therefore be nationalized and run like a public utility. Or, they could shut the f*** up and take their lumps, along with the investigations into fraudulent practices that would accompany a giant collapse brought on by their own demise. It is an undeniable fact that the banks, absent their “TBTF Fed-bailed-out bottomless piles of free money” status, are insolvent right now. The argument that they are profitable and should be paying themselves performance bonuses is a political one, not an economic one. It is the best indicator anyone needs that we, out here in the unwashed masses, are second class citizens.
Finally, maintaining the banks in their TBTF lap of luxury requires artificial price supports that hurt more than they help. The way a genuine free market economy functions, and the reason it functions as well as it does, is because it rewards good decisions, punishes bad ones, and quickly returns assets to play by repricing them. All of the vacant office and retail space you see when you drive around Richmond (or anywhere else for that matter) could be back in play if it were repriced lower. For that to happen, the market pricing mechanisms have to be allowed to work, but fools and banksers have to take their losses first. When the losses are hidden or prevented, market mechanisms are thwarted, and assets lie idle. THIS IS WHY THERE IS NO RECOVERY.
If you believe in TBTF, you do not believe in the free market. The two are absolutely incompatible. People who are unemployed but want to work are unemployed because the market is being prevented from functioning. It is being prevented from functioning because of political reasons, not economic ones.
5. Taxes are too high. Hong Kong is booming, aided by its physical and cultural proximity to China, but also by its 16% corporate tax rate. Corporations must encouraged to repatriate (REINVEST) their profits domestically, and the way to do this is through low taxes. My only obstacle to this is the SC’s recent decision making corporations the legal equivalent of “persons” so that they can make political contributions. Corporations, in the current system, have found their greatest ROI is through political contributions leading to no bid contracts, bailouts (Goldman / AIGFP), etc.
Politics is the problem, not the solution. The only politicians I can support are the ones whose position is “get the government off my back.”
None of this would have happened if Tim Geithner was alive.
Debt rating poll: Poll https://www.facebook.com/home.php#!/radtkeforsenate
turbo,
Are you kucking fidding me? That’s not a poll. Those are classic “are you still beating you wife” questions.
Jamie would find that more than five percent of the voters would take her seriously if she took the voters seriously. She seems to insist on treating us like goobers.
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