1. The change in trajectory of US debt was in service of Banks: It began with TARP, and continued with every other bailout/stimulus/economic plan. What was S&P’s role in creating that crisis?
2. How will non-US investors (Private and Central Banks) view the downgrade?…
9. The Rating Agencies were downgraded by Dodd-Frank, with all regulatory and legal references to be removed. Was S&P’s move retaliatory?
Earlier today, Standard & Poor’s rating agency lowered the long-term rating of the U.S. government and federal agencies from AAA to AA+. With regard to this action, the federal banking agencies are providing the following guidance to banks, savings associations, credit unions, and bank and savings and loan holding companies (collectively, banking organizations).
For risk-based capital purposes, the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not change. The treatment of Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities under other federal banking agency regulations, including, for example, the Federal Reserve Board’s Regulation W, will also be unaffected.
…there a sliver of a silver lining ”” and an important one. America’s downgrade may serve as a wakeup call for its policymakers. It is an unambiguous and loud signal of the country’s eroding economic strength and global standing. It renders urgent the need to regain the initiative through better economic policymaking and more coherent governance.
There is a risk, of course, that different political factions will use S&P’s action as a vindication of their prior beliefs. Democrats would argue that it is recent Republican political sabotage that pushed S&P over the edge while Republicans would argue that we are here due to irresponsible government spending by the Democrats.
For the sake of their country and the wider global economy, both parties should resist the urge to begin bickering. Instead they should seize this potential “Sputnik Moment…”
Though Beijing has few options other than to continue to buy United States Treasury bonds, Chinese officials are clearly concerned that the country’s substantial holdings of American debt, worth at least $1.1 trillion, are being devalued.
“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” read the commentary, which was published in Chinese newspapers.
Beijing, which did not release any other official statement on the downgrade, called on Washington to make substantial cuts to its “gigantic military expenditure” and its “bloated social welfare” programs.
Standard & Poor’s announced Friday night that it has downgraded the U.S. credit rating for the first time, dealing a symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system.
Lowering the nation’s rating to one notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.
“It’s always possible the rating will come back, but we don’t think it’s coming back anytime soon,” said David Beers, head of S&P’s government debt rating unit.
The federal government is expecting and preparing for bond rating agency Standard & Poor’s to downgrade the rating of U.S. debt from its current AAA value, a government official told ABC News.
Although the Obama administration is preparing for the possible downgrade, it is not 100 percent positive it is going to happen, a second government official said, and if it does happen officials are not sure when it will happen.
China, Europe, America, Japan: each of in its own way is moving toward comprehensive bankruptcy: financial, spiritual, social. Recent tremors in world financial markets are a warning from the invisible hand that we are skirting dangerously close to that final frontier, but we will miss the point if we do nothing more than put our financial affairs in slightly better order.
The great crime of Belshazzar and his cronies was to become disconnected from real values and real events. They used the sacred vessels of the Temple for an unholy palace banquet; at a time of great danger to the realm they distracted themselves with good food and good wine. They ignored the great source of meaning that enlightens and guides the world to focus their attention on shiny objects: gold, silver, brass.
All this and more describes our global leadership today.
The U.S. economy is already skirting the razor’s edge that separates recession from recovery.
“There is no emerging source of demand that’s going to lead us to a surge of growth,” says Lawrence Mishel, president of the Economic Policy Institute.
He says no one is spending money enough to help the economy expand ”” not consumers, not businesses and not government.
On April 18th, the DEVGRU squad flew to Nevada for another week of rehearsals. The practice site was a large government-owned stretch of desert with an elevation equivalent to the area surrounding Abbottabad. An extant building served as bin Laden’s house. Aircrews plotted out a path that paralleled the flight from Jalalabad to Abbottabad. Each night after sundown, drills commenced. Twelve SEALs, including Mark, boarded helo one. Eleven SEALs, Ahmed, and Cairo boarded helo two. The pilots flew in the dark, arrived at the simulated compound, and settled into a hover while the SEALs fast-roped down. Not everyone on the team was accustomed to helicopter assaults. Ahmed had been pulled from a desk job for the mission and had never descended a fast rope. He quickly learned the technique.
The assault plan was now honed. Helo one was to hover over the yard, drop two fast ropes, and let all twelve SEALs slide down into the yard. Helo two would fly to the northeast corner of the compound and let out Ahmed, Cairo, and four SEALs, who would monitor the perimeter of the building. The copter would then hover over the house, and James and the remaining six SEALs would shimmy down to the roof. As long as everything was cordial, Ahmed would hold curious neighbors at bay. The SEALs and the dog could assist more aggressively, if needed. Then, if bin Laden was proving difficult to find, Cairo could be sent into the house to search for false walls or hidden doors. “This wasn’t a hard op,” the special-operations officer told me. “It would be like hitting a target in McLean”””the upscale Virginia suburb of Washington, D.C.
This is not short but it is well worth the time. Read it all–KSH.
The costs of the government’s big health care programs are soaring again, expenses not tackled in the agreement President Obama signed into law Tuesday to raise the nation’s debt limit and cut federal spending.
Medicare and Medicaid spending rose 10% in the second quarter from a year earlier to a combined annual rate of almost $992 billion, according to new data from the Bureau of Economic Analysis (BEA). The two programs are on track to rise $90 billion in 2011 and crack the $1 trillion milestone for the first time.
The jump in health care spending is the biggest since the Medicare prescription drug benefit was added five years ago and ends a brief lull in the spending increases that occurred during the economic downturn.
Chinese rating agency Dagong Global Credit Rating Co. said Wednesday it has cut the credit rating of the United States from A+ to A with a negative outlook after the U.S. federal government announced that the country’s debt limit would be increased.
The decision to lift the debt ceiling will not change the fact that the U.S. national debt growth has outpaced that of its overall economy and fiscal revenue, which will lead to a decline in its debt-paying ability, said Dagong Global in a statement.
–”‹Nothing in the Congressional compromise reached over the weekend makes a significant dent in our $1.5 trillion deficit.
–In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near unfathomable $66 trillion of future liabilities at “net present cost.”
–Aside from outright default, there are numerous ways a government can reduce its future liabilities. They include balancing the budget, unexpected inflation, currency depreciation and financial repression.
Federal Reserve policy makers may start weighing additional steps to prop up the recovery after growth fell below 1 percent in the first half of this year and economists began cutting second-half growth forecasts.
“At a minimum, the FOMC will have a serious debate about the policy options — what they should do, and what they expect to get from it,” said Roberto Perli, a former associate director in the Fed’s Division of Monetary Affairs, referring to the Federal Open Market Committee. “Growth in the first half was dangerously close to zero,” said Perli, director of policy research at International Strategy & Investment Group.
The Obama administration announced new expanded women’s health regulations Monday, classifying contraceptives as preventive services and requiring that health insurers provide them without co-pays for customers….
A number of religious organizations, including the Catholic Church and the Family Research Council, have opposed the new regulations. Cardinal Daniel DiNardo, who runs the U.S. Conference of Catholic Bishops’ Committee on Pro-Life Activities, recently wrote in opposition to the proposal that “pregnancy is not a disease, and fertility is not a pathological condition to be suppressed by any means technically possible.”
269 to 161
….the debate is a clear loss for America as a whole. Here’s how Christine Lagarde put it:
There was a positive bias towards the United States of America, towards Treasury bills. That was the case historically. And the current crisis is probably chipping into that very positive bias.
That very strong confidence that generally led to a flight to quality and investment in Treasury bonds is slightly eroded at the moment. I mean, it was unheard of, only six months, to imagine that the United States could be under negative watch by the rating agencies.
So here’s what I’m wondering: is there some way of quantifying the cost to the US of simply having this debate? Is there a way of taking Lagarde’s “positive bias” and giving it a number, in terms of say basis points of reduction on US borrowing costs?
President Obama and congressional leaders Sunday night sealed a deal to raise the federal debt limit that includes sharp spending cuts but no new taxes, breaking a partisan impasse that has driven the nation to the brink of a government default.
The agreement brings to an end a self-created crisis that has consumed Washington, rattled Wall Street, and shaken confidence in the American political system at home and abroad. The deal could clear Congress as soon as Monday night ”” barely 24 hours before Treasury officials have said they could begin running short of cash to pay the nation’s bills.
Passage of the agreement, however, remained far from certain in the House, where skeptical Republicans were just beginning to digest the details….
Sources familiar with the outlines of the deal say it would raise the debt limit by about $2.7 trillion and reduce the deficit by the same amount in two steps. It would cut about $1 trillion in spending up front and set up a select bicameral committee to put together a future deficit-reduction package worth $1.7 trillion to $1.8 trillion.
Failure of Congress to pass the future deficit-reduction package would automatically trigger cuts to defense spending and Medicare. An aide familiar with the deal said the Medicare cut would not affect beneficiaries. Instead, healthcare providers and insurance companies would see lower payments.
Senate Majority Leader Harry Reid (R-Nev.) instructed senators to stay close to the Capitol Sunday afternoon as a deal was being furiously negotiated among congressional leaders and President Obama.
The Senate voted largely along party lines on Sunday afternoon to block legislation crafted by Senate Majority Leader Harry Reid (D-Nev.) that would raise the debt limit by $2.4 trillion.
Reid and other Democratic leaders worked intently to persuade centrist Republicans to support the plan but fell short.
The vote to end a GOP filibuster failed 50-49. Only Sen. Scott Brown, a centrist Republican from Massachusetts, defied the GOP leadership.
Update: More from Marketwatch there.
In many respects, the deal will, if approved by all parties, resemble the contours of a short-lived pact negotiated last weekend by House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nev. Obama rejected that deal, forcing Congress to wrestle with other inferior legislative options throughout the week.
Among the newest wrinkles, according to informed sources, is an agreement to extend the current $14.3 trillion debt ceiling very briefly to give the legislative process time to work without resorting to emergency, hurry-up measures.
President Obama has said he would only sign a short-term extension (days, not weeks) if it were linked to an extension of borrowing authority that lasts beyond the 2012 election.
Senate Majority Leader Harry Reid (D-Nev.) announced shortly after 10 p.m….[tonight] that he would postpone a vote on his bill to raise the debt limit to give negotiators at the White House more time to work.
He said the Senate would vote on his plan at 1:00 p.m. Sunday, instead of 1:00 a.m., as was originally scheduled.
Reid said leaders are at the White House this evening working on a deal but many details remain unresolved.
Update: Here is an interesting tweet–@JohnJHarwood: on table in debt talks: extension thru ’12; $1.2-Tr 2nd round spending cuts w/no revenue, triggered 1/13 when Bush tax….
Another Update: ABC News’ Jonathan Karl now has more there.
America’s debt debate seems still more kabuki-like. Its fiscal problem is not now””it should be spending to boost recovery””but in the medium term. Its absurdly complicated tax system raises very little, and the ageing of its baby-boomers will push its vast entitlement programmes towards bankruptcy. Mr Obama set up a commission to examine this issue and until recently completely ignored its sensible conclusions. The president also stuck too long to the fiction that the deficit can be plugged by taxing the rich more: he even wasted part of a national broadcast this week bashing the wealthy, though the Democrats had already withdrawn proposals for such rises….
In both Europe and America electorates seem to be turning inward. There is the same division between “ins” and “outs” that has plagued Japan. In Europe one set of middle-class workers is desperate to hang on to protections and privileges: millions of others are stuck in unprotected temporary jobs or are unemployed. In both Europe and America well-connected public-sector unions obstruct progress. And then there is the greatest (and also the least sustainable) division of all: between the old, clinging tightly to entitlements they claim to have earned, and the young who will somehow have to pay for all this.
Sometimes crises beget bold leadership. Not, unfortunately, now….
The Republican-controlled House of Representatives is set to reject Senate Majority Leader Harry Reid’s plan to raise the nation’s debt ceiling Saturday — partisan payback for the Democratic-controlled Senate’s rejection of Speaker John Boehner’s plan Friday night.
The twin votes are a likely prelude to a long weekend of furious back room negotiations between congressional leaders looking for a way to end a tense political standoff and avoid a potentially catastrophic federal default next week.
Update: Megan Mcardle has further thoughts on this over there.
Tea Party activists in and out of office, including 1st District Rep. Tim Scott, have been demanding more spending-cut assurances than House Speaker John Boehner can deliver on the debt accord. They should realize that with Democrats still controlling both the Senate and White House, they can’t get everything they want this time around.
Tea Party folks also should realize that unless the debt ceiling is raised in time, the immediate bottom-line consequences could include a federal default and U.S. credit-rating downgrade.
Of course, even with a debt deal, the nation still faces serious financial risks — including a credit-rating demotion. Fortunately, next year’s presidential and congressional elections will give voters another chance to send the message that Washington can’t keep spending so far beyond our means.
Strangely, as the U.S. citizenry passionately criticizes their government for running up the budget deficit, a greater irony is afoot: When it comes to debt management, Americans are sadly worse than their government.
While government debt sits at 94 percent of national revenue, U.S. household debt sits at a whopping 107 percent of personal income. The household balance sheets of Americans are in worse condition than anytime since the Great Depression. The ratio of household debt-to-GDP is greater than anytime since 1929. And while we all are trying to comprehend a poorer nation, many American’s have not yet comprehended their own personal poverty.
The worst U.S. recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to revised figures.
The world’s largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7 percent drop previously on the books, the Commerce Department said today in Washington. Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942.
“We do tend to get bigger revisions at turning points in the economy,” Steven Landefeld, director of the Commerce Department’s Bureau of Economic Analysis, said in a press conference this week. On the more positive side, “in the past, we’ve tended to undershoot the recovery” as well, he said.
