S&P Warns Of Future Downgrades
Just in case Washington didn’t get the message that Standard & Poor’s sent last night, they made it extra clear today:
One day after lowering the nation’s platinum triple-A credit rating, Standard & Poor’s analysts warned Saturday that the U.S. government could face a second downgrade if the economy continues to struggle and the government fails to make the cuts outlined in the debt ceiling agreement.
The ratings agency on Friday downgraded the nation to AA+ for the first time in history, saying partisanship in Washington is preventing dramatic deficit reduction.
S&P managing director John Chambers told reporters on a Saturday conference call that the toxic mix of a listless economy and political infighting will cause government debt to grow.
“Compared to some other highly rated governments, the U.S. government does not have the proactive ability to put public finances on a firm footing,” Chambers said.
His colleague David Beers said the partisan discord increases the risk that Washington will not achieve effective policy remedies.
“For that reason, there’s a lot of uncertainty about the future debt burden,” Beers said.
(….)
When S&P pulled the triple-A rating, it projected that net government debt would equal 85 percent of the U.S. Gross Domestic Product in 2021. That could rise to 101 percent by 2021 if the economy does not improve, Chambers said.
A debt ratio that high could knock the current U.S. rating of AA+ down to AA.
In other words Washington, it’s time to clean up your act. All of you.
UGH! We just had a Democrat President offer to means test Medicare and raise the eligibility age. ONE PARTY HAS A MESSIER ACT TO CLEAN UP. This pox-on-both-your-messes attitude just confuses the issue.
Finger pointing for finger pointed sake is counter productive but every discussion about this problem should begin and end with an acknowledgment of the problematic players. And that’s Tea Party Republicans. You can’t fight the problem while trying to hide the problem.
@Dave:
Thank you Dave. Doug and James sometimes seem more interested in damning Washington collectively as if all parties were equally at fault, which to my mind is nothing more than a pundit exercise so people can show off their “moderate” credentials and seem appealing to both liberals and conservatives.
This deficit was and has always been a Republican Party creation. They refused to address it while in power, and continue to sabotage attempts to solve the problem in hopes of regaining political power, counting on lazy analysis from pundits and the American electorate to simply say, “Washington is broken.” Like saying during the run-up to the Iraq War that “Saddam is a problem,” these superficial and specious assertions do more harm than good because they disguise the culpability of the truly guilty parties. Collective guilt is the refuge of the lazy pundit. (Strange how collective guilt aimed at Washington always applies for Republican intransigence but never for the Democrats.)
The GOP is full of extremists who have abandoned their own ethos of personal responsibility and accountability and even vague attempts at moderation. They are so reckless in their pursuit of political power that they will sacrifice the welfare of the nation for personal greed.
What would it take for Republicans to consent to a tax increase? Global plague? Nuclear war? An asteroid aimed at Earth? Would they literally bring this nation down before they go back on their non-binding oath to a private citizen, Grover Norquist, an oath they seem to value over their oath to the Constitution?
So yes, Washington is broken. The system is in ruins. But what Doug and James refuse to conclude is that it is the fault of Republicans. So I wonder: will conservatives try to fix the Republican party? Or will they continue with this coy game of calling themselves “independents” as if that makes you at all appealing to a political party, especially in primaries?
Oh for the love of Pete….
Where in the Politico article did Chambers or Beers mention “cuts?” All they talk about is “debt” and “deficit.” We need to make cuts, but the other half of the equation is REVENUE. Chambers said yesterday that S&P will be watching for the Bush tax cuts to be allowed expire as a key measure of political will to tackle the deficit.
Democrats have offered and voted for many cuts. Where is the GOP on revenue?
Look at this timeline of deficit policy:
Now, explain why either: 1) the timeline is not a fair accounting of key events in growing the deficit, or 2) it’s not fair to blame the anti-tax, “starve the beast” ideology of the GOP over the last 30 years for the lion’s share of our debt problem.
I don’t give a damn what S&P says about U.S. “creditworthiness” and neither should you, Doug. S&P was critical in creating the mortgage securitization and subprime mess that triggered the financial meltdown in 2008. It’s a predatory agency engaged in serial rent-seeking activities, and damned lucky it hasn’t faced criminal charges for knowingly rating junk as AAA.
It’s shocking that OTB takes anything they say seriously when everyone who has paid attention over the last three years knows the ratings agencies are financial mercenaries for hire.
@Lit3Bolt:
“Would they literally bring this nation down before they go back on their non-binding oath to a private citizen, Grover Norquist, an oath they seem to value over their oath to the Constitution?”
Yes. They are willing to rule over ashes as long as they get to rule.
Now we just need to build an army of robots that doesn’t resent punitive taxation and put them to work.
@Ben Wolf:
Ben, the ratings companies are only partially corrupt and only partially mercenary.
Remember even the corrupt and mercenary part of their business model relies on a public perception of trust. They have to come close in their analysis, and they can’t be too late to any one party.
Given that partially corrupt framework, which rating should the US treasury have at this point?
AAA? Because the commitment to pay debts is as strong as ever?
or AA+? Because it has slipped a bit, in what is still a game of political chicken.
BTW, I found this report of a future downgrade kind of funny. It seems a clear case of “in for a penny, in for a pound.”
@john personna: In July 2008 the SEC issued a report stating the ratings agencies failed to properly deal with conflicts of interest and ceased to follow internal procedures in order to obtain greater fees from banks by rating toxic mortgages AAA. The agencies need only maintain an image of trustworthiness for the masses. They do not need to appear trustworthy for the financial industry, because the financial industry wants corrupt ratings agencies.
@Ben Wolf:
As Felix Salmon points out, the error in 2008 was too many AAA ratings, not too many downgrades. In fact, downgrades serve to rebuild the S&P reputation.
I don’t know man … you’re losing me. The US finances are messed up. We aren’t as solid as we were. We all know that. But we should hate on S&P because they recognize it too.
@Jim Treacher:
A Tea Partier’s definition of “Punitive Taxation:” Taxation.
@john personna: Let’s make it simple:
Goldman Sachs give S&P money.
Goldman Sachs say “Give AAA rating to products we know are junk.”
S&P say “Ok. Give more money.”
Goldman Sachs say “Sure”.
S&P commit mass fraud.
S&P sad? NO!
S&P engage in more rent-seeking.
S&P have terrble track record because it lie for money.
THE END