S&P has issued a warning that it may cut the credit rating on US government debt.

My life to date, rating agencies like S&P have always downgraded other countries' debts -- never the USA's! The moment this changes, our game is over -- not to mention creating huge ripples around the world! Not saying the sky is falling, but this should register as a major wake up call! Read more here.

Not to be Negative Nancy, but this is a continuation of the downward spiral we've been in for several years. The dominoes are falling, and we've yet to hit rock bottom.

And it's not just the U.S. Banks and economies around the world have been faltering and failing.

Greece, Iceland, Spain, and who knows who else. The Bank of Ireland was just downgraded to "junk status" by Moody's.

http://www.bbc.co.uk/news/business-13112488

And Obama is pushing to raise the debt ceiling....

brilliant.

"And Obama is pushing to raise the debt ceiling....

brilliant."

I don't think you understood the article

The credit rating cut is because they think the Democrats and Republicans won't reach consensus and raise the debt ceiling.

If they don't raise the debt ceiling then there will be a catostrophic effect, according to the S&P people.

I don't expect anyone to turn the "ship of state" on a dime. The debt ceiling will need to be raised -- and the politicians will need to agree on a realistic short-and-medium term plan to cut spending.

>I don't expect anyone to turn the "ship of state" on a dime.

Agreed. While helpful measures can be taken now, this is a problem that will stick around for decades regardless of who is in charge.

It's not about the debt ceiling. Why the change from stable to negative?

1. both parties are so far apart on the current deficit reduction plans they don't think they can reach an agreement that addresses the midterm and long term issues
2. given we have an election in 2012, no one really wants to take this on because it could effect getting reelect. This being the case the first real stab at a meaningful solution will not come until the 2014 budget.
3. this years shortfall is 1.5 trillion or 10% of GDP
4. S&P is late to the party again. The bond market has been expressing this for months. PIMCO (one of the largest bond funds) has divested of US Securities recently.

However what really amazes me:
1. The Treasury department things everything is going to be ok. They said S&P doesn't realize that both parties understand the problem and will reach an agreement. Geez we just spent a couple months trying to agree on cutting a few billion. That's like saying the Yankees and the Red Soxs are going to have a bonfire before the next ballgame, hold hands and sign campfire songs.
2. BOTH parties are basically ignoring what the bipartisan commission suggested. So we get some of the smartest people from both sides together. Spend months developing plans and then say, no thanks.
3. What's even worse is Obama didn't pick anything the commissions suggested and then said he was going to form another commission to evaluate how to deal with Medicare. Wow. This dude plays a mean game of kick the can down the road.....

Brad

"I don't think you understood the article.

The credit rating cut is because they think the Democrats and Republicans won't reach consensus and raise the debt ceiling."

-------------------------

I may not be the sharpest person here, but the first sentence of the article was...

"S&P is concerned that Democrats and Republicans will not be able to agree a plan to reduce the growing US deficit."

And later...

" 'Because the US has, relative to its 'AAA' [top-rated] peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable,' the agency said in a statement."



Raising the debt ceiling increases the deficit doesn't it?

So how does a higher debt ceiling address the SP concerns over large and increasing budget deficits/debts?

I think that is the crux of the issue.

According to the NY Times chart of CBO data:



We could eliminate the deficit if:

the economy improves which will increase tax receipts and we won't have to do any more bailouts or enhanced unemployment,...

we let the Bush tax cuts expire

we can somehow get out of Iraq and Afganistan (and Libya)

and we fix Medicare part D, which was never paid for - Obama care partially fixed it

Beyond this, medical costs keep growing exponentially and if we don't fix that it will create federal deficit, and a deficit for everyone else

"Raising the debt ceiling increases the deficit doesn't it?

So how does a higher debt ceiling address the SP concerns over large and increasing budget deficits/debts?

I think that is the crux of the issue."

The crisis S&P is worried about is not our large national debt

It's that we won't raise the debt ceiling, so we'll stop paying all our bills - interest on treasury bonds, salaries to federal employees, payments to contractors,...

- Since the previous economy was artificially inflated I'm not sure we should expect a significant increase any time soon. Probably slow and steady
- Bush tax cuts (Not saying we don't repel). However if we repel the all but 27% of Americans will pay taxes instead of the 45% report today. In other words this is going to hit the middle and lower income brackets pretty hard
- Wars. Nobody has a plan
- Obama care doesn't fix the deficit only increases. When we were sold Obamacare we were told it was going to fix the health care problems. Not only has the CBO said it will increase spending, but Obama himself has omitted it. Just last week when he proposed his solution to the deficit he highlighted the ongoing issue/problem with medicare. Wasn't Obamacare suppose to take care of this problem?

Brad

Jerry and Nick:

Basically, we've got two things going -- both of which S&P is scrutinizing:

1. Failure (potentially) to raise the debt ceiling, resulting in defaults and shutdown currently.

2. Failure (potentially) to curb future spending, resulting in unsustainable debt load in the years ahead.

Edited by ben2world on 04/18/2011 14:55:03 MDT.

And then the other plot is debt vs which president caused it:



Our debt is not because of out of control liberal spending

Oh, that's from wikipedia - U.S. Public Debt

Edited by retiredjerry on 04/18/2011 14:55:28 MDT.

Jerry, not sure where you are getting your information. But on the S&P website they say the following:

"Because the U.S. has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.
We believe there is a material risk that U.S. 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 U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns."

Doesn't say a word about the debt ceiling. Highlights the growing deficit and our inability to address.

Brad

A little further down it says:

"President Barack Obama suggested that the world could plunge into a new recession if the ceiling on money the US can borrow is not raised in the next few weeks, before the current debt limit of $14.3tn is reached"

And just following the news lately, that's the big showdown that everyone is anticipating

Tea Partiers don't want to agree to raising ceiling unless we do courageous things like defunding NPR and Planned Parenthood which Democrats won't agree to (okay, I'm being a little sarcastic now)

The two biggest spending categories:

1. welfare and entitlements
2. defense

Just today, Moody's rated Irish bank obligations "junk"!! The game right now is to rein in our deficit spending over the medium term -- so "interest payments" don't become our biggest spending category!!


Moody's and S&P ratings are not "academic" at all. A downgrade will mean immediate jump in interest rates (and payments)! Imagine -- if we can't pay off our low-interest obligations -- how the heck will we pay off suddenly high interest loans? THAT is the awful spiral that Greece, Ireland and Portugal are in right now -- and one that we will be wise to avoid -- while we still can.

It's always about blame to you Jerry. Never a Democrat always a Republican.

Maybe you should look at the graph a little closer. Sure looks like the Obama section is increasing drastically. Also noticed you didn't include 2010 or include any future projections. To fill in the gaps the % is going to increase slightly above 100% and continue through 2016. So I think liberal spending is playing a big part in the problem.

Brad

"It's always about blame to you Jerry."

+1. Completely unhelpful. Maybe the American citizenry would rather just blame than sacrifice?

I laid out the two highest spending categories above. If "conservatives" view defense as their sacred cow and if "liberals" view entitlements as theirs -- then the ONLY way we can rein in spending is to gore both cows.

But I think the Jerry's out there and their conservative counterparts would rather just continue with the blame game -- stupidly.

Edited by ben2world on 04/18/2011 15:06:13 MDT.

""President Barack Obama suggested that the world could plunge into a new recession if the ceiling on money the US can borrow is not raised in the next few weeks, before the current debt limit of $14.3tn is reached"

So. Same guy who said Obamacare was going to decrease health spending, closing down G. Bay, getting out of Iraq/Afg, ....... Not like he really has a clue to how to fix the problem. He assembled a team to tell him (wise thing), but failed to listen to them. I think the biggest mistakes the last two presidents have made is surround themselves with idiots.

BTW, the NPR/PP issues were just plan stupid by the Republicans. Not saying they are not worthy topics for discussion, but why during a budget process. Why do politicians from both sides always want to fill up these bills with extra stuff.

In my personal opinion, he Republicans missed another golden opportunity to take the lead. If they would have simply embraced a lot of the suggestions of the bipartisan committee with some changes, the American people would have bought into it. Then they could have pigeon holed the democrats saying they didn't listen to their own appoint committee. But know, they have to go to the extreme out of the gate. White House did the same thing.

Enough. It's 5:15 and I have a new MLD Cricket to go setup.

Brad