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S&P To Reevaluate the US's AAA Rating

BillBrasky

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They also downgraded their outlook on our government debt from "stable" to "negative" and say there is a 1 in 3 chance that the federal government will have their AAA rating downgraded.

http://www.chron.com/disp/story.mpl/ap/top/all/7526758.html

Is the the day that the empire begins to officially crumble? I see absolutely no realistic solution on the horizon unless both parties are kidnapped at gun point and forced to negotiate.
 
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the rating agencies had all those shiny turds made up of mortgages rated AAA too.
 
Ronald Reagan's economic policy was that debt was good and tripled the debt.

His policies also led directly to one of the longest economic booms in American history and he won the Cold War. It is no coincidence that the budget was balanced at the same time we experienced the "peace dividend" from the collapse of the Soviet Union.
 
...I see absolutely no realistic solution on the horizon unless both parties are kidnapped at gun point and forced to negotiate.


Cut spending and raise some taxes. Seems like such a no brainer compromise. Political posturing ftl.
 
Cut spending and raise some taxes. Seems like such a no brainer compromise. Political posturing ftl.

That's fine, but there is not one 'pub in DC that is publically willing to talk about raising taxes. Even Paul Ryan won't do it.
 
Debt is good. When China gobbles up government bonds, real interest rates are driven down and economic growth is stimulated. Too much of this can lead to inflation, but that's what the Fed is for.
 
The bottom line (again) is that it doesn't matter what marginal tax rates are, the total reciepts to the fed are between 15-19% historically. When we had tax rates of 75%, we got ~16%, when we had tax rates of ~30%, we got 18%. When Reagan did his overhall, it jumped to ~20%.

Capital is fluid...it goes to where it can be most beneficial to its owner. If we make it too restrictive, it will flee. The bottom line is that federal spending has far outpaced the ~19% GDP baseline of federal tax receipts.

I forgot how to paste a picture, but here is the info:


http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/

However you figure it, government spending needs to be at ~18% of GDP, not at 30+ % as our current trajectory has us on. And again, it has NOTHING to do with what tax rates are.
 
Debt is good. When China gobbles up government bonds, real interest rates are driven down and economic growth is stimulated. Too much of this can lead to inflation, but that's what the Fed is for.
:eek:

Just wow
 
It's just monetary policy. The Federal Reserve controls interest rates in this fashion, only in this case, the Chinese government is purchasing the bonds. When the U.S. government increases spending (and increases its debt), it issue more bonds to pay for their expenditures. If there is no one to purchase the bonds, this can have an adverse effect. However, China (and not just China, a huge fraction of our bonds are purchased by European nations) often purchases federal and municipal bonds in bulk. As a result, interest rates across the board are lowered so other bond issuers can compensate for the increase in demand. This in turn encourages investors to take on new loans or refinance their old ones, which then spurs innovation, growth, and economic prosperity.

In general, this is a good way to close a recessionary gap in potential output. However, this attitude was also a byproduct of the Bush administration's foreign policy (which occurred during an economic boom), and while it stimulated growth, it was artificial growth incapable of sustaining itself. Usually in this situation the Federal Reserve would tighten monetary policy in order to stem overaggressive expansion, but apparently it was the belief of the board of governors that this growth was simply due to an increase in worker productivity rather than a bubble. This was actually the case in the late 90s when Greenspan refused to tighten monetary policy, and turned out to be right when the 2001 recession was relatively mild. Unfortunately, they gambled that this was the case again, and they were wrong, which is why the recession we are in right now is so unusually severe.

However, trying to fix the mistakes of five years ago by decreasing spending would have disastrous results. It's an entirely different ball game now, and we have to encourage growth wherever we can, or we will likely see stagflation again. We are experiencing a minor supply shock from Middle East conflict right now, and if we choose to increase regulation, raise taxes, and cut spending, we are going to be caught in a very bad situation. The combination of poor fiscal policy and a supply shock could make the climb out of this recession a long and arduous one. Thankfully, we've got the right guy running the Fed right now, and I have faith in Geithner at Treasury. It's the grandstanding idiots on Capitol Hill and in the White House I'm worried about.
 
^^^^
not sure how close you have been paying attention but the Fed is buying a shit ton of the bonds themselves. This is unprecedented and shows that they have lost control of the situation.
 
600 billion is pretty significant, I would consider it a shit ton. More half of the amount China owns altogether. They also purchased 1.7 trillion in mbs. The ponzi continues for now.
 
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The Wall Street Journal weighed in today:

The Obama Speech Downgrade

S&P's 'negative' outlook on the President's budget strategy.

Why did Standard & Poor's drop its "negative" long-term outlook bomb on America's AAA credit rating yesterday? S&P revealed no numbers not previously known to a "shocked" stock market, which dropped 140 points. So what's new?

Chief White House economist Austan Goolsbee declared that S&P had made a "political judgment," and we'd have to agree, though probably not for the same reasons. The bulk of S&P's analysis is taken up with repeatedly citing what it sees as next-to-no chance that Washington will do anything significant on deficit reduction this year or next.

"The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term challenges will persist until at least after the national elections in 2012," said the credit rating outfit. S&P's announcement is almost wholly a political analysis of the budget outlook.

There is only one reason the rating agency could suddenly have turned this dark on politics in Washington: President Obama's speech at George Washington University last Wednesday. Mr. Obama's "fiscal policy" speech may have sent progressive pundits cart-wheeling, but its political effect was to poison the prospect for budget negotiations.

The harshness of Mr. Obama's anti-Republican rhetoric and the universal conclusion that this was a Presidential campaign speech make it very difficult for GOP Congressional leaders to believe they can enter into a budget negotiation in which the White House will deal in good faith.

The hyper-politicized Obama White House calculated that the release of a GOP proposal by House Budget Chairman Paul Ryan was the moment to unveil its re-election counter-attack. This week Mr. Obama is taking that speech on what looks like the campaign trail, first at a Virginia community college and then in front of the millionaires and billionaires at Facebook's headquarters in Silicon Valley.

S&P, as did many others, said it saw the Obama and Ryan budget proposals "as the starting point of a process," but "That said, we see the path to agreement as challenging because the gap between the parties remains wide." And: "We believe there is a significant risk that Congressional negotiations could result in no agreement." And this stalemate will continue "over the next two years."

S&P is simply connecting the political dots after last week's un-Presidential tirade against the GOP.

S&P's analysis also discussed fiscal conditions, most notably the scale of the deficit problem before and after 2008: "n 2003-2008, the U.S.'s general (total) government deficit fluctuated between 2% and 5% of GDP. Already larger than that of most 'AAA' rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover." This surely is one Bush comparison that the Obama team wishes to bury.

The S&P outlook also says its baseline scenario for the U.S. economy is "near 3% annual real growth." But "near" 3% growth will not revive tax revenue enough to shrink the growing U.S. debt burden, which is heading toward 80% of GDP.

Notably, there was no call in the S&P note for closing the deficit with tax increases, a staple of ratings-agency fiscal fixes. We hope this neutrality reflects some recognition of the way countries like Greece, pressed to cut spending while raising taxes, descend into an endless downward growth spiral. That's how a nation's outlook becomes truly "negative."

The Obama fiscal policy since 2009 has been to explode the U.S. balance sheet with ever-greater spending financed by monetary reflation—which the President in his speech euphemized as "emergency steps." The result after more than two years is what scares S&P and more than a few Americans: a historically subpar recovery, unprecedented deficits, persistently high unemployment, commodity inflation and now growing anxiety over U.S. creditworthiness.

The Ryan budget has been criticized as heartless and cruel. But its purpose is to address the rising U.S. debt problem without tanking the U.S. economy, and to do so before a truly heartless and cruel credit downgrade of the sort S&P gave Japan in January. Mr. Obama's response was simply to mock the GOP proposal.

The ratings agencies are hardly the last word on U.S. economic health. But the S&P outlook is a warning to the White House that financial markets have noticed that this President seems to have decided that his path to re-election lies in demonizing his opponents rather than seeing to the nation's fiscal well-being.
 
The billions of dollars the Fed spent buying US treasuries has to be mentioned if you are also acknowledging the large amount other nations are buying. I believe China's foreign reserves topped 3.4 trillion... much of that is US dollars. Wonder how long until they want to unload some of it.

LOL at the white house saying that S&P is playing politics with our credit rating.

My concern is the inevitable spike in interest rates, and how that will balloon the amount we have to pay just on interest on debt.
 
S&P, now there is solid firm that is right on top of things. Oh wait ... Aren't they one of those ratings firms that kept saying all these banks and financial institutions were doing just fine right up to the crash?
 
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