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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."
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.
After all, if the ratings agencies had done their jobs a few years ago, we wouldn't be in a lot of this mess.
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...
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.
I do not fail; I succeed at finding out what does not work.
"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.
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.
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.
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).
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.
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.
Computers are useless. They can only give you answers - Pablo Picasso
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.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
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.
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.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
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.
I don't care if it's 90,000 hectares. That lake was not my doing.
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.
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.
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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.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
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.
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?
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.
Ascii artist &
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:
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.
-- I ignore anonymous replies to my comments and postings.
http://www.msnbc.msn.com/id/41349653/ns/business-us_business/t/despite-chinas-might-us-factories-maintain-edge/
So much for "HARD FACTS" ...
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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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.
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.
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.