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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."
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.
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?
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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