Tuesday, April 19, 2011

The New Standard: Poor

You've probably already heard that the Standard & Poor ratings agency has lowered the US long-term outlook from 'Stable' to 'Negative'.  There's no need to be alarmed.  It's happened before.  And it got better.

No biggie.  Don't worry about it.  It's all good.  Let's spend a few minutes with Austan Goolsbee, chairman of the White House Council of Economic Advisers, for some timely re-assurance.  Click HERE to feel much better about it.  Toward the end of the interview, Mr. Goolsbee admits that he was up late working on his taxes on April 17th.  Feel 'much better' yet? 

But I need to understand why the folks at Standard & Poors did what they did.  So where can I find information on this?

Once again I turn my weary eyes overseas to get the straight skinny to understand what's going on 'here'. 

According to Guardian.co.uk:    "S&P said that compared with the small number of developed countries with a coveted AAA rating, the US had "very large budget deficits" which reached as high as 11% in 2009. With the political infighting between the Republicans and Democrats on the deficit now so bitter that there was a risk of the US government being shut down earlier this month, S&P said it had taken the decision to change its outlook because "the path to addressing these issues is not clear to us".

It added: "We believe there is a material risk that US policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns."

The White House, which last week produced proposals that would cut $4tn from the US deficit by 2022, rejected the S&P analysis. "They are saying their political judgment is that over the next two years they didn't see a political agreement" to reduce long-term deficits, Austan Goolsbee, chairman of the Council of Economic Advisers, said in an interview with Bloomberg Television. "I don't think that the S&P's political judgment is right."

While Europe has decided to make a priority of deficit reduction, the US approach has until now involved running an expansionary fiscal policy in an attempt to deliver faster growth."  (Italics added by yours truly)

Bottom line:  Our outlook rating was reduced because S&P believes that neither Congress nor the President is serious about reducing deficit spending.  Anyone want to argue this point with the folks at S&P?

I don't.  I think they're right. 

With Republicans in the House cowed (sorry) by Harry Reid and President Obama's line in the sand over which spending cuts they'll allow, and which Social Programs Republicans can 'cut' - John Boehner and Company have shown their soft white underbellies to the Democrat Majority in the Senate.  This is not good. 

What 'may' be good is that this financial outlook 'Shot across the Bow' ratings shift by the S&P is Reid, Boehner, and Obama's official notice that someone (who matters - as we, apparently, do not) is watching their actions, or, inactions in resolving our debt issue.

Let's hope they 'get it' this time.

Oops, I forgot to clarify something I wrote earlier in the post.  Remember when I said that this wasn't the first time that our outlook rating was reduced?

The last time?  Just after the Japanese bombed Pearl Harbor.

Feeling better now?

No, I didn't think so. 

Economically speaking, coming to a town near you...


  1. TaDa!!! A CR, the 2012 Budget, and now the S&P warning. Do I foresee another crisis on the horizon?

  2. Could be a Marine... Chinia Downgraded us months ago.. Brazil, Russia, South Africa and Chinia would like to see the Dollar lose it's status as the Worlds Reserve Currency..

    Since government can't pay the White House electric bill unless someone loans them the money, we could have a problem

  3. And they can no longer call NASA.

  4. I got silver. I see a government bubble popping.

  5. I think S&P sees Congressional Gridlock which will prevent raising the debt limit. The Tea party members appear to really want it if they don't get all their wishes. But even with the Ryan plan the deficit will go up another trillion next year, so the debt limit needs to be raised. Hopefully Boehner can gain some control of some tea party members and negotiate a bipartisan settlement. (Which will probably please no one, but prevent US bankruptcy.)

  6. Tend to agree, but the S&P commented that even beyond gridlick neither party was taking debt reduction seriously enough.

    As far as raising the Debt Ceiling, there isn't a lot of choice except an instant 40% reduction in everything.. including paychecks.. Is the TEA Party right to demand reductions in exchange, yes, but in the end there's no choice

  7. As I was driving to work after writing this post I realized...

    Both Standard and Poor downgrades originated...

    In Hawaii. (One of which can be documented beyond a reasonable doubt)

  8. How long can gridlock continue with the debt ceiling unchanged? What happens as a result of gridlock on this?

  9. Sandra, like California does from time to time, it issues IOUs instead of paychecks


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