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.
A downgrade is way overdue, given the nonsense that has gone on in Congress over the past several weeks. It’s a shame. It will cost us all in many ways. It was avoidable. But no rational person with any knowledge of economics or finance would ever believe after this recent experience that the American government is capable of mature decision on matters affecting both the national and global economy.
#1 I agree unfortunately. Lenders were spooked by the attitude of the US President and Congress – we have seen it in the instability of their response to the European problems this week as well. It is all about keeping the confidence of lenders. There will be a cost to the downgrade from AAA to AA+ which I see has now happened, in higher borrowing costs to US government, businesses and consumers and a consequent further squeeze on the economy, which will make recovery so much more difficult.
But then if your politicians behave like a bunch of cowboys in front of their lenders, they can’t be surprised if they get treated like irresponsible yahoos.
That is why in Britain we have been doing all we can to bolster confidence in us in the international markets, even at the cost of upsetting some domestically, including the Archbishop of Canterbury. But the consequences of not doing so could have been much worse.
I think the US political system made a huge error this week, which looking back people may come to see as a fatal error, which will probably also affect us in due course.
The article has been revised:
[blockquote] The ratings agency Standard & Poor’s has reduced the United States’ credit rating from AAA to AA+ with a negative outlook, the company announced late Friday, saying a bipartisan deal to reduce the nation’s debt did not go far enough and citing crippling political gridlock.
The first downgrade of U.S. credit in history could cost the government and ordinary consumers billions of dollars by jacking up interest rates the U.S. must pay on its $14.4 trillion debt and a host of rates consumers must pay for items such as mortgages, car loans and credit cards.[/blockquote]
Ughh!
Well, you know what they say. “Buy on the rumor, sell on the news.” Problems with the U.S. economy are already known and factored into auction price of treasuries.
I will say that I remember sitting on my daddy’s knee as he explained economics to me and asking him why treasury yields were referred to as the “riskless rate of return.” And he said “because if the U.S. ever defaults we’ll all have to commit suicide anyway, so it won’t really matter.” 🙂
Of course there is something close to zero chance of an actual default. After all the government’s debt is denominated in our own currency and we own a printing press. But there are many ways a nation can default covertly. I expect a rising tide here and abroad of financial repression as nations try to dig out of the mountain of sovereign debt they have created.
The problem goes beyond default. The problem is, as Pageantmaster indicates, is that there is palpable evidence that the government organs of the United States of America are not up to the job. There was a time when capable leaders would come to the fore in difficult times. This has not happened during this crisis. Congress has been exposed as a bunch of party hacks capable of little better than baby talk when dealing with the very complex and difficult fiscal/financial problems of the day. AA+ seems like the benefit of the doubt.
I’m not going to blame the republicans on this one. I felt many of them tried to deal in good faith. The problem is nothing would had stopped the downgrade. The problem was a long time coming as politicians ran up the debt. I am sad but even if we increased taxes on the rich by 150% I feel this still wold be a drop in the bucket.
Deep constitutional reform is needed.
1. term limits for Congress members.
2. a complete abolition of pork.
3. an end to the situation in which about 49% don’t pay federal taxes.
4. an end to the charade of continual elections that hampers the abilty to act decisively.
5. time limits on entitlements.
6. complete transparency with the Great Unwashed on what borowing is costing the present and will cost the future.
No. 7, if you read the S&P statement, it’s pretty clear that their motivation for the downgrade is not the debt itself, but Congress’s behaviour in dealing with it. S&P are very clear that they have a very precise view of where the primary blame lies. It differs diametrically from your view.
Some comments on clarin’s 8 ideas:
Term limits are like throwing out the baby with the bathwater. When there is someone in office you don’t like the solution is to run a better candidate. But what if the person in office actually knew what they were doing? The reason we don’t have a congress of “Mr. Smith’s” is because we allow our parties to bow to the highest bidder. Democracy means we the people have to call the parties and gerrymandering out for the way it manipulates and perverts government.
One person’s pork is another’s needed project. I agree that most of it is a waste of taxpayer’s money and the resources of this nation, but we all take advantage of it. If you don’t like any of it then don’t flush your toilet, visit a park, or cross that Federally financed bridge.
I agree with point number 3; the 49% who don’t pay taxes should pay something. But, they only have a tiny amount of the wealth of this nation and it’s not a solution to the problem of financing the things we want government to do. We tend to think what we want about how much money people have and make, but the reality is that 85% of the country holds only 15% of the money.
I don’t understand your fifth idea. It sounds a bit troubling, but I don’t think you mean it in the way I’m understanding it, so I’ll just refer back to my first comment and say as citizens we need to be involved.
I think entitlements programs need to be administered with the realization that the money financing them is finite. If I have a supplemental retirement fund of $10,000 with 100 people drawing on it I obviously can’t give them each $1000. I shouldn’t even give them $100. What I should do is try to predict what my funds assets will be in 1, 5, and 10 years and maybe plan to distribute only $8000 this year with the understanding that next year they may get less if there is less money to distribute. I don’t think I’d cut someone off if they turned 80 years old, just because. We may as well just distribute rope to those people so they can hang themselves.
The information for your last idea has always been available. A few folks have been worrying about it for years (a lot of years), but most people like to think they are getting a free lunch, and a lot of the people who came up with the plans to spend borrowed money are now long dead, so to them it was. Reckoning time has a way of waking people up.
BlueOntario, thanks for your interaction.
1. The creation of a permanent political class held in power through gerrymandering and patronage has been the cause of immense corruption. Can we really say the common good has been served by senators like Kennedy?
2. Pork encourages waste and corruption, the buying of votes: ‘See what I got you from Washington?’
3. If you don’t pay taxes (even a small amount), you won’t feel a sense of responsibility – and neither will elected representatives.
4. Being in perpetual campaign mode isn’t good. This won’t change, however.
5. What I meant (but didn’t express well) is that the case needs to made for the continuation of a program, not its automatic updating. I think they used to call this a ‘sunset law’.
>NoVA Scout
I have to say the problem was 20 years or more in the making, let us start with growing deficit spending resorting to gimmicks like baseline budgeting and calling reduction of the rate increase a budget cut. I remember the democrats screaming the GOP is starving women and children form 1994 to 2008 if any proposal reduce the rate of increase by three parentage points.
What is it, is it because we not taxing the rich? I find the politics of envy disgusting as a Christian. What did the rich do to derserve this .
#9 I am not sure I agree that it is diametrically opposed to what #7 says as I am unclear as to your precise meaning. IF you mean not blaming one side, but both, then fine. If you mean not one side but the other side, that is not correct.
http://ac360.blogs.cnn.com/2011/08/05/video-man-behind-downgrade-decision/?hpt=ac_mid
Anderson Cooper asked John Chambers of S and P exactly this question, and he clearly blames both sides. I would sincerely hope Christians with a good doctrine of sin would do the same. Only some mutual responsibility for this fiasco is going to get this ball moving the right direction on the field.
[blockquote]The downgrade could cost the government and ordinary consumers billions of dollars by jacking up interest rates the U.S. must pay on its $14.4 trillion debt and a host of rates consumers pay for items such as mortgages, car loans and credit cards.[/blockquote]
I can understand why the authors of this article speak about billions of dollars when they speak of ordinary consumer debt, but then they are forced to speak of trillions of dollars when they refer to the national debt.
Please correct me if I am wrong but if I remember correctly, one of the stimulus packages implemented by our government cost the country trillions (not billions) of dollars and it seemed to me at the time, that we might have slipped into the error of thinking of trillions of dollars in the same way that we thought of billions of dollars a few years ago. There is a huge difference between billions dollars of stimulus money and trillions dollars of stimulus money so it may be that Standard and Poor has just recognized how much the stimulus money is affecting our national debt.
Mr. Cooper has said clearly in interviews over the past day that a major, confidence-sapping facet of the political process was the linkage of the debt increase legislation to other desiderata. They should have passed the debt ceiling increase as a clean bill and then gotten down to the details of hammering away at the debt numbers.
Before this thread disappears I just want to thank clarin for his response. I pray that our nation’s leaders would look at his and similar posts and seek selfless solutions to the problems he points out.
15, so you are saying that S&P is not concerned about the size of our debt, but the argument over whether to increase it and go deeper into debt.
But then you realize that after your clean vote on going deeper into debt, nothing would have happened after that. It still won’t. And that is what I think that S&P is reacting to. They realize that as reflected in the totality of the borrowing ceiling debate, that the United States does not have any realistic plan to actually reduce the rate of spending increase let alone actually cut real spending. They are anticipating our total fiscal collapse.