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."

Comments

probably should have been lowered anyway

[MorderVonAllem]

Just the fact that we were even thinking about defaulting or raising the debt limit should have lowered our credit rating.

Re:probably should have been lowered anyway

[Dahamma]

Just the fact that we were even thinking about defaulting or raising the debt limit should have lowered our credit rating.

Reagan raised the debt ceiling eight times. Nobody even batted an eye.

Actually, Reagan raised it 18 times, and Bush II raised it 7. Lack of eye batting mostly true.

Re:probably should have been lowered anyway

[The Master Control P]

It's not acceptable if you're an Evil Tax And Spend Democrat tasked with fixing the problem.

It's OK to run a massive deficit, or reduce taxes during a war, or create massive unfunded programs like Medicare D, if you're a Fiscally Responsible Republican however.

That this viewpoint (or at least the first half of it) is unquestioningly repeated by nearly the entire media is the problem. The Republican party's slow descent into insanity began when they realized that the media would unquestioningly repeat absolutely anything they said, no matter how ludicrous or patently false...

Re:probably should have been lowered anyway

[The Master Control P]

The money supply inflates exponentially, so yes every debt ceiling raise will tend towards being the biggest ever. Let's see them on a dimensionless scale by dividing by something of equal measure, say GDP.

Dimensional analysis should be required learning in high school :/

Re:probably should have been lowered anyway

[arth1]

The problem is beyond partizan. What the US government does now is fiscally irresponsible. It's like getting another credit card to pay your credit card debt with.
The only reason the credit rating isn't dropping faster than knickers at a school dance is that the companies who do the rating have a vested interest in the rating being good.

To put the debt in perspective, they've now raised the debt ceiling to almost 16.4 trillion dollars. The total income tax in the US is around 1 trillion dollars. So if the politicians froze the debt ceiling and cut all spendings to stay within the budget, doubled everyone's income tax, and earmarked the extra tax to go to pay down the deficit and nothing else, it would take around 25 years to do so, with interest. That kind of tax increase clearly isn't going to happen. Even if the US completely shut down the military, it will take multiple generations to pay this back now. Just the interest alone is around 25% of your income tax.

In short, we're insolvent, but the creditors can't afford to call us out on it, or their IOU chits will become worthless.
But sooner or later, some big creditors will have to cut their losses. Enjoy your life while you can, because this ponzi scheme will burst - they always do. What happens then is up to your imagination. Civil war and declarations of new countries is likely - it may be the only ways out of the existing debts. Other countries won't be able to help; they will be busy enough trying to survive the domino effect when their investments in the US collapse.

Re:probably should have been lowered anyway

[Anonymous Coward]

Actually, it pretty much IS partisan.

The GOP ran up most of the debt (close to 80% of it), most of the projected debt is due to GOP policies (mostly the Bush Tax Cuts, plus Medicare part D, plus the wars).

The GOP manufactured the "debt ceiling crisis" and held the economy hostage and threatened default if they didn't get 100% of what they wanted (acting much like terrorists in the process).

The GOP refused to consider any new revenues at all, the prime reason cited by S & P in their downgrade.

So this can be laid almost entirely at the feet of the GOP and the crazed fanatical Tea Party extremist wing that seems to completely control it these days.

We could be solvent quite easily, if it weren't for republicans and the tea party. Expire the Bush Tax Cuts, close tax loopholes, another stimulus bill to put people to work and repair infrastructure at the same time (while interest rates are low and the labor is availalbe), boot strapping the economy to add jobs, thus increasing revenue further and reducing the expenses paid out in unemployment benefits, medicare, etc...

The budget would balance within ten years easily. Add on more intelligent cuts and reforms (like allowing Medicare to negotiate better prices). Draw down the Iraq and Afghanistan forces faster than scheduled, cosolidate our over-seas bases, cancel obsolete or white-elephant weapons programs, dismantle the Department of Homeland Security... there is LOTS of money to be saved, as well as raised.

We're the richest country on earth. We're not insolvent. We just have a really bad political problem. It's called The Republican Party.

Re:probably should have been lowered anyway

[Yoda's Mum]

There is not a single media organisation in the United States that espouses any kind of opinion that's even remotely "left of center". Your nation has drifted so far to the right you've no perspective left.

Re:probably should have been lowered anyway

[iserlohn]

Fiscal policy does not work that way. As long as you keep the economy growing, you will be able to outgrow your debt or at least manage your debt load.

It is analogous to if you take out a loan to start a business, as long as your business grows and you have sufficient revenue to meet operating expenses to service your debt, you are creating wealth.

However, the problem we have is that in the good times, no only did we not pay down our debt (which we were very close to during the Clinton years), we blew it on a few wars and on tax cuts/refunds.

Now times are bad and we are at a crossroads, but it is completely a manufactured crisis. The reason being is that what the markets are looking for is for the government to commit to a plan to close the fiscal deficit gap. This usually means passing some legislation to reduce spending and to increase revenue over X number of years. And anything can happen to the economy in the long term, this commitment through legislation is always really just an "understanding". However, we failed to pass this because we have obstructionists in government that mask their flawed esoteric agenda as the new populism.

Re:probably should have been lowered anyway

[The Master Control P]

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.

Re:probably should have been lowered anyway

[The Master Control P]

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?

Re:probably should have been lowered anyway

[The Master Control P]

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)?

Re:probably should have been lowered anyway

[melonman]

I'm a European and, from where I'm sitting, the problem isn't cultural bias on either side. It's the way any criticism of any aspect of American culture results in "individuals, like you, generally believe they're far more civilized (excuse me--civilised) and above such things".

Suggesting that America is far to the right compared with most other countries isn't about hating America. It isn't even necessarily a bad thing. It's a simple observation. Most of the policies of American democrats look moderate-right in a European context. The current French government is hard right by European standards, despite being more interventionist and more wedded to the public sector than any American politician I have ever heard. Nationalising popular music, anyone? Imposing a legal quota for French music played on private radio stations? Government purchases of old cars about every second year? Social charges that are over a third of income for most people? Five weeks statutory vacation a year plus a dozen national holidays? How much of this is in the Democrat manifesto?

So when right-leaning Americans talk about Democrats as if they are virtually communists, it really is very hard for anyone outside America not to burst out laughing.

They weren't thinking about it though

[Sycraft-fu]

I mean for one, these debt limit things always tend to be a "to the wire" affair so nobody takes it that seriously. However the other thing was the executive branch made it clear they wouldn't default on bond payments. That they don't have enough money means they have to choose what not to pay. That could be things like social security payments, and instead pay bond holders which is what they said was likely to happen.

Makes sense too, not only does the US have an obligation to pay its debts and want to maintain its credit, but doing something like that would piss people off and cause them to put pressure on congress to reach a deal.

Really I don't think this downgrade should have happened. While there are quite likely to be other problems for the US (spending cuts, tax increases, slow economy) it does not at all look like default is in the cards. Since bond ratings are supposed to be a rating of how likely that is, the rating seems to be incorrect. My opinion is it is politicking. The S&P people in power wanted a different deal and this is their politicking of it.

Re:They weren't thinking about it though

[msobkow]

Given the ever increasing debt load and utter failure to come up with a plan that will even reduce the deficit, much less balance the budget, the US deserves to have it's credit downgraded. Sorry, but you can't keep spending more than you take in without it coming back to bite you -- no matter how self important you are.

Re:They weren't thinking about it though

[Interoperable]

It seems to me that S&P, along with the other credit rating agencies, lost a lot of credibility when they were giving AAA ratings to the guys holding bundles of sub-prime mortgages in the lead up to the financial crisis. I don't doubt that they play a useful role in rating smaller organisations but when it comes to rating governments and financial heavyweights they're playing politics more than they're making objective assessments.

Re:They weren't thinking about it though

[Billly Gates]

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.

Re:They weren't thinking about it though

[KingSkippus]

This is typical Republican bullshit. I don't have time to pick apart your post, but let's just take this, a particular hot-button topic I've seen:

When people sign for a mortgage they could never afford...

As it turns out, I bought a house right at the start of the housing boom. Living in a family predominantly of homeowners, I had a lot of people offering me good advice. A couple of the best pieces--things I wish that everyone had known--was 1) get a fixed-rate mortgage, not an ARM, and 2) the bank will approve you for a lot more money than you can afford. Figure out how much you can afford before going to the bank, and don't go over that amount. There were a few other things, such as don't use your real estate agent's mortgage broker because they can collude in ways that are not in your best interest, but those were the biggies.

So in my particular case, I decided that I could afford a $200,000 house. I took that information to the bank to get a loan. The first thing that got on my nerves was that he was trying hard to get me into an ARM. In fact, when I mentioned that I wanted a fixed-rate mortgage, he rather treated me like an idiot at my insistence that I wasn't interested. He told me how unlikely it was that interest rates would ever go up, how my payments would be so much cheaper, how I was basically gambling that things would change in ways they couldn't. At one point, he even said, "With real estate values rising like they are, you may even want to consider an interest-only loan, live there for a few years, and move. A lot of people are making a lot of money that way.

The second thing that got on my nerves is that he tried hard to upsell me on a higher loan amount. He told me that really, with my income, I could be looking in the $300,000 range instead. He pointed out that the increase in my mortgage wouldn't really be much of an increase, thanks to the mortgage deduction on my taxes. He pointed out that if home prices go up, they will go up a lot more on a $300,000 house than on a $200,000 house.

Now, keep in mind, this is MY BANK. (A bank, by the way, that I have since fired, and a bank that I ended up not using to finance my mortgage.) Supposedly someone who is an authority on mortgages, someone I'm paying to look out for my best interests. As the housing bubble collapsed and so many people got stuck like they did, I couldn't help but think back on my own experience getting a mortgage. Had I not been lucky enough to have people I trust who were homeowners offering me advice, I might very well have believed that slime. Everything he was telling me seemed to make sense as I was in that office talking to him about home loans. He told me that housing bubbles like the one we're coming out of could never happen, yet here we are.

So yeah, go ahead and pretend like it's all those malicious and stupid people who are responsible for our problems, and they deserve to be thrown out on their asses. I was there, I know the pressure they faced, and I have firsthand experience of what the banks were doing to try to keep their pyramid scheme going. They lied and misused the trust people put in them to cause this mess, and for the most part, got away with it scott free.

That's ironic or absurd

[dens]

After all, if the ratings agencies had done their jobs a few years ago, we wouldn't be in a lot of this mess.

Mod parent up.

[TheLink]

The real reason was the US politicians were being insane/assholes/idiots about it. Not that the debt ceiling was raised, or had to be raised.

If you just "somehow find the money" to make the interest payments (as you did for how many dozen times), the banks wouldn't give a damn (even if it meant creating more US dollars out of thin air). Because the people working in those banks would just hope that the time you guys finally blow up, they might be safely retired in the Bahamas.

BUT the minute you have a very public discussion about whether you are going to bother to find the money or not, the banks will get worried. And rightfully so.

That's why many around the world were calling the US politicians all sorts of things: irresponsible, reckless, absurd etc.

They can't peacefully farm on the rich dirt by the volcano once the volcano makes crazy noises...

Re:WTF that wasn't supposed to happen!?

[Dahamma]

Yes, it's all Obama's fault, the economy was perfect when he took over.

http://en.wikipedia.org/wiki/File:US_Federal_Debt_as_Percent_of_GDP_by_President.jpg

Democrats have been so bad for the US debt! Or maybe the last two years are first time it has risen as a percentage of US GDP under a Democrat since 1975. Still Obama's fault, since he started 2 useless wars... oh, wait, that inflection point seems to be set squarely in his predecessor's term. Personally I'll wait until the end of this term to see how much of Bush's damage he can undo.

Or should I just say "you're so right-of-center you don't need facts and statistics, they just get in the way..."

Re:Two things...

[im_thatoneguy]

"Raising the national debt" is a play on words that doesn't actually reflect Obama's actions. "Raising" makes it sound like he spent an extra $3T. What happened was our income dropped substantially (and we spent extra on stimulus).

Both Democrats and Republicans agree that the solution to our current fiscal crisis is to boost GDP so that we can increase revenue back to previous levels. If we had 1999 revenues in 2009 we wouldn't be "raising the national debt" even with present spending levels.

Even including Obama since 1972 our spending as a % of GDP has been decreasing. If the stimulus worked [Insert Debate] then arguably even the "spending" Obama had saved even more in revenue. The Bailout has almost completely paid itself off and is expected to actually return a profit. Did the stimulus pay for itself? Maybe. But one thing we do know thanks to the CBO is that the 2003 Tax Cuts are responsible for a huge portion of our deficit. Obama tried to end those Tax Cuts--he was blocked by the Minority Republicans.

Obama has tried to reduce the deficit, he even proposed a larger spending cut than the GOP--but the GOP has lost their fucking minds trying to please a tiny fraction of the US population who is completely unwilling to raise taxes or close loop holes. They rejected trillions in spending cuts because there were also some revenue increases to go along.

This is the first time in history that we've cut taxes during a War. Not just one war, 2 wars. If we're supposed to look to business to learn how to operate an organization then we need to be realistic and acknowledge that "sometimes you have to raise prices to not go bankrupt". We continue to vote and poll that we like our government services. That's fine. There is nothing wrong with liking social security and medicare etc. But now we have to be adults and pay what it costs to run those organizations.

Re:WTF that wasn't supposed to happen!?

[The Master Control P]

Are you sure it was Obama who indebted us?

Are you sure it wasn't Reagan's Star Wars?
Are you sure it wasn't Bush's decision to slash taxes when we were running a surplus for the first time in modern history and on course to pay down the deficit?
Or his decision to not only not impose a war tax to pay for his overseas adventures, but for the first time ever cut taxes during a war?

We are buried in debt that was created almost entirely by Republican administrations, due to Republican policies. Federal taxes are at their lowest point in living memory, federal revenue as a fraction of GDP is 20% below where it was in 1980, and we are facing a deficit that will never be closed unless that circumstance is changed. Taxes go up or our deficit continues to accumulate - your choice.

Re:WTF that wasn't supposed to happen!?

[The Master Control P]

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.

Re:Can someone explain

[tftp]

how is an economy which has never repaid and only ever printed money a safe investment?

The USA repays the borrowed money, with interest, all the time. But the volume of the offering grows. It's not a concern until the point where you start suspecting that the country won't be able to service its debt. In other words, your one-year T-bills mature but the government says "fsck you, come later."

That point was reached in several ways. First, the very discussion of default undermines the reliability of country's debt. But then the amount of outstanding debt also makes it possible that the country will either physically run out of money to pay interest and buy matured bonds back, or it prints so much paper money that the profit of those bonds becomes negative, or does something else equally displeasing. The US debt stops being a safe store of value. It wasn't for about a decade already, but events like that serve as excuses for policy makers of countries to reevaluate the allocation of their currency reserves without being crucified.

Also why is it that for the past 2 years people have been steadily divesting from the American economy (which can be seen in the fall of the USD vs all other currencies)

The USD loses to other currencies not because "people are divesting" but because its value drops, and that happens because the printing press works day and night. For most of 2011 the US government borrows money from Federal Reserve which makes it out of thin air. When dollars are created at the rate of a few billion per day, why anyone is surprised that they get diluted?

Besides, most of investments in the US economy are done not by rich foreigners but by mutual funds and the like. This money remains in the system. If you take the money out of the market there will be excess of stock without buyers, and that will result in a serious crash of the stock market. That hasn't been observed. The US economy flounders because the business climate is bad, taxes are high, future is uncertain, labor is very expensive, and whatever you do or don't do you get sued. Can you open a small business and sell goods to China? Chinese can do that and sell their goods to the USA.

So, what exactly does this mean for the citizens?

[copb.phoenix]

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 did not raise the debt by $3T

[rwade]

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.

Re:Two things...

[Lemmy Caution]

No. You're repeating a right-wing talking-point lie, spread by a deceptive Wall Street Journal article.

Re:Two things...

[The Master Control P]

Just in case anyone believes this, federal taxes in the US are at their lowest point in living memory, and the US's social safety net would be considered a sad joke almost anywhere else in the developed world (The fact that its for-profit healthcare system is allowed to hang the most expensive medical millstone in the world around the neck of every business here, and that Americans routinely go bankrupt because they have the temerity to get seriously ill and not be rich doesn't help).

Re:Two things...

[visualight]

Can you provide a link to an official CBO statement/paper/whatever stating that health care reform will cost 2 trillion dollars over what we would normally spend? Because I've been under the impression that the CBO considers it a break even or save.

Data source??

[rwade]

CostOfWar.com: BOTH wars cost $1.1 trillion

According to the CBO, the cost of Obamacare alone: $2 trillion

First of all -- where are you getting that $2 trillion figure? Sounds like a talk radio number, honestly. Your argument is really very uncredible if you don't link to a reputable source. You're at your computer right now -- you don't have to do this stuff from memory.

Re:So does anyone really think...

[Jane Q. Public]

"Essential" spending??? I have to ask honestly: are you out of your mind?

What is "essential" about the government increasing its budget by around 50% in the last 10 years? While at the same time, services have downgraded?

Get a grip on reality, my friend. Before it bites you in the ass.

Re:WTF that wasn't supposed to happen!?

[outsider007]

We needed Obama to be a tough negotiator and instead he consistently gave the republicans everything they wanted. So yeah, thanks a lot Obama.

AIG in 2008 was safer than U.S. Treasury in 2011?

[superposed]

It's amazing to me that until September 2008, S&P was giving AIG a AAA rating, even though AIG was taking the bad side of everyone's bets on the mortgage market, but now S&P downgrades U.S. debt over concerns about "budget deficits and rising debt burden." The U.S. government still has plenty of room to raise revenue to pay off Treasury Bills, and may even be Constitutionally obligated to do so.

It's just hard to believe that the U.S. Treasury is now considered a riskier borrower than AIG was in 2008. It's also ironic, since a good part of the U.S. debt burden was incurred bailing out AIG and the rest of the financial industry (which assumed AIG credit-default swaps would protect them, in part due to S&P's high rating of AIG).

Re:Obummer

[Anonymous Coward]

Thank you Tea Party... and GOP ... this is 100% your fault.

YOU guys manufactured the fake crisis, and then insisted on no revenue. S & P specifically stated that it was because of the lack of new revenues that they did the downgrade.

We need to vote ALL the Tea Party morons out of office. And most Republicans. How Eric Cantor or Mitch McConnel live with themselves, I don't know. We know Boehner just drinks a lot.

Ugh. Stupid right-wing nut jobs.

Main thing is the bond markets

[Flambergius]

While the credit rating thing is unprecedented and sort of iconic moment, the real test of the credit-worthiness of the USA will take place in the bond market.

And what do these people vote?

[SmallFurryCreature]

The republicans are pretty damn obvious with their policies, cut back anything that benefits the poor and keep and increase benefits oops tax cuts for the rich. They don't even bother to try to disguise this as trickle down economics anymore.

Yet West Virigina, which you claim is filled with poor people, colors very red on the election maps I can find.

But hey, if I am a small shop-keeper why should I pay for medi-care or social security for other people. I AM NOT UN-EMPLOYED, I got my own business, I don't need a handout... why isn't there anyone in my store? People to afraid to spend because if they loose their job they need every penny they got? Oops, now my store has gone bust... I need social security to stay alive!

Really, the republicans in the recent debt talks insisited openly that a tax cut for people making more then 250.000 dollars introduced by econimic wonder boy Bush was extended. And every single republican making less then 50.000 was in favor through their vote for the republican party. Because when you are on minimum wage, guys making a quarter of a million are your first priority.

It must be the American dream. Someday I will be rich so I better make sure I vote in the tax cuts for my future self right now.

In most of the rest of the world people vote in social security should their future self need it.

At 25 I stopped drinking to save the liver of a 40 year old man. An American commits suicide at 25 to stop a man from dying at 40.

Washington will take care of Main Street when the people in Main Street stop making it very clear with their votes that the people in Richville are their main concern.

Re:Two things...

[im_thatoneguy]

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.

Re:Obummer

[KDR_11k]

At very least the Reps and Tea Party should split into two parties so people can choose which one they vote for. Of course that's not going to happen, the TP wants to piggyback on the strength of the Reps in the two party system.

Re:WTF that wasn't supposed to happen!?

[Opportunist]

Yeah, because he had so many other choices that it must be his pure evilness that he picked exactly this one after taking over a flaming train heading to a wall with the breaks being removed.

Seriously, if anything this reaffirms my suspicion that the Reps sent the McCain/Palin team into the prez race of 2008 to make sure they can't win and be blamed for the crashing and burning waiting to happen. It was by some margin the most ingenious planned defeat ever. Now the Democrats will be the ones being blamed for the recession that was obvious and to be expected by no later than 2007. If it looks like we'll be out of this mess by 2016, they'll send a winning team into the prez battle next year and emerge as the shining heroes that put the country back on track after the Democrats ran it into the ground. If it doesn't look like the US are out of the shit by 2016, they'll send two more duds into the battle.

And help us God if the Dems catch on and do the same.

Re:Easy solution

[Jeremi]

Time to start cutting Federal programs we can no longer afford.

Works for me. We can start by cutting the military budget in half. No need to be the world's policeman anymore.

Re:WTF that wasn't supposed to happen!?

[Opportunist]

Allow me to elaborate on that. Just in case any teabaggers are reading and not realizing what "cutting tax" really means. And please don't take that 'you' used below personally, English just lacks an impersonal pronoun.

Because for most Americans, cutting taxes means less money in their pockets. Not more.

Tax money is the government's income. It might surprise you, but the feds don't just eat those dollars. They spend it. On YOU, no less. Cutting incomes means for the government the same an income reduction means for you: They can't spend as much. Since they spend it on you, that means less money gets spent on you.

Now, of course, one might argue "hey, who cares? The money I don't have to give them I can spend myself!" True. Very true. And if you earn in the six digits (and not the lower ones), it actually means you gain a lot with every percent tax you pay less. Else, it means that you now have to buy something or pay for something the feds paid for earlier. Because, as it is in our world, TANSTAAFL. Someone has to foot the bill. And if the feds can't, you have to.

Again, who cares? So I pay for it with the money I save on taxes!
No, you do not. You can not. Unless of course you're one of the 6 digit earners. If you're not, you will not be able to afford it. For the simple reason that those that earn more, and hence pay more tax, paid that for you while taxes were high. Allow me to give you a simple example:

Let's assume a flat tax of 10%. Yes, I know progressive tax, but progressive tax complicates the example and it's already evident with a flat tax system. A progressive tax system only aggravates it and makes it more blatantly obvious, but the flat tax already shows it nicely.

Let's also assume that I earn 100k a year, you earn 10k a year. Yes, 10k. There's a lot of people who have to get by on that. At 10% Tax, I pay 10k a year and you pay 1k. Let's furthermore assume that school for a child costs 5k a year. Yes, in my example educating our kids takes up almost all tax. Bear with me, ok? So you have a child and so do I. In a 10% tax system, both can send our kids to school. For "free". Of course, it's not free because it's paid for with tax. But the government just had an income of 11k bucks, so paying 2x5k is quite possible for them.

Now let's slash taxes. From now on, we only pay 8% tax. Huzzah! You just saved 200 bucks in taxes! I saved 2000, but hey, who cares, you have 200 bucks more to spend now.

True. But unfortunately the government now only has 8800 bucks and thus paying for school is no longer possible. Cough up those 5k a year if you want your kid to continue enjoying an education.

It's a constructed example. Granted. But it should illustrate what "cutting tax" really means for the lower income brackets. It means having to spend more on what used to be "free" because the high income brackets paid for it with their taxes.

Please Remember This During Elections

[assertation]

A lot of Americans will not go to vote for President Obama on election day because they are disappointed in his performance and that he has not lived up to 100% of their hopes.

Please don't be like that. Please remember this and go out to vote.

As we have seen the Republicans and the TEA Party are working hard to take things away from you.

This credit downgrade will make you lose money in your 401K and increase the costs of credit........whether buying a home if you are one of the shrinking middle class that can still hope to do that.....or starting a business.

Govenor Scott Walker cut people's jobs so he could give a tax cut to the reach and the TEA Party showed up to counterprotest the Americans who were fighting for their jobs.

Republicans at the state level fought to redefine rape away and to deny coverage for abortions to women as a result of rape.

That is what these people are about. Trying to take things away from you either by conscious design or ignorance. They are turning the US into a 3rd world country.

Please go out and vote to keep them out in 2012 elections.

Re:Why do they use letters like "AAA"?

[konekoniku]

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.

Nobody with a brain takes S&P seriously

[Colin Smith]

The US government spends, what? 40% (and growing) more than it takes in?

The US hasn't deserved a AAA rating for years. Hell there are trillions in junk MBS which S&P rated as AAA. All you have to do is look at the direction of the chart to see if it is sustainable. Screw the rating agencies.

Re:Will any investors care?

[Faux_Pseudo]

A lot do look up the ratings. Institutional investors (aka the 401k investors spending billions on your and my behalf) are required by law to only buy AAA rated investments. So now there will be a lot of them scrambling to find another investment to put their billions into so that they don't go to jail.

AAAAA+

[sakdoctor]

Would lend to again

Re:Can someone explain

[maxume]

That's the total sum of the loans that were issued. Many of them were overnight loans.

There was never $16 trillion in outstanding loans.

Re:WTF that wasn't supposed to happen!?

[DarkOx]

The rich should not pay more in the proportional sense. What gives you the right to profit by someone eases labor? Similarly the banks and the wealthy people who own them should not have been given bailouts they have no right to your labor. The PROBLEM with this country is this business of redistribution where everyone rich and poor a like feels entitled, and charity is done at gun point. The direction of the flow being determined by the political whim of the moment.

Oh and the fact that we go on these ridiculous military adventures for "humanitarian" reasons while we selectively ignore suffering elsewhere because they have oil, or it might irritate China, or Russia. What this nation needs is a heavy dose of 19th Century political thinking. 20th Century politics are FAIL, let us not wast the 21st with it.

Press release from S&P

[rmstar]

is here: http://blogs.wsj.com/marketbeat/2011/08/05/sp-downgrades-u-s-debt-rating-press-release/

It is interesting that deficit isn't the only, nor it seems, most important issue. FTA:

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. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.

Re:no, your the dumb mofo idiot

[theshowmecanuck]

When I lived in the U.S., for a while I had to go from Saint Louis to KC for one week a month for a while for work so listened to a lot of talk radio on the way.

I remember about 7 or 8 years ago listening to Bill O'Rielly on the radio talking about "socialist" Canada, and how rotten the place is, and wondering why anyone would talk nicely of it considering especially how it was always in debt and had spending out of control to finance its socialist agenda. All pure bullshit of course. I can think back on that now and smile.

Since O'Rielly is a darling of Fox, I just to look and see what Fox News' slant was on this was and how they were going to misinform their viewers/readers on the subject. And here it is... not even all that subtle: The three main credit agencies, which also include Moody's Investor Service and Fitch, had warned during the budget fight that if Congress did not cut spending far enough, the country faced a downgrade.. Completely misleading and feeding the Tea Bagger bullshit machine. Ah yeas, the Murdoch slime machine at work.

The downgrade wasn't because the U.S. didn't cut spending. It was because they decided to keep deficit spending (increasing the debt ceiling) instead of addressing the "money in less than money out" issue. Tax increases and the lack of them also figured into the rating change, considering the U.S. has about the lowest tax rate of the G7 countries, but near the highest per capita debt. But hey, if they really wanted to cut spending how about looking at the notion that the U.S. spends more on its military than all the rest of the world does combined... sorry, forgot about the ego and paranoia problem. And a tax increase isn't really a good way to put some of what they could have done to increase revenue. For example, it could have started with getting rid of the Bush error (oops I mean era) tax cuts on the wealthy that was supposed to be temporary to begin with. Alas, the Tea Baggers were rabidly against doing that to their financial backers.

Fox wants to propagandize this to pander to its misinformed viewers to make it seem like the fact that the Tea Baggers prevented tax increases for the most wealthy had nothing to do with it. The most wealthy have the lowest tax rates they have ever had. They omit saying that during some of the most productive and economically booming times in the past century the tax rates on the upper income groups was much, much higher. e.g. In the 50's under Republican president Eisenhower, and during the 90's under Democratic president Clinton. Not increasing revenue by returning taxes to prior levels definitely figures into the credit downgrade.

FWIW, Canada balanced its budget and began paying down the debt starting in the early 90s through to 2008; the only member of the G7 IIRC that was doing so (and why Canada was one of the least affected countries from the current recession). The balanced budget went out the window around 2008 with this recession when the current conservative government went way overboard on stimulus spending.

Re:So does anyone really think...

[modmans2ndcoming]

I say, lets return to the fiscal policies of January 2001.... remove the bush tax cuts....End Medicare part D....end Medicare Advantage...... remove the oil subsidies..... end the wars over seas...

With those moves we will be back in black.

Re:WTF that wasn't supposed to happen!?

[Pinky's Brain]

The gold standard served to keep a lid on the GDP to debt ratios though ... which is why Nixon got off it (the oil based trade deficit necessitated an ever increasing debt to GDP ratio to maintain economic growth in the non oil producing countries).

That said, I fail to see a reasonable alternative ... if the world is ready to give you oil for IOUs for decades at a time allowing you to maintain a much higher standard of living than otherwise possible, why not take the deal? You can always default on IOUs ... of course you do need to have contingencies plans for the inevitable default.

If we had started building trillions worth of nuclear and solar-thermal plants instead of fighting 2 completely fucking useless wars we could have weaned ourselves off our oil dependency ... now we're quite simply fucked, there is no solution. Just a great decline (not a depression, a depression suggests a dip ... while we are going to experience a great reset, with no accelerated growth at the end).

Re:EXCELLENT news

[YetAnotherForumAcc]

The US does make things, it's the world biggest manufacturer.

http://www.msnbc.msn.com/id/41349653/ns/business-us_business/t/despite-chinas-might-us-factories-maintain-edge/

So much for "HARD FACTS" ...

Re:WTF that wasn't supposed to happen!?

[jomcty]

They have a plan. Two Santa Clauses or How The Republican Party Has Conned America for Thirty Years

Re:So does anyone really think...

[El Rey]

You want more tax revenue?

Yes, and less spending. I think S&P was quite clear in their evaluation that this will not be solved by spending cuts alone. Nor will it be solved by more taxes alone.

Essentially, undo all of the things that this administration has actively done to squelch economic activity, stifle the start-up and growth of businesses/jobs.

Like what specifically? The businesses have been sending jobs overseas for the last 35 or so years. It's not something new. Oh wait, you probably mean stuff like let companies bring money back into the US at low tax rates so they can stick it in their pocket and not create any new jobs like they did the last time we did that. Maybe you mean less regulation so businesses can come up with more crazy schemes like credit default swaps? The idea that business will act in the best interest of the country has been debunked (go read Greenspan's book). Nobody believes that crap anymore.

Well yes there are people in this country who are not paying taxes but most of these are rich people with lawyers. It was so helpful when President Bush shut down the part of the IRS that goes after rich tax evaders. Same with corporations. Exxon-Mobile payed $13B in taxes last year. None of it to the United States.

Yes, the rich are insufficiently taxed. If they are paying 15% by laundering their money through capital gains and I am paying higher than 15% then they are not paying their fair share. Period. All of this "disengenuous BS" stuff about the rich paying the "vast majority of taxes" is understood by anyone who has a general knowledge of elementary school math. So, 15% of 1 million is larger than 20% of 85,000. No shit! That doesn't mean that the guy making a million is paying his fair share if other people are paying a higher percentage of their income.

Re:Obummer

[LurkerXXX]

You do realize Obama was left with a clusterfuck from Bush and did massive spending because most of his economic advisers said that was the only way to head off a major depression don't you?