S & P: America Could Default Even if Debt Ceiling is Raised

As I noted yesterday, America could default even if the debt ceiling is raised.

One of the big, government-sponsored American rating agencies has just confirmed my post.

Specifically, Standard & Poor’s announced today:

[We're putting U.S. debt on] CreditWatch with negative implications … owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days ….

The political debate about the U.S.’ fiscal stance and the related issue of the U.S. government debt ceiling has, in our view, only become more entangled.

***

We may lower the long-term rating on the U.S. by one or more notches into the ‘AA’ category in the next three months, if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.

The Washington Post adds:

S&P managing director John Chambers said in an interview … even if the parties agree to raise the debt ceiling, it may not be enough to avert a downgrade. Chambers said the country must implement a plan to reduce the annual budget deficit by roughly $4 trillion over 10 years, which makes the debt manageable over the long term.

The White House and Congress have discussed a plan that big, but negotiations have more recently centered on a smaller deal, at $2 trillion or less.

“That could still lead to a downgrade,” Chambers said.

Knee-jerk conservatives may say, “yes, we have to slash all social support programs like unemployment benefits and food stamps”.

Knee-jerk liberals might say “raise taxes instead of cutting any spending”.

But the truth is that plugging the major holes in our economy is more important than either cutting spending or raising taxes.

And stopping bailouts and giveaways for the top .1% of the richest elite (which weaken rather than strengthen the economy, as shown here, here and here) and slashing spending on unnecessary imperial wars (which reduce rather than increase our national security, as demonstrated here and here) is what the budget really needs.

As I wrote last year:

Why aren’t our government “leaders” talking about slashing the military-industrial complex, which is ruining our economy with unnecessary imperial adventures?

And why aren’t any of our leaders talking about stopping the permanent bailouts for the financial giants who got us into this mess? And see this.

And why aren’t they taking away the power to create credit from the private banking giants – which is costing our economy trillions of dollars (and is leading to a decrease in loans to the little guy) – and give it back to the states?

If we did these things, we wouldn’t have to raise taxes or cut core services to the American people.

I pointed out the next month:

If there’s any shortfall, all we have to do is claw back the ill-gotten gains from the fraudsters working for the too big to fails whose unlawful actions got us into this mess in the first place. See this, this, this, this and this.

Category: Credit, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “S&P: US Could Default Even if Debt Ceiling is Raised”

  1. Dow says:

    Knee jerk liberals say GTF out of Iraq and Afghanistan. And they’ve been saying it since 2003.

  2. dhuv says:

    Dow, if that is a knee jerk reaction, then why hasn’t a liberal president expanded the war effort?

    The following 2 quotes make me laugh.

    Why aren’t our government “leaders” talking about slashing the military-industrial complex, which is ruining our economy with unnecessary imperial adventures?

    And why aren’t any of our leaders talking about stopping the permanent bailouts for the financial giants who got us into this mess? And see this.

    I know he has/still do/always will seem like a freak to most people but Ron Paul has been saying exactly this for a LONG time. Nobody cares to listen.

  3. ilsm says:

    “In the land of the blind the one eyed man is king.”

  4. ilsm says:

    “Why aren’t our government “leaders” talking about slashing”

    A trillion dollar socialized “industry” with high margins has bought the US government. Ike called it unwarranted influence.

    “And why aren’t any of our leaders talking about stopping the permanent bailouts for the financial giants who got us into this mess? And see this.”

    More unwarranted influence than the military industry congress complex.

  5. djiddish98 says:

    Further proof that S&P is full of idiots – how can a nation default if it controls its own supply of currency and has very little foreign denominated debt?

    Maybe a downgrade will be the final nail in the coffin for these agencies, as treasury yields fall even further.

  6. djiddish98 says:

    I should have added “rational nation” – clearly, there can be default in the name of politics.

  7. Greg0658 says:

    “how can a nation default if it controls its own supply of currency ”
    your correct .. but but but
    does our nation control it’s oil usage to produce the daily churn ?
    nope nope nope .. can we steal it someway somehow (maybe) but the other 6.7 billion people wont like it

  8. breezybret says:

    The Fed is a private institution. The treasury no longer creates money, stopped in 1913. The U.S. Creates bonds and the fed “buys” them with created dollars and loans them to the Gov. Your money says federal reserve note. The fed charges interest for this transaction. The government will never be able to get out of debt unless you end the Fed .

  9. blueoysterjoe says:

    Do a search and replace on your article. Replace “knee-jerk” with “strawman”, and your article will be more accurate. Lazy.

  10. Dow says:

    dhuv,
    Your comment is illogical.

  11. The US defaulted on it’s debt the moment when demand for debt exceeded supply. The US printed money to make up the difference rather than raising the interest rate until supply met demand. Printing money instead of paying higher rates diminished the value of all US debt and betrayed those who purchased it.

    The default has already occurred. The question is: Will the US stop defaulting? The way to stop defaulting is to stop raising the debt ceiling and instead buy back the trillions printed when demand exceeded supply. The US must respect Free Market Principles, including the law of supply and demand.