Big headlines for a Friday night: “U.S. Loses Top Credit Rating!” Yes, as most now know, Standard & Poor’s went ahead with its warnings of the past weeks and downgraded the sovereign debt of the United States government from its pristine triple-A to a still stellar but one notch less so AA+. And after a miserable week in global equity markets that was almost as ugly as it gets, a week that began with the conclusion of a universally reviled debt-ceiling deal, the late-night downgrade was the fitting end.
The symbolism is undeniable. This is the first downgrade in history, as commentators rushed to remind us. But of course, that history goes back only to the late 1930s, when the ratings agencies began to hold sway. And S&P is the only one of the major three—Fitch, Moody’s, and S&P—to downgrade. So this was big bad news, a bad coda to a bad week, but only as news and not as a trenchant analysis of the creditworthiness of the United States or its ability to meet its debt obligations going forward.
Let’s be clear: Congress and the White House did not cover themselves with glory during the debt debate throughout July. The United States has a stalled economy and a large amount of debt. But on so many levels, this downgrade is absurd.
First there is the question of math. When S&P informed the White House of its intention to downgrade on Friday afternoon, the Treasury Department took issue with S&P’s math and claimed that their assessment of the trends of the U.S. debt burden and its ratio to GDP was off by trillions of dollars. No matter. After a brief review, the wizards at S&P went ahead and removed an A.
A news ticker reads “Standard & Poor’s downgrades US credit rating from AAA to AA+” in Times Square on August 5, 2011 in New York City., Andrew Burton / Getty Images
Second, what’s with the fetish for a so-called proper ratio of debt-to-GDP. Academic economists have done no favors here. Carmen Reinhart and Kenneth Rogoff have become the go-to economists for their work showing how countries that reach a 90% ratio slide into recession and see slowing growth well before. The U.S. current level according to S&P is 74% and will rise to 85% by 2021. The explanation of the downgrade closely tracks this academic logic.
I have no criticism of an academic theory about how nations function economically. But when debatable theories become the underpinnings of decisions by unelected individuals who run organizations with significant sway (sway ceded to them by governments throughout the 20th century), then we have a problem. We have a problem when that argument gives short shrift to the debt-servicing burden. The current interest rate that the U.S. government pays to service its massive debts is hovering around 2.5%, which makes interest payments as a percentage of GDP as low as they have been since the mid-1970s.
Servicing the debt does not enter into the analysis, yet that and current interest rates make all the difference. Dismissing that counterargument, warning that rates will of course rise (yet even if they double, that will still leave the U.S. more than able to meet its obligations), and drawing on theories about the “right” level of debt puts S&P in a strange bedfellow alliance with the Tea Party.
The people who run the ratings agencies are welcome to their analysis, as is the Tea Party. But if Rogoff and Reinhart or the Tea Party announced that they were downgrading U.S. sovereign debt, they would be laughed for their audacity. Yet when it is one of the anointed ratings agencies, there is this sudden need to genuflect.
This is largely because covenant after covenant in both SEC rulings and institutional money management (pensions especially) dictate that many types of capital can only be invested in credit-worthy instruments as determined by Moody’s, S&P and Fitch. The downgrade doesn’t remotely begin to threaten the “investment grade” status of U.S. debt, and there is little reason to suspect that borrowing costs will go up as a result. Still, the reason we are in this situation of having to genuflect to S&P is because an entire structure of credit and investments, and the issuance and purchase of bonds above all, has been built on the shaky and questionable foundation of the ratings agencies.
The worst part of the downgrade is this: S&P spent considerable time in the body of their explanation about debt and GDP and growth. But they didn’t lead with that. That wasn’t the kicker. No, this was: “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.” The company assailed the Washington culture of “brinkmanship” so in display during the debt ceiling fiasco, and used that as the primary reason to take us down a notch.
Excuse me, but since when is a pristine political process a key ingredient to good credit? Are we supposed to have civil politics in order to maintain the rating? Are we supposed to have some mythic Scandinavian concord? Washington has usually been a mess, and arguably more now than ever. Nonetheless, the great distortion of the debt-ceiling imbroglio was that failure to do a deal would have led to a default. It would have led to a partial and then increasing complete shut down of the government, which would have soon enough forced a resolution. At no point would there have been insufficient tax revenue to meet the $20 billion of so in monthly interest payments on the debt, unless the crisis had gone on for months and months, which barring collective national psychosis simply could not have happened.
So S&P doesn’t feel comfortable that the American political process is conducive to dealing with long-term debt issues and so issued a downgrade. Yet S&P is a ratings agency, not a political arbiter. Olympic judges rule on athletic aptitude, not the politics of the athletes (usually). There is not a scintilla of evidence that the political process has yet impeded the ability of the United States to meet its debt obligations, even with the debt ceiling brinkmanship. The political process may indeed be contributing to the morass of the American economy, but the larger causes are the challenges of emerging economic centers and changing patterns of global commerce. Those are long-term issues that have little bearing on current ability to manage debts.
Finally, as a symbol that the United States is sliding off the rails, the downgrade is potent. It’s hard to argue with the reality that America is in a challenging moment that looks and feels a lot like decline. Whether that proves false and a new dawn awaits, we’ll find out soon enough. But the actions of S&P are part of problem and not just an independent verification that one exists.
These agencies have been elevated to heights that should not ascend; they have been chronically wrong and late in the past; and their rationale for a downgrade sounds more like a prim distaste for a dysfunctional political process that a reasoned assessment of the ability of the United States to discharge its obligations. No defense can be offered of our current political system or near-term economic prospects. But S&P—already on overreach as “neutral” judge of American creditworthiness—has no special standing to rule on the political system, and using that as a cudgel to prove their own power is a destructive act.
By: Zachary Karabell, The Daily Beast, August 6, 2011
August 7, 2011
Posted by raemd95 |
Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Economy, Federal Budget, GOP, Politics, Republicans, Right Wing, Teaparty | Credit Ratings, Default, Downgrades, Fitch, GDP, Interest rates, Investments, Markets, Moody's, Recession, S&P, SEC, Treasury Dept, United States, White House |
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I’m no expert, but I don’t think S&P downgrading its rating of US debt will, as such, have any really big practical implications other than becoming the next political football. If you look at S&P’s definition of the AA rating, after all, it says:
“An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.”
Scared yet? Me neither.
The issue today continues to be what it was a week ago. For years now, if you look at a projection from CBO or OMB it shows a spending curve that steadily accelerates. It accelerates because the government currently pays for health care for old people and for poor people, and because the cost of health care services has been accelerating.
Consequently, for a long time now it’s been clear that in the future either the US has to stop paying for old people’s health care, or else raise more revenue in taxes, or else reduce the growth in the price of health care services. And for a long time now it’s been unclear what combination of those strategies will be adopted. But people have generally had confidence that some combination of them would be adopted.
Once upon a time earlier in the Obama administration, I asked a senior official how he thought this would ever get resolved. A deal, everyone agreed, had to be bipartisan. But to be bipartisan, it would have to include tax increases. But Republicans wouldn’t vote for tax increases. He told me that of course that made sense, but at some point pressure from bond markets would be unbearable and Republicans would come to the table.
Broadly speaking, that’s the thing that most people generally believed would happen. What we saw with the debt ceiling was a mini-test of that theory, and the theory failed. “No new revenues” wasn’t just a GOP bargaining position, it turned out to be something they were really committed to even in the face of an imminent financial crisis. You can see why that would dent confidence in the long-term fiscal trajectory of the country.
The person who looks bad here, in my view, is John Boehner. President Obama wanted to do a “grand bargain.” The Gang of Six Senators wanted to do a “grand bargain.” And it looked for a moment like Speaker Boehner was going to be part of a grand bargain. But ultimately he decided that he didn’t want to sign a deal that would fracture his caucus, so the grand bargain talks fell apart. And yet the little bargain that did eventually pass the House ultimately couldn’t pass with Republican votes alone. So what did Boehner really achieve? If he was ultimately destined to strike a deal with the White House that needed Democratic votes to pass the House, why not go for the grand bargain? According to Boehner “When you look at this final agreement that we came to with the white House, I got 98 percent of what I wanted. I’m pretty happy.”
How happy is he now?
By: Matthew Yglesias, Think Progress, August 5, 2011
August 6, 2011
Posted by raemd95 |
Congress, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Debt Crisis, Economic Recovery, Economy, GOP, Government, Health Care, Ideologues, Ideology, Lawmakers, Middle Class, Politics, President Obama, Republicans, Right Wing, Tax Loopholes, Taxes, Teaparty | Bipartisan, Credit Ratings, Downgrade, Financial Crisis, Gang Of Six, Global Economy, Markets, Poor, Rep John Boehner, S&P, Tax Revenue |
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This quote from Senate Minority Leader Mitch McConnell (R-Ky.) has been making the rounds today, and with good reason. It’s interesting from a variety of angles.
After [the debt-ceiling fight] was all over, Obama seemed to speak for revolted Americans — the kind of people who always want a new Washington — when he described the government as “dysfunctional.”
But at the Capitol, behind the four doors and the three receptionists and the police guard, McConnell said he could imagine doing this again.
“I think some of our members may have thought the default issue was a hostage you might take a chance at shooting,” he said. “Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming. And it focuses the Congress on something that must be done.”
Let’s unpack this a bit.
First, after this brutal fiasco undermined the economy and made the United States an international laughingstock, the leading Senate Republican fully expects to do this again. McConnell believes his party has “learned” the value in pursuing this, regardless of the consequences. I wonder if voters might want to consider this before the 2012 elections.
Second, it’s a little surprising to hear him concede that “most” Republicans didn’t think the hostage should be shot. If that’s true, maybe next time, Democrats shouldn’t pay the ransom?
And third, note that McConnell was quite candid in his choice of words. It’s not just Democrats talking about Republicans taking “hostages” and demanding “ransoms”; here’s the leading Senate Republican using the exact same language. In other words, Mitch McConnell admitted, out loud and on the record, that his party took the full faith and credit of the United States hostage, demanded a ransom, and they fully intend to do it again.
Given all of this, it’s rather bizarre for Republicans to complain about being equated with terrorists. As Dave Weigel noted yesterday, “If you don’t want your opponent to label you a hostage-taker, here’s an idea: Don’t take hostages.”
By: Steve Benen, Contributing Writer, Washington Monthly-Political Animal, August 3, 2011
August 4, 2011
Posted by raemd95 |
Class Warfare, Congress, Conservatives, Debt Ceiling, Debt Crisis, Deficits, Democracy, Democrats, Economic Recovery, Economy, Elections, GOP, Ideologues, Ideology, Lawmakers, Middle East, Politics, Public Opinion, Republicans, Right Wing, Teaparty, Voters | Default, Hostage Takers, Hostages, Ransom, Sen Mitch McConnell, Terrorism, Terrorists |
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To make sense of the vitriol, lack of cooperative spirit and just bad manners being displayed on Capitol Hill, look no further than Massachusetts.
It’s not that the Bay State is unusually mean or even rude. Visitors flocking to the Cape, the Berkshires or Boston’s North End will surely find friendly people. But recent news in Massachusetts demonstrates just how high our tolerance for—even celebration of—bad behavior has become.
The Boston Globe informs us that the Boston School Committee is drafting rules for basic civility at its public meetings. This is not a response to shouting and disruption by children, who by definition are still learning how to behave in public and how to adjudicate disagreements with honor and mutual respect. No, the school committee’s actions are a sad response to the heckling and all-around disrespect shown by adults—parents and teachers—who have been unhappy with school closings and other matters before the committee. Disruptive students have been at the meetings, too, which makes it worse, since the lesson they are learning at the meetings is that it’s acceptable to shout and be rude to display one’s unhappiness with a public policy. One protestor last December yelled “liar” at Superintendent Carol R. Johnson. Was this individual merely parroting the behavior of Rep. Joe Wilson, who yelled, “You lie!” at the President of the United States during a live, nationally-televised speech in the House chamber?
Remarkably, some of the adult activists have not been shamed at the fact that they must be treated as recalcitrant children. The Globe quotes the teacher’s union president, Richard Stutman, jokingly comparing the decorum rules to Stalinist Russia. That’s not only an insult to the people who lived in the brutal dictatorial regime, but an insult to public education. Surely, teachers do not instruct their students that self-control and civility are akin to totalitarianism.
But if the school meetings aren’t distressing enough, Massachusetts can look to its professional football team, the New England Patriots. The team recently signed Albert Haynesworth, whose behavior, on and off the field, was so poor that the Washington Redskins couldn’t stomach him anymore. In sports, the bad boys are often given a pass if their on-field passes are complete. But Haynesworth—who was paid $35 million to play in 20 games and didn’t always show up for practice because he didn’t like the coach’s defense strategy—became just too much for the ‘Skins, who traded him to the Patriots for a fifth-round draft pick. At least Haynesworth won’t be a double burden to the Pats, since Randy Moss, another behavior problem, left the team last year and announced Tuesday he would retire from the sport. Defenders note that Patriots coach Bill Belichick whipped Moss into shape. Haynesworth could be a heavier list; at one point, he was juggling four different legal cases against him even as he feuded publically with his coach.
We should expect more from members of Congress, who have been through campaigns and theoretically should know better. But the public—even as they deride the dysfunction and bad manners in the Capitol—are enablers, rewarding malcontented lawmakers with campaign contributions. Republican Wilson and former Democratic Rep. Alan Grayson, who famously accused Republicans of wanting people to die as a way of saving on health costs, were two of the biggest fundraisers last election cycle, with much of the cash coming from out of state. Grayson lost, but the message was clear: acting up is profitable. And both Democrats and Republicans are raising money off the recent uproar over Republican Rep. Allen West, a Tea Party movement favorite who sent an email to a colleague, Democratic Rep. Debbie Wasserman Schultz, calling her “the most vile” member of the House. Wasserman Schultz had criticized West’s approach to Medicare, although she did not name him in the floor speech that led West to accuse Wasserman-Schultz of not acting like “a Lady.”
The Boston School Committee may be able to teach civility to adults who apparently never learned how to sit still and listen. And perhaps Belichick can control Haynesworth. Who will do the same for members of Congress?
By: Susan Milligan, U. S. News and World Report, August 2, 2011
August 2, 2011
Posted by raemd95 |
Congress, Conservatives, Democracy, Democrats, GOP, Government, Lawmakers, Politics, Public Opinion, Republicans, Right Wing, Teaparty | Alan Grayson, Albert Haynesworth, Bill Belichick, Boston Globe, Boston School Committee, Capitol Hill, Civility, Massachusetts, New England Patriots, Parents, Public Schools, Rep Allen West, Rep Debbie Wasserman Schultz, Rep Joe Wilson, Students, Teachers |
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Fragging: “To intentionally kill or wound (one’s superior officer, etc.), esp. with a hand grenade.”
Take names. Remember them. The behavior of certain Republicans who call themselves Tea Party conservatives makes them the most destructive posse of misguided “patriots” we’ve seen in recent memory.
If the nation defaults on its financial obligations, the blame belongs to the Tea Party Republicans who fragged their own leader, John Boehner. They had victory in their hands and couldn’t bring themselves to support his debt-ceiling plan, which, if not perfect, was more than anyone could have imagined just a few months ago. No new taxes, significant spending cuts, a temporary debt-ceiling solution with the possibility of more spending cuts down the line as well as action on their beloved balanced-budget amendment to the Constitution.
These people wouldn’t recognize a hot fudge sundae if the cherry started talking to them.
The tick-tock of the debt-ceiling debate is too long for this space, but the bottom line is that the Tea Party got too full of itself with help from certain characters whose names you’ll want to remember when things go south. They include, among others, media personalities who need no further recognition; a handful of media-created “leaders,” including Tea Party Nation founder Judson Phillips and Tea Party Patriots co-founders Jenny Beth Martin and Mark Meckler (both Phillips and Martin declared bankruptcy, yet they’re advising Tea Party Republicans on debt?); a handful of outside groups that love to hurl ad hominems such as “elite” and “inside the Beltway” when talking about people like Boehner when they are, in fact, the elite (FreedomWorks, Heritage Action, Club for Growth, National Taxpayers Union, Americans for Prosperity); and elected leaders such as Minnesota Rep. Michele Bachmann, Ohio Rep. Jim Jordan, head of the Republican Study Committee, and South Carolina Sen. Jim DeMint, who grandstand and make political assertions and promises that are sheer fantasy.
Meanwhile, freshman House members were targeted and pressured by some of the aforementioned groups to vote against Boehner’s plan. South Carolina’s contingent was so troubled that members repaired to the chapel Thursday to pray and emerged promising to vote no. Why? Not because Jesus told them to but because they’re scared to death that DeMint will “primary” them — find someone in their own party to challenge them.
Where did they get an idea like that? Look no further than Sarah Palin’s Facebook page, where she warned freshmen about contested primaries and urged them to “remember us ‘little people’ who believed in them, donated to their campaigns, spent hours tirelessly volunteering for them, and trusted them with our votes.” Her close: “P.S. Everyone I talk to still believes in contested primaries.” While they’re at it, they also should remember that Palin came to the Tea Party long after the invitations went out. The woman knows where to hitch a wagon.
Unfortunately for the country, which is poised to lose its place as the world’s most-trusted treasury and suffer economic repercussions we can ill afford, the stakes in this political game are too high to be in the hands of Tea Partyers who mistakenly think they have a mandate. Their sweep in the 2010 election was the exclusive result of anti-Obama sentiment and the sense that the president, in creating a health-care plan instead of focusing on jobs, had overplayed his hand. Invariably, as political pendulums swing, the victors become the very thing they sought to defeat.
Who’s overplaying their hand now?
It must be said that the Tea Party has not been monolithic — and the true grass-roots shouldn’t be conflated with leaders who disastrously signed on to the so-called “Cut, Cap and Balance” pledge. What is it with Republicans and their silly pledges? Didn’t they get enough Scouting? This pledge now has them hog-tied to a promise they can’t keep — the balanced-budget amendment. As many as a third desperately want a pardon from that commitment, according to sources close to the action.
Hubris is no one’s friend, and irony is a nag. The Tea Partyers who wanted to oust Barack Obama have greatly enhanced his chances for reelection by undermining their own leader and damaging the country in the process. The debt ceiling may have been raised and the crisis averted by the time this column appears, but that event should not erase the memory of what transpired. The Tea Party was a movement that changed the conversation in Washington, but it has steeped too long and has become toxic.
It’s time to toss it out.
By: Kathleen Parker, Opinion Writer, The Washington Post, July 29, 2011
August 1, 2011
Posted by raemd95 |
Class Warfare, Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Democrats, Economic Recovery, Economy, Elections, GOP, Government, Ideologues, Ideology, Journalists, Lawmakers, Lobbyists, Media, Middle Class, Politics, President Obama, Press, Public, Pundits, Republicans, Right Wing, Teaparty, Wealthy | Americans For Prosperity, Balance Budget Amendment, Cap and Balance, Club For Growth, Cut, Default, Fragging, Freedom Works, Heritage Action, Heritage Foundation, House Freshmen, Jenny Beth Martin, Judson Phillips, Mark Meckler, National Taxpayers Union, Patriots, Rep Jim Jordan, Rep John Boehner, Rep Michele Bachmann, Sarah Palin, Sen Jim DeMint, Spending Cuts, Tax Revenues, Tea Party Nation, Tea Party Patriots |
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