As many expected, Standards and Poors downgraded the United States' credit rating to AA plus. The other rating agencies (Moody's and Fitch) have kept the United States at AAA. So, what does all this mean? Here are my initial thoughts.
First of all, S&P can go fuck themselves. Where were they during 2007, for example, when losses on $340.7 million worth of CDOs issued by Credit Suisse Group added up to about $125 million, despite being rated AAA by Standard & Poor's? S&P are paid to rate the debt of companies so they are honestly more beholden to the private sector than the government.
S&P also made a two trillion dollar error in their latest assessment of US Debt but they still didn't change the rating. My opinion is that they were hell bent on the downgrade regardless of what sort of deal was made in DC. To put it simply, their rating should be taken with a grain (ton) of salt.
All of this being said, their criticisms are fair. The deal that was made was not enough. As President Obama stated plainly several times, it needed to be larger and include revenues. Due to Republican extremism, the political sedimentation that resulted played a heavy role in S&P's decision.
“More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating,” S&P said.
This should be a wake up call to the intransigent people in Washington DC. You are going to have to start thinking outside of the box and come up with innovative solutions. Repeating the same old tired lines about spending isn't going to cut it. In fact, I'll go as far to say that all available and traditional economic theories should be thrown out the window.
We need to say goodbye to trickled down, supply side, and yes, even Keynesian economic theory. Either these theories have never worked, completely failed, or don't belong in the new global economy. A call should begin today for innovative and "width of vision" economic thinkers who are not tied to old dogma.
Any volunteers?
21 comments:
This may cause your head to explode, but we've had a spending problem for 10+ years. It was bad under Bush and has only gotten worse under Obama. It is absolutely out of control when one party controls both Congress and White House. And it doesn't matter which party.
There are people who understand this. People who look beyond D/R as the source of all goodness/badness in the country.
You do not appear to be one of those people.
This for example.
Blame S & P all you want. This won't be the last downgrade. The math simply does not work out.
"Herbert Stein, a wise economist, once said, "If something cannot go on forever, it will stop." One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. The only real question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people plenty of time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis."
Ben Bernanke
October 2010
It's starting to look more and more like 'rapid and painful', but we'll see. The facade of the 'solution' to Debtmageddon was picked apart in cyber-space within minutes of approval. The media spin cycle is measured now in minutes rather than days or weeks.
Government policies and the associated spin may be intended to give "people plenty of time to adjust", but the rapid spread of e-information short circuits their best efforts.
Regardless of Bernanke's (and presumably our political masters') desires to ease the average guy into understanding that the current system is broken and collapsing, I say the vast majority won't really understand anything is wrong until they can't get grapefruit juice at the supermarket anymore.
Then they will take to the streets, shouting Nobody told us!.
but we've had a spending problem for 10+ years.
Here's what I'm wondering...what is the appropriate amount of spending? Do you have a number in mind or just a list of programs? I'd actually like some specifics if you can. No big deal if you can't.
While I agree that we clearly need spending cuts, I also think the government spending too little isn't good for the economy either. Agree? Regarding your link, the only way I'd blame libertarians is if they continued their amnesia about revenue and possibly if they went too far with spending issues.
S&P wants the government to do exactly the things that the Bowles-Simpson plan said we should do, and that's exactly what Obama was proposing in his grand bargain. Any real solution requires entitlement cuts and tax increases. End of story.
But S&P knows that the Republican will categorically refuse to do that, because the Republicans' only goal is to sow chaos and fear, and make Obama look bad. They are willing to drive the economy into the ground to win the next election.
The "trigger" that's supposed to make everyone act responsibly will not do so. It will impose severe cuts on everything, but since that's what the Republicans want anyway, it's no incentive for them to act responsibly. Republicans don't care if defense is cut, because they can just say it's all Obama's fault if that happens.
The debt ceiling debacle is a rerun of the Iraq War fiasco: the media all knew that Bush was lying to get the US into a needless war with Iraq, and the Democrats all knew it too, but they were afraid of being called unpatriotic and hating America if they didn't fall into line. When the story came out of England that the Bush administration had "fixed" intelligence in the run-up to the war the media basically ignored it, because they all knew it already.
The S&P thing is the same. Everyone knows that it's the Republicans acting like jerks to make Obama look bad, but no one in the media will say it loud, and when Democrats say it just makes them look whiny.
S&P's downgrade was their way of stating the simple truth that the Republicans are sabotaging the economy to win an election.
And it's just one part of their overall plan. The balanced budget amendment is key to the Republicans' plan to solidify minority rule in this country. They've already made it so that a minority of the Senate can block anything. Currently elected officials from only about 30% of the country can effectively dictate policy to everyone else. Thirty percent because the rules allow 41 senators to torpedo anything, but since the Senate gives two seats to every state, senators from Alaska, Wyoming, North and South Dakota, etc., can effectively block anything. With the Republican's proposed amendment one-third of the House of Representatives will be able to block any any meaningful work in the House as well. The Republicans know they are doomed to permanent minority status in the next 10-20 years, but if they change the Constitution they can extend their grasp on power for another century.
The mistake Obama keeps making is that he assumes that the Republicans will eventually being to deal in good faith. But they've become a party of monomaniacal zealots and cowards like Boehner who are afraid to cross the zealots for fear of being shot in the back. S&P is just calling it like they see it.
We'll know when we see who's on the committee of twelve whether the Republican Party is serious on saving this country or doubling down on crazy.
Spend less.
Too radical?
Here's what I'm wondering...
We discussed this just a few days ago. But in rough terms, it has to be consistent with revenue which has usually been around 18% of GDP. Myself, I'd shoot for smaller than that, but I could live with that goal.
The biggie is going to be stopping to pay for everyone who wants healthcare. Everyone wants more than they need when it is free - that is no mystery. We can not possibly afford to give everyone all that they want. There are really only two ways to do the allocation - individually or for everyone (one-size-fits-all). I think the best we could do is everyone gets 'an allowance' and figures out how to best use that. Or we scrap trying to pay for it altogether and put people back on their own (and family and charity). And as much as I dislike this kind of tax incentive, maybe we extend those pre-tax health savings accounts. Lastly I'll reiterate - decouple health insurance from employment. I don't get car insurance or home insurance through work, there is no reason for health insurance to be tied to my job.
You claim that healthcare as a market has misallocated resources and that govt intervention could 'improve' that. I mentioned that the cost curve over population age shows peaks for the very young and very old with a U-shaped valley in between. What is your plan to improve that?
>Here's what I'm wondering...what is the appropriate amount of spending?
Crazy thought - absent some kind of unusual situation, like a world war, how about.. keeping spending roughly at or below revenues? I'm just bonkers enough to think that avoiding a deficit and at least trying to reduce the debt so my grandchildren don't need to be saddled by it is a good idea. Why, Congress might even have to do crazy things like lower the debt ceiling..!! I know, I know, having spending near revenue is a completely arbitrary point to choose, huh..
>While I agree that we clearly need spending cuts, I also think the government spending too little isn't good for the economy either. Agree?
No, I don't. Putting money through the meat grinder that is the political process is unlikely to produce wealth. Investing is difficult to do well, and I've never understood why lovers of government think that the government is good at it.
>A call should begin today for innovative and "width of vision" economic thinkers who are not tied to old dogma.
What reasoning leads you to believe that "innovative and width of vision" thinking is going to be any different than anything else that has been tried in the past?
What reasoning leads you to believe that "innovative and width of vision" thinking is going to be any different than anything else that has been tried in the past?
Same 'reasoning' he uses for his economic and political thinking - none. But he BELIEVES!
It's always the tax increase with you Mark, always.
The politicians just spent weeks to come up with a plan that despite those intransigent and extreme Repubs didn't even cut spending by one cent. The only thing it did was reduce by a small fraction the amount of spending increase.
If that doesn't convince you that the drunken sailors in D.C. need to be reined in then nothing will.
If they could come up with, just for one year, a budget that was no more that the previous years budget I would be absolutely flabbergasted. But they can't do that and you still want to talk about revenue.
Matt Damon recently used the word Intransigent twice in a little diatribe he did. Now all the libs are using it.
http://blogs.smithsonianmag.com/ideas/files/2011/07/DeptInnovationLogo.jpg
It's always the tax increase with you Mark, always.
GD,No. It's that it's NEVER the tax increase with you. I'm not the problem. President Obama and most of the Democrats are not the problem. You are the problem. Most Republicans are the problem. I'm completely fucking done with the cult of balance.
We can fix the problems that we have in this country. From my perspective, one side is willing to sacrifice and the other is not. I'm ready to make extensive spending cuts, restructure Medicare and Social Security, and cut defense. What are YOU prepared to do with subsidies, loopholes, and the Bush tax cuts?
Juris, some very good points and it echoes what I heard on NPR the other day regarding health care. Either we go to a voucher system or we do single payer. My concern for the latter is that it would stifle innovation. My concern for the former is the inelastic demand of the free market. No easy answer, really. But your idea of decoupling employment and health care has to happen. Perhaps it might with the new health care law. We'll see.
Hap, also some good thoughts. In all honesty, that's what I am saying. Let's bring down spending and bring up revenue.
No surprise that we disagree on government spending. I guess I'm wondering where you stand on defense spending which provides so much for our economy right now. I say that knowing full well that it is a good thing and a bad thing.
What reasoning leads you to believe that "innovative and width of vision" thinking is going to be any different than anything else that has been tried in the past?
Because we had a president say that we would put a man on the moon by the end of a decade and we did. We've accomplished extraordinary things in this country when it seemed that we couldn't do shit. I do believe in American exceptionalism. That may be a vain fault but I think we have smart enough people in this country that we could figure it out. The question is...are they willing given how anti-intellectual so many people in this country are these days?
I'm completely fucking done with the cult of balance.
That was never anything but a pretense for you anyway. Here is a splendid deconstruction on who is really nuts in this whole saga. And another good analysis of the competing visions in play.
Either we go to a voucher system or we do single payer.
Single payer will never be affordable. The Brits may be willing to forego care (or postpone it a long time), but that won't fly here. Everyone will demand everything and pitch a damn hissyfit if they don't get it. And in single payer, there will be no alternative.
Perhaps it might with the new health care law.
Are we still exploring what is in the PPACA? I'm reasonably damn sure the decoupling of employment from health insurance was not.
Speaking to the 'downgrade' topic, news from the ECB
http://www.ecb.int/press/pr/date/2011/html/pr110807.en.html
The French press are saying
http://www.france24.com/en/20110808-g7-vows-back-stability-nervous-markets-open
Which leads to an interesting economic (rather than political) article by Krugman.
http://krugman.blogs.nytimes.com/2011/08/07/a-self-fulfilling-euro-crisis-wonkish/
Sounds like the EU is going to drop some of the letters off of the PIIGS. The line in the sand will be Italy. Sorry Greece.
Might be time for your readers to get out of their Irish and Portugese assets.
I find it interesting that Krugman supports the attempt to save Italy with his sentence:
"It’s certainly worth a try."
So we shall see what the future holds. A return of the Drachma? Gotta inflate something, and they can't inflate the Euro.
The absolute best part is, if you'll remember just two months ago
http://www.reuters.com/article/2011/06/08/us-eurozone-idUSTRE7571YC20110608
The Greek government forced their own private industry to buy worthless Greek debt.
Talk about eating your seed corn...
I hope silver does well tomorrow.
OK 'Mr. I'm not the problem', riddle me this:
Imagine a number between 1 and 1. This is the number of US government budgets that were equal to or less than the previous budget during the last sixty years.
Now multiply that number by 8. That is the number of times the US government raised the income tax rate during that same sixty years.
Granted, sixty years is a fairly small sample, but I'm still going to call that a trend.
With that trend in mind ask yourself which is the more likely possibility:
A) Congress increases spending and increases taxes.
or
B) Congress decreases spending.
Here's the thing, while you were so busy rushing to label me as the problem (winning the argument maybe?) you forgot to actually read what I've said, and what I haven't. I've never said we can't or shouldn't increase taxes. Actually I think it is inevitable and necessary to solve the mess we're in.
But I am not so naive as to believe that we can trust the idiots in DC to pass a tax increase first and get around to spending cuts later at their convenience. They just won't do it.
And since you seem to think they can - THEN YOU ARE THE PROBLEM.
Unless of course you really don't believe in any curbing of government spending. Which is actually easier for me to swallow than you saying it while you only harp about tax increases.
S&P wants the government to do exactly the things that the Bowles-Simpson plan said we should do, and that's exactly what Obama was proposing in his grand bargain.
How do you know? Did Obama ever even once propose anything specific? Or did he just make speeches?
The CBO can't score a speech.
It's that it's NEVER the tax increase with you. I'm not the problem. President Obama and most of the Democrats are not the problem. You are the problem. Most Republicans are the problem. I'm completely fucking done with the cult of balance.
We can fix the problems that we have in this country. From my perspective, one side is willing to sacrifice and the other is not. I'm ready to make extensive spending cuts, restructure Medicare and Social Security, and cut defense. What are YOU prepared to do with subsidies, loopholes, and the Bush tax cuts?
Obama had an agreement for $800 billion in revenue increases from Boehner, but that wasn't good enough so he changed things at the last minute and Boehner walked away from someone who wasn't negotiating honestly. At least that's the claim of Boehner's people, Obama's people won't say what happened so far as I can tell.
You may be willing for all kinds of cuts in this and that, but your party isn't. Where is the Democrats' plan for entitlement reform? Anything out there at all?
You claim the need to end subsidies and loopholes (and I agree)... but will the Democrats apply that thinking to Al Gore's zinc mine, or only to oil companies? That's the thing about subsidies and loopholes (and laws in general), they're supposed to apply to everyone equally. I have yet to see any evidence that the Democrats even understand that concept, much less want to actually go by it.
Drudge Headline:
BARACKALYPSE NOW: IT TANKED AS HE TALKED
Ha, that tagline is going to define Obama's presidency forever - the Barackalypse!
...because the Republicans' only goal is to sow chaos and fear...
Imagine my surprise when I realized the comment that contained this phrase (Anon at 6:14 PM, 5th comment) will receive none of Mark's condescension about "true believers" and "lack of critical thought".
Anon (other Anon, whatever), just so you know,
the media all knew
and
Everyone knows that it's
is pub talk for "This is a belief I cling fervently to, but have never actually examined, nor am I ever likely to."
Once you start in with what "everyone knows", you declare yourself to be one of these guys:
http://www.youtube.com/watch?v=yp_l5ntikaU
I hate to break this to you, but yes, you can also build a bridge out of stone.
Quite a day.
London is burning.
No, really.
http://www.independent.co.uk/news/uk/crime/mindless-violence-spreads-to-liverpool-leeds-and-birmingham-2334131.html
Haven't seen this in the US papers yet. Even though it's the third day of unrest.
Don't feel bad though, the Brit papers kept it under wraps for two.
Since my sources are currently unavailable, I am unable to confirm the availability of grapefruit juice in London.
Coming in on every news station now. Crazy. Two minutes ago, using the Army was ruled out by Home Secretary Theresea May.
Must not be that big of a deal.
Good Morning!
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