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United States Loses S&P AAA Credit Rating
oxide7 writes with this excerpt from the International Business Times: "The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday in an unprecedented reversal of fortune for the world's largest economy. S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about the government's budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers."
I'd be more careful about this "we" you are throwing around so freely.
"We" the people have for many years supported the existence of social security, medicare, public schooling, and other such programs which provide a pale imitation of the social net found in other developed nations.
And what else can it be called but a religious article when you have people like Grover Norquist, famous for saying he wanted to shrink government with the objective of "drowning it in the bathtub," getting congressional Republicans signing pledges that they will never, ever allow any form of revenue increase ever? When Boehner walked out of negotiations because Obama refused to offer a deal consisting of nothing but spending cuts?
What we are seeing here is the long-term Republican strategy of destroying the New Deal and everything that's come since by forcing the US into insolvency.
What exactly does this mean for the citizens of the United States of America?
Out here in Middle of Nowhere, West Virginia, the poverty margin is 80% of all households, and it only rises as the economy gets worse. For a quick comparison, in Clinton's era it was "only" about 17% of all households. No jobs, no hope for the government, shops keep closing because they can't make enough to stay open... So what's the next thing those disconnected people in Washington are going to do to Main Street?
Obama has raised the national debt by over three trillion dollars. He added more debt in the first 19 months of his presidency than all presidents from Washington through Reagan combined. If Obama supporters are really going to try to pin everything on Republicans, they're going to be in for a big disappointment in next year's election.
First of all, I don't know where you're getting "three trillion dollars" from. Would be awesome if you could, y'know, provide the source for this data.
Second of all, the President didn't increase the debt single-handedly. You cannot point out any amount of programs that he himself pushed for that led to a deficit of $3 trillion since his first budget (the 2010 budget, since the 2009 budget was Bush's).
Thirdly, the deficit would have been greatly reduced if not for the continued impact of the 2001/2003 tax cuts for the wealthy instituted by President Bush and his congress. Obama is opposed to this and claimed to try to get rid of these (although he didn't, really, in my opinion try that hard. He sold out, in my opinion). Anyway, this would have reduced the deficit.
The bottom line -- you can't blame Obama for an addition to the debt of three trillion dollars. Did he preside over a three trillion dollar increase in the debt? Yes....well, maybe -- I'd still like to see the math on this. But George Bush presided over the worst terrorist attack the United States has suffered. Does that mean that he caused it? No -- any number of things led to the attacks; he was just the guy in the seat for when it happened. Obama is the guy in the seat during the period the debt increased.
One other note -- the President doesn't get to choose what gets funded and what doesn't get funded. You know that there are programs that he wants gone, spending that he wants gone that the republicans insist on funding.
Or it's because we've weakened labor, deregulated markets protecting workers and passed 'business friendly' legislation which makes it cost effective to evade taxes.
An argument can be made for both sides. Wages have fallen while productivity has climbed. Your claim that "high wages" are the cause of our GDP not being higher might be true, but it also means that you want to see our wages fall even faster-- so let me ask you a question: would it be worth it?
We need to start having a large debate about our priorities in this country. Do we want to see the stock market continue to gain year over year at the cost of the average person's wages and security or do we want to put wall street first and hope that they take pitty on the average american and donate really nice food to the food bank.
Businesses keep telling us that we have to compete with the chinese. I say, fuck that. There was a time when we made good wages, had healthcare and benefits and worked a 40 hour work week. I'm not sure why I want to follow any economic path that has us competing to lower our wages, work 60+ hour weeks without safety or environmental oversights and leaves us without any benefits.
Protectionism might have retarded economic growth but if it was responsible for the quality of life for most of labor then maybe we need to strangle our economy.
Two answers to your question.
First, history plays a key role. The credit rating system started out this way (with letter ratings and modifiers) decades ago, and since then so much national legislation, international regulations, and corporate policies have been crafted around the existing system that it'd be very costly to change. For example, BBB- or higher is the legal definition of "investment-grade", and many financial institutions (insurance companies, pension funds, etc.) are legally barred from investing more than a certain percentage of assets under management in non-investment-grade securities. Similarly, Basel III and national reserve requirements assign different risk weightings to different credit rating levels -- AAA and AA may have a zero weight, for example (no capital is required to be held against the possibility of default for these classes of securities), while high-yield investments below C may have a 50% risk weight.
There actually is one rating agency that does use a 0-100% scale, but their scale is actually more difficult for the people who actually use the ratings (fund managers, policymakers, chief risk officers, etc.) to understand since it does not correlate as directly to existing regulatory and legal definitions.
Second, there actually are loss-given-default ratings like you describe, but they are assigned to specific securities rather than to companies as a whole. In fact, there are actually many different types of credit ratings. The one you hear most often is the long-term corporate issuer (or sovereign issuer) credit rating, but there are also short-term ratings, foreign-issuer ratings, loss-given-default ratings, etc.
A company would typically have many of these ratings simultaneously -- e.g. a Canadian company may have an AA rating for CAD-denominated short-term bonds, a A rating for Canadian-dollar-denominated long-term bonds, and a BBB- rating for US-dollar-denominated long-term bonds. Moreover, although the company's US-dollar-denominated long-term bonds issued last week were rated only BBB-, they have a loss-given-default of only 1% because they are structurally senior in the capital structure to the rest of the company's debt, whereas the loss-given-default rating for its AA-rated short-term debt issued yesterday may actually have a loss-given-default rating of 85% because it is subordinated to ten other bonds.
True it's not the only thing, but remember that interest rates are quite correlated with inflation.
One must also be very careful comparing economic conditions of the 19th century with those of the present, or any time since the abandonment of the gold standard. During the 1800s, the gold standard combined with the grip of the Industrial Revolution meant that the money supply was relatively fixed while the number of goods and services diverged, creating a strongly deflationary condition. Side effects of the Revolution are what enabled it to escape the "stuff money in the mattress, it'll be worth more later" trap. The 1800s were a time of wild economic instability; the lack of central regulation and damping meant the economy cycled from boom to depression every 15-20 years, marked by regular bank panics. By the 1900s the extremeness of the instability had reached the point that there were 6 banking panics in the span of 1890-1910, which originally motivated the creation of the Fed. This wild unpredictability, combined with highly depressed wages during the Guilded Age, effectively prevented most people from saving, thereby negating the savings trap.
The situation today is very different. Wages are not so depressed that people can't possibly save money (though many choose not to - witness the insane negative savings rate in the years leading up to 2008), and many people are vested in the stock market. In 1929 when overextension of credit caused a crash, the sudden destruction of wealth caused prices to deflate. This, an abruptly bleak economic outlook, and the sudden unavailability of credit triggered a "don't spend now, it'll be worth more later" feedback loop - a deflationary spiral - and the resulting massive negative feedback imploded the economy. The same confluence of events occurred in 2008, and if it weren't for federal action (the bank bailouts, disgusting as they were, and exercising control over interest rates) we'd be trapped in the same negative feedback loop.
I'll summarize it thus: A deflationary death spiral occurs when a major economic contraction causes deflation, and the combination induces mass withdrawl from the normal investment cycle. If it weren't for actions to ward deflation off, we'd be in that spiral now.
Since Fox News created a walled off echo chamber (not just saying "listen to us" but actively inculating the idea among their listeners, the GOP, that every other outlet is the Debbil), that's all that's necessary.
And can we please stop with the "left wing media" nonsense? As Bill Kristol admitted, "The whole idea of the 'liberal media' was often used as an excuse by conservatives for conservative failures.’” Are we talking about the same CNN that positively jizzed themselves with excitement in the runup to Iraq War 2.0? Is there any media outlet in the US that treated the "death panels" lie with the scorn it deserved? Is there one that doesn't concede every debate to the Republicans before it begins, by using their terms?
Between 1800 and 1910, the United States suffered a banking panic an average of every 7.7 years.
There were 7 depressive episodes in this time:
The panic of 1819 was the first.
The panic of 1837 resulted from overextension of credit; There was a deflationary spiral, 5 year depression, and record unemployment.
The panic of 1857 was comparatively minor, and was shortcircuited by the Civil War.
The Long Depression lasted from 1873-1879; Heavy industrial output fell 25%, overall output fell 10%, and waged were mauled by 25% to as much as 50%.
This was followed by a boom, then the Depression of 1882-1885 and the banking panic of 1884.
The panic of 1983 was considered the worst depression in US history until the Great Depression; Unemployment was in the low teens for 6 years.
The Klondike gold rush initiated a boom, until the Panic of 1907 crashed the NYSE fifty percent year-over-year...
And are you seriously asserting that the government was responsible for the crash of 1929, other than by its failure to restrict wild speculation by bankers (sounds familiar)?
Well I can tell you that cutting taxes to inrease revenues also proves it does not work either. Every republican but Reagan thought it was extreme and Bush SR even called it vodoo economics before 1980. Now it is this strange cult and anyone who disagrees is a radical socialist. Economists do not buy it. If you cite Reagan, I will say it was not until the recovery hit 2 years after his tax cuts and cheap gas. The curve was mathmatical proven false unless the tax rate is very high.
We gave tax cut after tax cut after tax cut. Hell half of the bailout went to tax cuts! Most Americans do not know this. Where are the new jobs it created?
Our tax rates are not high to do business. Right wing ideology again. Our personal income taxes are the lowest in pretty much any 1st world country. Deregulation also started the great recession as banks started gambling on Wall Street and flipping loans rather than investing their deposits to small businesses. If you give a tax break that money will go to China and we will pay the difference in interest as it is lost revenue in red ink for the goverment.
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