Here is the great irony: S&P (and the rest of the ratings agencies)  helped contribute in no small way to the overall economic crisis. The toadies rated junk securitized mortgage backed paper AAA because they were paid to do so by banks.

They are utterly corrupt, and should have received the corporate death penalty (ala Arthur Anderson).

The good news is we have removed the requirements from SEC and other regulations that their input is ever needed; The bad news is they still have some sway.

It just goes to show you that the old cliche is true: You don’t need analysts in a bull market, and you don’t want them in a bear market.

~~~

I am off to do Bloomberg TV in 10 minutes

~~~

See also:

• S&P downgrades US debt to AA+ (FT.com)

• Math Error Fuels Fight Over Rating  (WSJ)

• S&P Reconsiders U.S. Downgrade, Unidentified Official Tells CNN (Bloomberg)

• S&P said to back away from U.S. downgrade (Marketwatch)

• S&P downgrades U.S. credit rating for first time (Washington Post)

• The S&P Downgrade may be a Blessing in Disguise (Forbes)

Category: Analysts, Bailouts, Credit

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.

86 Responses to “S&P Downgrades US to AA+”

  1. MayorQuimby says:

    They may be scum but we are going broke.

  2. James says:

    Impeccable timing . . . didn’t we at least have a few months? No matter, it is what it is and vilifying the credit agencies won’t change matters. The fact of the matter is, the last few weeks of debt ceiling debate was highly damaging, and the outcome was not particularly credible.

  3. RandyClayton says:

    I hope it is not tool late to pursue legal action against the rating agencies for the misdeeds Barry has helped identify.

  4. Chief Tomahawk says:

    F*CK S&P. Starring role in sending this country off the cliff. All the public talk about reverrence for the sacrifices veterans make for this country, and then the S&P utterly defrauds the society those who serve defend.

  5. franklin411 says:

    We are not going broke, Quimby. We have simply made a political decision that the richest 1% shall not pay taxes.

  6. MayorQuimby says:

    No, we are going broke. You have no numbers but I do and you could take every dollar of profit from the fortune 500 and it would not even pay interest on debt that’s how broke we are.

  7. SteveinMaine says:

    Arthur Andersen, not Anderson.

  8. MayorQuimby says:

    Btw Barry, I’m very disappointed in your appearance here.

    1. You suggest we can print our way out of our problems. Of course we cannot.

    2. You suggest s&p is being opportunistic. What possible good could a downgrade be for s&p?!

    3. You suggest austerity is bad. So give us a number at which point we have overspent and must cut spending. Or let us know if you believe there are no limits to spending.

  9. franklin411 says:

    Oh, the irony. They can’t even do basic math, and people listen to these cracker jacks?

    Treasury Department officials said that the S.& P. announcement was delayed after Treasury found a serious mathematical error in a draft of the downgrade announcement, which was provided to the government Friday afternoon. The officials said that S.& P. inadvertently added $2 trillion to its projection of the federal debt, significantly overstating the problem confronting the government.

    Treasury said that S.& P. conceded the problem after about an hour of discussion.

    http://www.nytimes.com/2011/08/06/business/us-debt-downgraded-by-sp.html

  10. Jack Damn says:

    Flashback Friday!

    ► ‘No risk’ the US will lose its top credit rating, says Treasury’s Geithner (04/19/11)
    http://thehill.com/blogs/on-the-money/budget/156747-geithner-no-risk-that-us-loses-its-top-credit-rating

    Treasury Secretary Tim Geithner said Tuesday there is “no risk” the U.S. will lose its top credit rating amid a new analysis that revised its outlook on American debt to “negative.”

    Geithner took to the airwaves of financial news networks to push back against a report Monday by Standard & Poor’s that lowered its outlook on U.S. debt to “negative,” reflecting political uncertainty over whether lawmakers will reach an agreement to address long-term debt.

    There is no chance that the U.S. will lose its top credit rating, Geithner said, forcefully disputing the notion that S&P or other ratings services might downgrade U.S. bonds from their current AAA rating.

    “No risk of that, no risk,” Geithner said on the Fox Business Network.

  11. ashpelham2 says:

    Ratings are for news headlines, when they pertain to governments. If America can’t and doesn’t pay its bills, then the rest of the world will stop too. Perhaps that’s the best course of action. Everyone default, reset to zero owed, zero expected, and we do this thing right, with a tie to the price of gold or crude oil. In fact, let’s just make the crude in the ground and sitting on tanker ships be the only currency that matters. All paper money will be tied to how many dinosaurs we can find in the ground.

    Forgive and forget all outstanding debts owed to or expected from. This goes for households too. Everyone is on equal footing. Set interest rates at a level that will pay savers, and are sustainable. Call the equity markets what they are: high stakes roulette. Let’s get on with it.

  12. gremlin says:

    thanks for going on bloomberg, we don’t get cnbc down south of the border and it’s good to see some adult commentary.

    the only problem with bloomberg is they are showing the weekly summaries on the stock ticker, I thought it was the after hours trading showing that everything was crashing another 10%. gah. probably a forecast for monday.

  13. gloppie says:

    Here’s the thing; isn’t uncertainty about a downgrade more damaging than the downgrade itself?

  14. It was right and proper several days ago for Egan-Jones to strip the USA of its AAA rating on its long-term (10yr & 30yr) sovereign debt. The fundamentals for the Federal Gov’t to pay its short/medium term debt is solid. But as we look down the road the structural deficits are unsustainable.

    Today’s additional S&P (the disgusting corrupt entity of the pair) downgrade is consistent with my present target for a major downgrade to “B” in 2016 upon 110% Debt/GDP ratio. And downgrade to “C” in 2021 upon attaining a 123% ratio as well as a rise to a 5.9% Deficit/GDP ratio.

    Again these decisions should be based on the ability of the USA to allow creditors to redeem debt at expiry … not today. I have warned this day was coming for ten years. Kudo’s to the ratings agency for their prudency albeit I really hate a couple of ‘em for their role in the mortgage fiasco.

    Debt Meter chart: http://trendlines.ca/free/economics/DebtMeterUSA/DebtMeterUSA.htm

  15. PDS says:

    Fascinating…..and strange….when they finally get one right….and in this case they did….you dismiss them BR!….
    WTF!

  16. A says:

    What will truly be interesting is the Fed’s statement next week.
    Goodness knows there won’t be any interest rate increases.
    What a mess.

    Have a read:
    http://www.nationalpost.com/news/Obama+fault/5208784/story.html

  17. theexpertisin says:

    The lifestyle of largesse is about to cost a bit more. How many more headslaps do we need before sanity reigns supreme in the beltway?

  18. whskyjack says:

    S&P playing politics?
    nah couldn’t be

    Jack

  19. PDS says:

    BTW BR…..Bloom berg has become the 21st centuries equivalent CNN….That is they’re spinning…. spinning the bad news on the Obama economy into good….don’t get caught in the propellor

  20. MayorQuimby says:

    I’ll say it again – what possible good does a downgrade do for a ratings agency???

  21. FMT says:

    The messenger may well deserve to be shot, but the message needs to be heard too.

  22. DebbieSmith says:

    Since those of us that are mere mortals have difficulty actually understanding just how massive America’s $14.343 trillion debt is, here’s an article that puts the number into terms that are more understandable

    The new debt ceiling is not really fixing any of America’s federal debt problems over the long term. Washington spent all of its political capital creating the new debt floor.

  23. MayorQuimby says:

    I find it VERY INTERESTING that the majority of the discussion on Bloomberg is about s&p and NOT our nation’ effed up fiscal trajectory.

    ~~~

    BR: The breaking news is the downgrade, not the decades of fiscal mismanagement

  24. whskyjack says:

    FMT

    What message do you see being delivered?

    Jack

  25. Vilgrad says:

    Epic Fail of the American Empire

    http://www.theburningplatform.com/?p=19454

  26. godot10 says:

    In a fiat currency system where the state can issue its own currency, the state has no need to borrow money. The “need” of the state to “borrow” money in a fiat currency system is an artifact of a hard currency system such as the gold standard.

    In a fiat currency system, the “need” to “borrow” is an illusion created tAo subsidize and protect (and when necessary bailout) the elites in the financial system. The illusion means that there is one hidden set of rules for the bankers (Wall Street) and a second public set of rules for the public (Main Street).

    We have seen this in the aftermath of the massive Wall Street mortgage and structured product fraud which precipitated the global economic crisis. There were unlimited funds available to bailout the perpetrators (Wall Street) and limited funds to bailout the public/victims (Main Street), and the victims/public (Main Street) get stuck with the bill.

    The unlimited funds that are available to bailout Wall Street can thus be denied to bailout Main Street.

    The losses of Wall Street have and are being monetized, but the illusion of the hard money “need” to “borrow” now being used to deny funds to bailout Main Street. The rules of fiat money can be applied to Wall Street, and the mistakes of Wall Street, but the rules of hard money are being applied to the victims of Wall Street…i.e Main Street.

    That is the double standard which is currently being played out. One set of rules for the Wall Street elites, and another for Main Street.

    A financial reset is required. Only monetizing the losses from the crimes of Wall Street is insufficient to recover from this crisis. The losses of the victims, Main Street, also have to be monetized.

    This does not mean that tough decisions and pain won’t have to be inflicted, and that the entitlement spending post reset won’t have to be rationalized. There is no way out without pain. But the one-sided austerity that is being imposed on Main Street will only drag both Wall Street and Main Street deeper down the rathole.

  27. MayorQuimby says:

    Godoy that is pretty silly. If money is jusqt printed it is valueless. Current fiat originates via existing collateral and past labor pledged for new money which is also backed by future labor. Centrlly planned money is not money. It is counterfeit.

    The more counterfeit fed money, the weaker the dollar.

  28. constantnormal says:

    MayorQuimby … you’re pretty hot & heavy with the US going bankrupt these days … it all sounds a bit like that crackpot preacher who keeps predicting the end of the world. Got a date on the big event? Or at least an upper bound on when we will be forced to default, or hyperinflate?

    You’re the one with the numbers, or so you say. If so, they oughta point to the end of the runway …

    Not that I am completely skeptical about the possibility. But I am at least willing to see the potential for things to change, especially when the lunatic Congress tries to do nothing (poorly) disguised as something and Reality backs them into a corner and gets all medieval on them, and voters finally start chucking the career pols aside in bunches in 2012 … not that the likely replacements would not be even worser, they all appear to be Teahadists.

    October 22nd would be a convenient date, as I think that the radio preacher is calling for the end of the world on the 21st …

    We live in Interesting Times … Anything can happen.

  29. HEHEHE says:

    Are they really telling anybody anything they don’t already know? Does anybody with the IQ above a pickle believe that stupid “debt” deal was going to do anything?

    This might actually put the cabash on QE3.

  30. willid3 says:

    not so sure we are going broke either. after all, we gave billions in tax breaks (in 2001 and 2003). and got nothing in return for them. and we could go back to the old days, circa 1950s and 1960s tax rate. top rate was about 70-90% . and thats when most of the money was made oddly enough. unlike today where we have the elite 1% (who oddly enough make about 20-25% of all income) whining that they just can’t make enough if they have to pay taxes. and back in those days we were a lot more conservative than the Tea Parters and GOP are today. but back then, they actually made money the old fashioned way. they earned. as opposed to today where they get their lackey in Congress to get them a tax break. or they run a ponzi scheme (ala madeoff. doubt he is/was the only one). or they export what jobs they do have to a 3rd world country, and then export their company to a tax haven. while still taking tax dollars.
    but hey who’s looking? our pols are the same. just have different brand on them!

  31. Livermore Shimervore says:

    Danny Roubini says if these idiots have any credibility aspirations they MUST downgrade the Europeans who have even lower ratings. At least we have any sort of growth. France? 0.8% I guess S&P wants to go Tony Montana final scene of Scarface on the big boys. But then again Tony was only a mid level drug dealer…

  32. Sechel says:

    Move was coordinated with the government in my opinion. It cannot be an accident that this was done late Friday after the markets have closed, which gives the market a weekend to digest. This was all known way in advance.

  33. HenryE1807 says:

    @godot10 – That is an EXCELLENT explanation of what we’ve all been seeing. Somehow, magically, there is always money available to bail out the entities drowning in the BIGGEST debt loads.

    The bigger the debt load, the more likely an entity is to be bailed out. Fannie, Freddie, Citi, etc – somehow money can always be found or CREATED to bail them out.

  34. Stuart says:

    So, what happens Sunday night? Any fund holding treasuries had to see this coming. With Fitch and Moodys maintaining their AAA rating, does anything even change? Don’t think so here. No other market is as deep and this is vital. Where are you going to move those funds Mr. Pension fund Mgr? Australia? Canada? Suspect many would just change AAA to AA or better to make “best fit” market conditions, else where do they go? Again, with Moody’s & Fitch maintaining AAA I don’t believe they would even need too. Intuitively, have to believe this is positive for bullion, negative for bucky. We’ll see if that/those market(s) is/are jiggered with ‘again’ to mute impact. Does this make QE3 any more likely? Doubt it. The jobs report today and market confidence are much more relevant to the Fed and IMO them making some sort of “hint announcement” embedded in their FOMC stmt next week is all but assured given this week’s turmoil. The Participation rate says all to tax revenues…. terrible. Confidence is key to everything. They’ve already issued a report tonight that this rating cut has no impact on the discount window or OMOs. This telling. Alot of blogs and posters are going over the deep end on this… nuke clouds sort of thing on certain we know who they are sites…. Don’t think this changes the Fed’s agenda one bit.

  35. Livermore Shimervore says:

    PS
    Tony Montana didn’t make $2 trillion Dollar accounting errors… Remember? He made them count the money twice to be sure. I think I’d trust Tony over S& P

  36. Mike in Nola says:

    @Stuart: you got it. It wasn’t like any new info was revealed by S&P, yet we all saw where the rats went when they abandoned the sinking Euro. And they will again when this most recent ECB baloney proves no more effective than the rest, esp when the Germans realize any effective bailout of Italy and/or Spain would require committing a substantial part of Germany’s GDP for a few years at least.

  37. patfla says:

    Thanks for saying that Barry. Every time the ratings agencies have gotten mentioned during the US debt fight, I’ve been pinching myself as I remember that, in theory, they lost all credibility during the housing crisis.

    I’m trying to remember when it was but it must have been in the last couple of months that there was a less eye-catching but still important negative announcement as regards the US that seemed very politically timed.

    I mean if, as we’ve found, the ratings agencies switched several years ago to being in the pay of Wall St. – and a Republican worldview – it seems that this would be more egregious behavior on the part of those who would own us. That they would resort to the sorts of tactics that we’ve seen recently would mean that they at least don’t believe that they yet exert sufficient control over the population.

    Amazing.

    Still, I”m curious to see what will happen next week. And after.

  38. philipat says:

    I agree that the Ratings Agencies were involved in “Payola” with the Banks. I also agree that both the Ratings Agencies AND the Banksters should have been severely punished, including jail time for the reposible execs. However, the fact is, for whatever reasons, the corrupt US system has not allowed such to happen. So, life goes on. If S&P and the others now start to make honest assessments of credit risk, I don’t see how they can be criticised, unless by continuing to be whores they can prove that “Two wrongs make a right”? (Or perhaps Timmy and Ben refused to print afew extra dollars and push them their way?). On any objective basis, there are very few countries who truly deserve AAA ratings, Canada, Australia, Sweden, Finland amongst them. In reality, were it not for the fact that the US can print what, for now, remains the world’s reserve currency, the rating would be substantially below AA+, even A would be a stretch.

    Incidentally, what do the markets make of this on Monday? Was it already priced in?

  39. mbelardes says:

    If this slaps some sense into Washington DC, then I’m thankful S&P did this now rather than 20 years from now when we are Greece and it’s too late.

    That’s how I see it. Call them corrupt and whatever you want, but we need to deal with our financial problems like a responsible country and we need to do it now rather than later.

  40. robert d says:

    If the credit of the USA is so terrible, please tell me
    why Treasuries across the curve saw their yields DROP
    all week long? It sounds sort of stupid but where else
    does one put money in any size? Don’t tell me Canad or Austrailia.
    Did anyone see the waterfall decline of the Aussie dollar this week?

    The USA, the dollar, our economy is still the safest and strongest
    in the world. Just because our political system sucks these days
    does not mean that we will not pay our bills. (At least they should pay
    my Social Security and Medicare…..the doc says I need an operation soon. )

  41. RC says:

    @robert d,
    Exactly!!! If the credit of the United States is so bad, why 1 month T Bill yield went almost negative?

    People are lending money to the US and in place of expecting a interest, they are ready to pay a fee for the privilege of being able to lend money to the US …. And that US’s credit is not good enough for S&P.

    As Barry pointed out, it is amazing that after what S&P caused to the economy they are still allowed to exist. Enron was just one company and Arthur Anderson was wiped out after that and here countless companies and millions of folks are suffering due to the corruption of S&P.

  42. MikeW says:

    Thanks, BR, for having the stones to baldly declare that the ratings agencies are “utterly corrupt”.

    Much of the MSM tries to downplay the whole matter as some sort of discreet misunderstanding.

  43. robert d’s writings could be poster child for all that is wrong south of the 49th. His parents & grandparents left him museums, bridges, turnpikes and the legacy of real men whizzing about with dune buggies on the moon.

    Conversely, today robert d is leaving his great great grandchildren $14.3 trillion to pay back. He doesn’t realize the awesome accomplishment of the debt ceiling deal: in 2021 the Federal Debt will be $22 trillion instead of $24 trillion! Many americans will suffer an epiphany of sorts today. Myself, i’ve waited near ten years for this ball to start rolling…

  44. daveG says:

    Perhaps asset Mgr’s will begin doing their own due dilly after all these yrs And not be lazy and rely on rating agencies

  45. franklin411 says:

    @Freddy
    Yep, and our grandparents built all of that with a top marginal tax rate of 90%, a debt to gdp ratio that peaked at 120%, and under an umbrella of Federal regulation that makes today’s environment seem like absolute laissez faire.

    So it would seem that all the nostrums offered by those who would slash and burn their way through the programs that benefit the unwashed masses in this country are utterly wrong, wouldn’t it?

  46. rktbrkr says:

    gloppie Says:
    August 5th, 2011 at 9:31 pm
    Here’s the thing; isn’t uncertainty about a downgrade more damaging than the downgrade itself?

    We will see Monday

  47. rktbrkr says:

    After S&P was informed of their $2 trillion error they stuck with the downgrade because of politics, they had already made their decision and then came up with a reason.

  48. M says:

    The full S&P statement is here:
    http://www.guardian.co.uk/business/2011/aug/06/sandp-debt-rating-downgrade-statement?CMP=twt_fd

    Can anyone answer me why the UK still holds an AAA if the USA is not AAA? The UK is substantially worse on every debt measure. The trajectory argument seems weakly supported if at all in by the numbers. Basically this reads as S&P hating the USA political system. I don’t really blame them but I’m not sure on a purely monetary basis that it makes much sense.

  49. rktbrkr says:

    Kudos to the Teabaggers in their financial suicide vests for blowing up the US. Increased interest costs will far exceed other cost reductions esp since Afgan and Iraq wars are sacrosanct, gotta keep killing people half way around the world even if it means people here at home won’t be able to afford stuff like food & healthcare, these Teabaggers truly know the price of everything and the value of nothing.

  50. philipat says:

    I must have misunderstood as a non-US citizen. I thought that the Tea party simply stood for fiscal responsibility and to stop borrowing 43 cents on every dollar spent?

  51. perra says:

    “Grandpappy told my pappy back in my day son
    A man had to answer for the wicked that he’d done
    Take all the rope in Texas find a tall oak tree
    Round up all of them bad boys, hang them high in the street
    For all the people to see

    That justice is the one thing you should always find
    You got to saddle up your boys, you got to draw a hard line
    When the gun smoke settles we’ll sing a victory tune
    And we’ll all meet back at the local saloon…”

    - Toby Keith

  52. rootless says:

    @PDS:

    Fascinating…..and strange….when they finally get one right….and in this case they did….you dismiss them BR!….

    Have they got it right, if the rating is linked to the agency’s demand to implement economic policies that reduce deficits through cuts in government spending when the global economy is at the brink of a new recession, although the failure of this austerity ideology can already be observed elsewhere?

    Cutting spending under the current economic conditions won’t solve the deficit problem, and it won’t generate economic growth. It will make things foreseeable worse, even more if the same policies are implemented everywhere. The causal relationship works the other way around. Economic growth is the prerequisite for decreasing government budget deficits.

  53. atandon says:

    Consider this in the context of “S&P steps to downgrade US”…

    If a person is trying to correct him/herself of a bad habit, should the society encourage it or discourage it? My take would be to encourage it.

    Now, it is true that these rating agencies may be corrupt (bad habit) and the prime culprits of subprime disaster of 08s. I see only S&P raters as trying to correct themselves while Moody’s and Fitch’s still giving into political corrupt pressure. Personally, I like the action taken by S&P.

    I find it hard to believe that S&P raters would let a rating float in the market if there was a 2 trillion dollars mistake in their calculations as suggested by Fed. I take Fed’s comment as more of a manipulative statement that bears a tone of “If you try to destroy our image, we will destry yours”.

    My full support to S&P raters. This should begin a ride (a tough one) to bring out a more robust global economic system that is based on better principles.

  54. rootless says:

    @philipat:

    I must have misunderstood as a non-US citizen. I thought that the Tea party simply stood for fiscal responsibility and to stop borrowing 43 cents on every dollar spent?

    Yes, you must have misunderstood. The Tea Party stands for economic innumeracy, demagoguery, and lunacy, which come under the cover of populist demands that play the resentments of people.

  55. Global Eyes says:

    Origins of a Downgrade:

    The recent downgrade of American Treasuries traces its origins to July 30, 1965. That was when Medicare / Medicaid were started and the Vietnam War was escalated. Since then America has gone from printing money to borrowing money.

    We’re out of (easy) options until a new one comes along.

    Some have called this the world’s longest delayed reaction – I would agree.

    It has left skidmarks on the road to recovery.

    In 1933, America had a clean balance sheet and The New Deal was possible. Things are different today.

  56. rktbrkr says:

    rootless, Superb explanation for Phili!

  57. rktbrkr says:

    Chinese proverb:Beware of interesting times!

  58. MayorQuimby says:

    Tea party is the adult telling the screaming children with diaper rash and a stomach ache that they get no more candy.

  59. markbn says:

    MayorQuimby: re–what possible good does it do for S&P to do this downgrade?

    Myself, I thought it seemed that the head of S&P simply wanted desperately to be a heavyweight, a “player” in the DC action–as he was busy meeting with power brokers, issuing a “$4 trillion cuts or I downgrade” ultimatum, etc. But a more intelligent observation comes from Mark Thoma:

    “S&P may also be covering itself after doing so poorly prior to the financial meltdown. If S&P leaves the outlook at AAA and problems emerge down the road, it’s credibility will be even more shot than it is already and likely irreparable. Missing another big problem is essentially a death sentence. But if it downgrades the debt and nothing happens, it can claim its warnings and the downgrade were key factors in persuading people in both the public and private sectors to take steps to avoid disaster. It’s Chicken Little claiming that his warnings stopped the sky from falling.

    The point I’m making is that because of its damaged reputation, the risks S&P faces are not symmetric, and the lack of symmetry will bias the ratings it issues toward ensuring it doesn’t miss another problem. The upshot is that false positives, as I believe this is, will be much more likely.”

  60. MayorQuimby says:

    Mark, nice points. I agree they area trying to be taken more seriously. But I don’t think they are going out of their way to make waves since those waves threaten their underlying business and clients! I think it is far more likely that they are simply throwing all nepotistic considerations aside and simply doing ther job!

    WS is all about $$$ and this does nothing to win them business.

  61. hammerandtong2001 says:

    godot10 @ 8/5 10:14pm:

    Great post. I salute you.

  62. StatArb says:

    godot10 @ 8/5 10:14pm

    you sound like the Greek politicians who are whistling past the graveyard …… or , Obama’s whistling past the graveyard

    70 years of AAA rating destroyed , this is nothing to laugh about or attach Tin Foil Hat conspiracy theories to

  63. AtlasRocked says:

    Spot-on, BR. I have been remiss in complimenting you. Yes, the ratings agencies are toadies. Their downgrade is a significant event, but their honesty and integrity and objectivity is not where it once was.

    I’m surprised none of them have been prosecuted under existing investment consumer law. If an investment company can be sued for misleading claims on a Mutual fund, for instance, then the ratings agency should be even more liable if they didn’t rate MBS according to their content of high-risk loans, right?

    Why do you think no one has been prosecuted?

  64. DeDude says:

    Freddy Hutter@ 9:32PM;

    Do your numbers include the presumption of Bush tax cuts being extended or not?

    There is no doubt that the current budget deficits cannot be solved without increasing revenues (either by getting rid of loop-holes or increasing taxes and fees). If we don’t increase revenue the debt will move from being a problem to being a crisis at some time late this decade.

    However, the thing that currently is a crisis is our unemployment. Solving that would in itself give substantial help towards preventing the debt problem from developing into a crisis. Long term unemployment is the worst since the great depression. Back then the work force was not particularly well trained or educated, so “loss of skills” problems for long term unemployed people was not nearly as problematic. Huge numbers of people lose their jobs and go through a process of slowly losing their skills and even dropping out of the workforce and into poverty. This is not just an individual tragedy. It’s a huge loss for society and our productivity. Remember that 10 million unemployed people, who want full time jobs, represent a loss of GDP of about $1 trillion per year or 10 trillion over 10 years.

  65. MayorQuimby says:

    We can’t solve unemployment because we are going broke!

    Dude, you are asking the guy who is being foreclosed upon to borrow money to add a lanai to his house because doing so will add value to his house and build up equity as the repo man is taking his car away!

    It is just hilarious to listen to you.

    A deficit is money WE DO NOT HAVE. A $1.7 TRILLION deficit is $1.7 TRILLION the American taxpayer does not have. That’s just for one year. ALL of that $1.7 TRILLION has to come from SOMEWHERE. It is coming from the future at interest penalty which is small but in total, amounts to over $400 billion yearly and growing!!!

    If tax revs decline we are going to be finished.

    W must run surpluses and excess nominal GDP to CATCH UP. But instead, your path means we FALL BEHIND even further.

    Like falling off a train that is accelerating exponentialy (debt interest), we have to collectively expend energy AT A GREATER EXPONENTIAL RATE TO CATCH UP WITH THE TRAIN. We don’t ever have to catch the train. Just get close to it as countries can always run some sort of deficit. But there is a point at which we CAN NEVER CATCH THE TRAIN and the excessive spending, monetization and printing with low rates is SLOWING US DOWN over the long haul. Its like a sugar rush that accelerates us quickly for a few minutes but then we crash and the train keeps moving away, steadily and painfully.

  66. DeDude says:

    MayorQuimby;

    Sorry but I cannot any longer waste time on reading and responding to your comments. Too much repetition of talking points with no substantiation or rationale.

    You must have gone to the Fox school of debate for screaming heads. You basically yell out idiotic talking points and distort or invent your own reality to fit with them. Every now and then you snap a little back towards building arguments, but as soon as you get presented with facts and counter-arguments you cannot handle, you snap back to standard Fox screaming head approaches to “debate”.

    Your kind of blowhard moron is not what I come here to TBP for. Indeed it is why I leave the tubes to come here for news. So enjoy whatever satisfaction you get from yelling that the sky is falling. In the future I will only use you every now and then if I think it is about time to point out the flaws of those right wing talking points that you ramble out like a broken record.

  67. DG_Allen says:

    Really S&P! Really! This is complete political nonsense. They just made themselves irrelevant. Hopefully the markets will just ignore this BS and move on.

  68. beaufou says:

    This downgrade is ridiculous, they might as well downgrade everybody else, the entire world is swimming in debt.
    Unless there is a concerted effort such as a new Bretton Woods, I don’t see how one entity can possibly deleverage and ruin its economy while others are still getting indebted.

  69. WaveCatcher says:

    As S&P demonstrated during the housing bust… when it comes to ratings, follow the money…

    makes me wonder… who’s paying S&P to downgrade US Debt?

  70. MayorQuimby says:

    Dude, I’m no blowhard moron. I’m the voice of sanity. You can insult me all you want but you are wrong and the proof is all around you. Wake up man.

  71. DeDude says:

    “I’m no blowhard moron”

    I only play one on …

    Actually you may be right. Blowhard ideologog is the correct description.

  72. VennData says:

    Math errors are OK. The Tea Party has made innumeracy cool again.

  73. Up here in Canada in the mid to late ’90′s, US commentators were calling us a ‘banana republic’ and the ‘northern peso’. This cut into our political pride deeply. It served as the slap in the face economically that we needed and we proceeded to get our house in order. The vested interests did a lot of kicking and screaming but we dragged them along anyway and now the whole nation is much better off and happier about our direction

    Now it is very difficult for our government to go into deficit without a loud chorus of boos from a large portion of the population. We don’t want to go back to where we were

  74. DeDude, since M was nice enuf to provide a link to the S&P downgrade commentary, it is disingenuous go on and on with your failed Keynesian pleas w/o reading taking the time to read it.

    To answer your question, yes both S&P and myself have assumed the Bush-era tax cuts continue. Albeit they expire in Dec-2012, there appears to be no appetite to allow this sunsetting by the present Congress.

    Most pertinent to the downgrade was this statement: “In contrast with the US, we project that the net public debt burdens of these other sovereigns (Canada, UK, France & Germany) will begin to decline, either before or by 2015.”

    DeDude et al, those who are fully aware of the Federal Govt’s debt/deficit trajectory know the 10yr & 30yr treasuries are junk. There is not a chance in hell of the USA being able to redeem these. They will be worthless unless Congress changes course by at least six to eight trillion dollars by 2021.

    The USA has two AAA downgrades. The Moodys & Fitch are inevitably on the way. B is on the way. C is on the way. In Canada we waited 9 yrs to get our AAA back. To have shared it the last few years with the USA was a travaesty. Our exchange rate went from 0.62 to 1.02; Japan & Switzerland have seen similar revalutatons. Some day the Big Picture will sink in for those narrowminded Americans still out there…

    What part of “at least $4 trillion in cuts or face downgrade” did you fail to understand last week?

  75. patfla says:

    Ah, this jogged my memory as to the details of the earlier ratings agency-related announcement concerning US debt that was “market shaking.”

    http://www.footnoted.com/market-meltdown/bank-of-america-on-sps-waiting-game/

    A Moody’s warning in July.

    I’m out of finance now and back into technology where, although making less, I’m much happier and maybe I just don’t pay as much attention to finance-related ‘details’ as I once did. Although I obviously must be paying some attention given that footnoted.com is one of the finance blogs I still read.

  76. patfla says:

    Totally aside from who’s pulling the strings of the ratings agencies, it’s possible (given the fundamentals of human psychology) that the ratings agencies actually think they’re still in competition with one another. If for no other reason than to preserve their so-called self-respect.

  77. Christopher says:

    Not really sure it much matters WHY at this juncture.

    Kinda like asking why do dogs and snakes bite sometimes??

    I think it’s going to be a massive kneejerk for a day or two than back to pretending it is business as usual for as long as possible.

    I believe the #1 domino is EU. If we aren’t AAA anymore then France and some other EU countries are getting ready to get SLAMMED. Hard to see it does not implode before November 2012….And that is the only date that drives any decisions coming out of DC. Lets not fool ourselves please about the whores in DC. Everyone is OWNED….regardless of whatever stupid fucking animal represents them. They should rename themselves the DC Party and use a large mosquito as the new party symbol. But I digress…..

    We’re fucked.
    S&P is right this time.
    The piper is coming…..and he’s fucking pissed.

  78. patfla says:

    I consider WHY very important if you’re interested in how the system works with an eye towards changing it. Maybe WHY isn’t important if one takes the system as a given.

    In terms of taking the system as a given, if it doesn’t change within our actions we know that it will change anyway without (outside the scope of) our actions.

  79. Christopher says:

    The system is destroying itself rather efficiently.

    I do absolutely agree that understand WHY is important if change is desired.
    However….I haven’t seen any evidence from DC that anyone wants to change a goddamned thing.

    All I see in America is a DC Elite that will happily lead their stupid sheep to slaughter to maintain the STATUS QUO.

    As I said before…..
    I think we are fucked.

  80. philipat says:

    philipat:

    @Rootless

    “philipat I must have misunderstood as a non-US citizen. I thought that the Tea party simply stood for fiscal responsibility and to stop borrowing 43 cents on every dollar spent?

    Yes, you must have misunderstood. The Tea Party stands for economic innumeracy, demagoguery, and lunacy, which come under the cover of populist demands that play the resentments of people”

    OK then, I’ll ignore the rest and just settle for the fiscal responsibility and stop borrowing 43 cents on everydollar spent by Congress. Let’s call it the :Common Sense” express?

  81. mloren1357 says:

    S & P was impressed by the Nero like music played by Congress. Congress impotency: That’s the danger.

    As an aside, I’m still wondering,– How did these rating agencies get a “get out a jail card?”

  82. farmera1 says:

    Here’s a blast from the past. S and P defending A ratings for Lehman, as the company slid down the tubes. There excuse was that it was negative market sentiment. Without the short sellers
    Lehman was a fine company.

    Rating Itself: S&P Defends Lehman’s “A”
    http://www.cfo.com/article.cfm/12295579/1/c_2984321?f=related

    “…asserting that the recent collapse of the investment banking firm was a case of negative market sentiment — whether or not grounded in fundamentals — creating significant difficulties that led the company to the point of failure.” “”In our view, Lehman had a strong franchise across its core investment banking, trading, and investment management business,” S&P stated. “It had adequate liquidity relative to reasonably severe and foreseeable temporary stresses.”"

  83. DeDude says:

    Freddy@2:51PM;

    Actually it is disingenuous of you to suggest that the S&P somehow are supporting your failed austerity ideology and rejecting Keynesian approaches. They specifically say they have no position on whether to bring the debt down by increased revenues or decreased spending. They have no position for or against stimulus as long as it is not done by increased debt. They take no position on the debate about whether stimulus dollars can have a sufficient multiplier effect to prime the pump (and in the long run pay for themselves).

    Their assumptions (like yours) are that we continue to give away the store to the rich; which means that the doomsday scenario can be avoided if we stopped doing that. The continuation of the Bush tax cuts requires the active passing of a law. So if the president and 41 democratic senators grew a pair, they could block the continuation of this irresponsible refusal to pay the bills (no matter what the tea-hadists do). Although I agree you should not count that into the calculations now, I would not rule that out, since the progressive voters are so disgusted with Obama that he has to do something to get them out to vote.

    A reduction in unemployment would actually help bring down the debt provided that it could be done at low cost. If we imagined that all those companies hoarding cash decided to be good citizens and increase their workforce by 2%, that would have a positive impact on the national debt by reducing spending for unemployment and increasing revenue in form of taxes from all the newly employed individuals. Imagine that corporate America solving rather than creating problems. In this case the increased employment would not cost the government a dime and all would agree it would have a very positive impact on the debt. So there is no question that unemployment is a part of the reason for our debt problems. The debate is about whether any type of government intervention against unemployment can have a positive return on the investment.

    The progressive caucus has a very effective plan for bringing the debt under control without telling people who have paid into the entitlement programs their whole life that we will just rob them of that money and run away from our promised to them. It gives you about 6 trillion by letting the top tier who harvested all the income increases in the past decades pay some of that back to society.

    http://cpc.grijalva.house.gov/index.cfm?sectionid=70

  84. DeDude, being Canadian I have no dog in this fight. It took us nine years to get back our AAA and believe me your task will be painful. Unfortunately your electoral system and beholden Congressmen are as corrupt as the bond rating agencies. BTW, since the Progressives (socialist caucus) have a plan why to they not present a bill or find a Senate co-sponsor? Rhetorical question.

    The root of this is America’s bastardization of Keynesian economics by Progressives’ refusal to pay down Debt at the top of business cycles. They only luv the part about using deficits to escape from contractions…

    Years of fiscal mismanagement have left you in this ugly paradox. To combat 16.2% Real Unemployment (U-6), everyone would like to see monetary (QE3) and/or fiscal (stimulus) policy used for correction. Nobody disputes their nominal effectiveness. Unfortunately your credit card is max’d out and you faced diminished returns.

    Each attempt at government intervention from this point results in USDollar devaluation and/or further rating downgrades. The classic Hayek vs Keynes ultimate argument. Krugman would have much more credibility if he was honest with folks and provided as well a forecast of what his proposal’s effect would be on the USDollar over two or three years. I am confident the USD would take another 15% hit (on top of 23%) and ratings would hit “B” levels by 2016.

  85. DeDude says:

    Actually Clinton payed down the debt, and Bush (that progressive bastard???) destroyed the budget surplus with tax cuts for the rich. There is nothing to suggest that he managed to max out the credit card. Our current interest payments represent a much smaller fraction of our GDP than than for most of the past 30 years, and everybody want to purchase our treasuries as demonstrated by the current yields. The dollar is getting stronger not weaker, but if itwere getting weaker that would be great for our exports, that is why countries like China fight strengthening of their currencies all they can. But don’ let the facts get in the way of your anti-progressive anti-keynesian ideology.

  86. Canadian Prime Minister Stephen Harper was instrumental in securing an aspirational agreement among the G-20 leaders at the Toronto Summit to agree to get their Deficits below 3% by 2014. The PIIGS outbreak has resulted in the EURO plunging to 1.18 agin the USDollar. Almost all countries are ahead of schedule except the USA. Most hope to actually balance their budgets by the target. The USA will only be down to 4.8% by 2014. And the EURO has rebounded to a 1.43 rate.

    I don’t know how you can dare say the USDollar is stronger. Against what nation? Zimbabwe? One good result has been the USA’s rejuvenation (May 2011) of the string of goods exports records it set in 2007/2008.

    My three year target for 10yr USA bonds is 5% today.