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Post by BeenThere...DoneThat... on Aug 6, 2011 0:57:36 GMT -5
...I can certainly understand that... ETA: ...except for the "false" part... lol i don't view draining 11% out of the economy that is barely above water a good idea, Been. if you disagree, then that is fine. i feel pretty comfortable with that position. ...again, I can understand that... I'm still stuck on the fact that our govt. spending is SO HIGH that we can drain/infuse 10% of the entire economy by taking action on a/a few federal program(s)...
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Post by privateinvestor on Aug 6, 2011 0:59:01 GMT -5
What I think it is the act just signed by Obama was only a first step and the ball will be in the court of the so called senate committee who has to decide on both cuts and revenue increases... they may use the gang of six ideas as a baseline for their work to come up with the spending cuts but many have doubts including John Chambers that they can reach the magic number of @$4 Trillion over ten years if you read all of his statements recently
BTW I have no interest in who is to blame for this mess since we are well beyond that nonsense but I am concerned about this downgrade and it's effects on our economy and the markets which I don't think anyone fully understands IMHO
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Post by BeenThere...DoneThat... on Aug 6, 2011 1:02:11 GMT -5
...valid points... but I think that we've been facing a disaster either way... which disaster has a better long-term prognosis? i will take an uncertain future over a manufactured crisis anyday....I would rather have had drastic cuts over time over recent years, or even long ago, rather than open-heart surgery in one fell swoop in 2011 and 2012... no doubt about it... ...and while there's nothing overly unusual about the 100% mark, it still is a mark... and we've basically done nothing to demonstrate our credit-worthiness for quite some time, so why shouldn't we have lost AAA? there are (20) other nations that have more debt on a GDP basis than the US. several of them have AAA ratings. the trick is having enough revenue to cover it. and clearly the US is very much lagging in this category, trailing all but Iceland among developed nations. the analogy i use is this one: how big is your personal debt compared to your income? mine is about 5x as much. i don't know how that compares to the average American, but i am guessing most home owners are fairly near that. if i can manage 5X debt to income, i have no trouble imagining the US being able to do the same. do i want that? of course not. but i don't think 2x is out of the question, and i think 1.5x is downright safe. this is a "comfort issue". some people want no debt. some people are comfortable with lots of it. i am just saying that 1.0x GDP is completely arbitrary, and not extraordinarily high. ...and I think we can't easily compare our federal credit-worthiness to your (or my) individual credit-worthiness... someone with a mortgage or car note or SL or whatever, who's been paying as agreed and increasing their net worth over time, is a decent risk... a country that's been digging a networth hole for decades is not... imo... ETA: ...and I can understand your "uncertain future" preference...
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Post by privateinvestor on Aug 6, 2011 1:02:29 GMT -5
...again, I can understand that... I'm still stuck on the fact that our govt. spending is SO HIGH that we can drain/infuse 10% of the entire economy by taking action on a/a few federal program(s)... S&P rating was due to brinksmenship by congress and the debate for $2 Trillion is NOT enough ..the debt to GDP ratio is too high....this administration knew this was an issue from the day they came into office ...
Raising the debt ceiling was only the first step and now they need a fiscal plan like Boiles/ Simpson but that didn't have the $4 Trillion over ten years..
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djAdvocate
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Post by djAdvocate on Aug 6, 2011 1:02:49 GMT -5
i don't view draining 11% out of the economy that is barely above water a good idea, Been. if you disagree, then that is fine. i feel pretty comfortable with that position. ...again, I can understand that... I'm still stuck on the fact that our govt. spending is SO HIGH that we can drain/infuse 10% of the entire economy by taking action on a/a few federal program(s)... we can, of course. but just remember, that 11% of the economy employs about 17M people. would they all lose their jobs? of course not. but it is hard to imagine that the ripple effects of cutting everyone back 10% would be in any way good for this recovery. the next question is: is that really the job of government? and the answer would very much depend on what economic theory you ascribe to. i will say this however: i don't think anyone would think that throttling the economy 11% would produce more jobs than throttling it 2% in 2012/3, which is what is now on the table.
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djAdvocate
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Post by djAdvocate on Aug 6, 2011 1:05:02 GMT -5
there are (20) other nations that have more debt on a GDP basis than the US. several of them have AAA ratings. the trick is having enough revenue to cover it. and clearly the US is very much lagging in this category, trailing all but Iceland among developed nations. the analogy i use is this one: how big is your personal debt compared to your income? mine is about 5x as much. i don't know how that compares to the average American, but i am guessing most home owners are fairly near that. if i can manage 5X debt to income, i have no trouble imagining the US being able to do the same. do i want that? of course not. but i don't think 2x is out of the question, and i think 1.5x is downright safe. this is a "comfort issue". some people want no debt. some people are comfortable with lots of it. i am just saying that 1.0x GDP is completely arbitrary, and not extraordinarily high. ...and I think we can't easily compare our federal credit-worthiness to your (or my) individual credit-worthiness... someone with a mortgage or car note or SL or whatever, who's been paying as agreed and increasing their net worth over time, is a decent risk... a country that's been digging a networth hole for decades is not... imo... ETA: ...and I can understand your "uncertain future" preference... i agree. i would hope a country would have much BETTER credit than an individual. and i think that most others would, as well. in other words, i think my analogy is VERY conservative. but if you disagree, perhaps i should have a bond auction. ;D
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diamonds
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Post by diamonds on Aug 6, 2011 1:07:00 GMT -5
P.I. take a break, great debate and a karma to you. I'm looking at the red 'X" now and will use my mouse to exit. HAGN... diamond- he has no reason to take a break. i am not beating him up. i could not care less whether he agrees with me or not. this is not personal for me. i am upset at the situation. just like he is. just like you are. there is no reason to make this a battle of "kool aid drinkers" over sensible people like you. seriously. dj: Didn't mean it that way, only because it's getting late. You are all great to talk and think we all understand by now how each one of us leans and respects that. Of course we're all upset. It's a lot to digest right now. I'm just tired, but I guess there's nothing we can do but roll with it for now. Till tomorrow...
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djAdvocate
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Post by djAdvocate on Aug 6, 2011 1:08:14 GMT -5
What I think it is the act just signed by Obama was only a first step and the ball will be in the court of the so called senate committee who has to decide on both cuts and revenue increases... they may use the gang of six ideas as a baseline for their work to come up with the spending cuts but many have doubts including John Chambers that they can reach the magic number of @$4 Trillion over ten years if you read all of his statements recently i haven't. he has made far too many for me to read. but i have read that $4T over and over and over again.
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djAdvocate
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Post by djAdvocate on Aug 6, 2011 1:10:30 GMT -5
i am really tired too. going to bed soon as well. g'nite everyone. glad the market is closed tomorrow.
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Post by privateinvestor on Aug 6, 2011 1:14:00 GMT -5
The market may have already factored in this downgrade today but we should find out on Monday or when the Asian Markets open on Sunday night ..
John Chambers gave enough warnings about S&P dowgrading the Treasury debt for the past few months...
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Post by BeenThere...DoneThat... on Aug 6, 2011 1:27:06 GMT -5
The market may have already factored in this downgrade today but we should find out on Monday or when the Asian Markets open on Sunday night .. John Chambers gave enough warnings about S&P dowgrading the Treasury debt for the past few months... ...and had anyone asked me, I woulda told them the same thing years ago...
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Post by BeenThere...DoneThat... on Aug 6, 2011 1:27:41 GMT -5
...oh, and good night to all you sleepers out there...
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cme1201
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Post by cme1201 on Aug 6, 2011 8:42:22 GMT -5
Posted by djlungrot on Yesterday at 9:56pm
Yesterday at 8:27pm, P.I. wrote: Yesterday at 8:22pm, zipity wrote:The pubs must be proud of the effect they're having on the US, imagine all the damage they could do if they had control of the senate or white house too.
What does a downgrade have to do with the Republicans???
see post #16
This article pretty muc sums up out problem. Debt. Don’t Sell Into Selling Climax: Jim Rogers SELL SELLOFF JIM ROGERS PATRICK ALLEN CNBC MARKETS DOW 500 US QUANTITATIVE EASING EUROPE EURO DEBT CRISIS SOVEREIGN Posted By: Patrick Allen | CNBC EMEA Head of News CNBC.com | 05 Aug 2011 | 07:18 AM ET Investors should not sell into a selling climax, according to Jim Rogers, the CEO and Chairman of Rogers Holdings. Speaking following a 500 point drop in the Dow Jones index on Thursday, the veteran investor noted that 500 points is not what it once was, but warned the heavy selling was a result of huge debts being run up by the United States and Europe. “We have had this debt charade (over the debt ceiling) in the US in recent days and the Europeans are not doing anything about their debts either,” said Rogers in an interview with CNBC. “There are huge imbalances in the global economy and markets had to crack,” added Rogers, who founded the Quantum Fund with George Soros in 1970. Asked what he would do to boost the global economy, Rogers dismissed the idea that more government spending to jobs was not the answer. “You need to take an axe to debt, you need to take a chainsaw to the debt,” said Rogers who also dismissed the idea that another round of quantitative easing was the answer. “America is making horrible mistakes. It is the largest indebted nation in the world and is going deeper and deeper into debt. The world is not in good shape the markets got to correct and take care of these imbalances,” he said. “The market should be allowed to bottom out. QE1 (the first round of quantitative easing) and QE2 didn’t work. Let the market bottom out as more money printing will just make matters worse” said Rogers. © 2011 CNBC.com URL: www.cnbc.com/id/44030919/this tells the REST of the story: Two government officials tell ABC News that the federal government is expecting and preparing for bond rating agency Standard & Poor’s to downgrade the rating of U.S. debt from its current AAA value. Official reasons given, one official says, will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited. The official was unsure if the bond rating would be AA+ or AA. So all blame is to be placed on Republicans because of your bolded part that states it will be Part of the reason, with the other part being that the ratings market were looking for cuts in the 4 trillion range not 2.4 trillion. Both sides screwed the pooch, both sides deserve railings, placeing blame on one side only simply shows bias for what it is, a witch hunt.
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Post by privateinvestor on Aug 6, 2011 9:30:22 GMT -5
Obama administration official: S&P move 'a facts-be-damned decision' (CNN) -- A senior Obama administration official is calling Standard & Poor's move to downgrade U.S. credit "a facts-be-damned decision," saying the rating agency admitted to an error that inflated U.S. deficits by $2 trillion. U.S. Treasury officials received S&P's analysis Friday afternoon and alerted the agency to the error, said the administration official, who was not authorized to speak for attribution. The agency acknowledged the mistake, but said it was sticking with its decision to lower the U.S. rating from a top score of AAA to AA+. "This is a facts-be-damned decision," the official said. "Their analysis was way off, but they wouldn't budge." Other sources familiar with the S&P matter called the move political and said the decision was rushed out too quickly. The White House is now in wait-and-see mode -- hoping the decision and the S&P analysis face outside scrutiny, the official said. "A judgment flawed by a $2 trillion error speaks for itself," a Treasury Department spokesperson said. John Chambers, head of sovereign ratings for S&P, admitted there was an error in a CNN interview Friday night, saying "we agree with the Treasury's position on this and our figures reflect that." But he also said the error "doesn't make a material difference -- it doesn't change the fact that your debt-to-GDP ratio ... will continue to rise over the next decade," he told "AC360." In July, S&P placed the United States' rating on "CreditWatch with negative implications" as the debt ceiling debate devolved into partisan bickering. To avoid a downgrade, S&P said the United States needed to not only raise the debt ceiling, but also develop a "credible" plan to tackle the nation's long-term debt. Chambers said the slowness at raising the debt ceiling and the political infighting led to the move. In announcing the downgrade, S&P cited "political risks, rising debt burden; outlook negative." "The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," the agency said. The immediate implication of the downgrade was unknown. "Only time's going to tell how we're going to be affected," former U.S. Comptroller General David Walker told CNN's Anderson Cooper. "Interest rates that affect the U.S. government ultimately can ripple throughout the economy, which is not good news given our weak economic condition already." S&P has not spelled out what the United States has to do to regain its AAA rating, sources said. However, Chambers said "it's going to take a while to get back to AAA." Walker, who served as comptroller general from 1998 to 2008, said he wasn't "totally surprised" by the downgrade, saying S&P in April "made it very clear that they were looking for at least a $4 trillion reduction in the projected deficit over the next 10 years. Within hours of S&P's move, both parties were playing the blame game. Former Sen. Rick Santorum of Pennsylvania, who is among a field of Republican contenders for the 2012 presidential nomination, attributed the downgrade to a lack of leadership. "The markets are scared and the credit downgrade has happened because the president and this Congress continue to address the symptoms and not the disease," he said in a statement. Former Utah Gov. Jon Huntsman said the downgrade was due to "out-of-control spending and a lack of leadership in Washington"-- a sentiment echoed by several GOP lawmakers, including House Speaker John Boehner. "The spending binge has resulted in job-destroying economic uncertainty and now threatens to send destructive ripple effects across our credit markets," Boehner said in a statement. Mitt Romney, the former governor of Massachusetts and also a GOP presidential contender, called the downgrade "a deeply troubling indicator of our country's decline under President Obama." South Carolina GOP Sen. Jim DeMint, meanwhile, called on Obama to replace Treasury Secretary Timothy Geithner immediately. "The president should demand that Secretary Geithner resign and immediately replace him with someone who will help Washington focus on balancing our budget and allowing the private sector to create jobs," DeMint said in a statement. On the Democrats' side, Senate Majority Leader Harry Reid stressed "the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners." A special joint committee of Congress will recommend further deficit reduction steps totaling $1.5 trillion or more, with Congress obligated to vote on the panel's proposals by the end of the year. "This makes the work of the joint committee all the more important, and shows why leaders should appoint members who will approach the committee's work with an open mind -- instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding," Reid said. Chambers, however, told CNN that "there's plenty of blame to go around," calling it "a problem that has been a long time in the making well over this administration and the prior administration." It was a sentiment echoed by many, who took to social media sites Facebook and Twitter to communicate about the issue. "Not really a surprise the credit rating was lowered. Both parties acted like children. Compromise is like using a water gun to put out fire," tweeted Michael Ross, who uses the Twitter handle MWRoss. Rich Tucker, 36, of Charlotte, North Carolina, used humor to get his point across, tweeting that Standard and Poor's had also just downgraded the Beatles to the Monkeys. "OK, done with the S&P downgrade jokes ... truly sucks that we are here ... we all need to sacrifice to get out of this hole," Tucker tweeted. Later, Tucker told CNN that he believed "there is almost no one who isn't to blame for where we are." "We are all in this situation as a country together, and we are going to all have to sacrifice to get out of it," Tucker said. CNN's John King and Dan Lothian contributed to this report. www.cnn.com/2011/BUSINESS/08/06/credit.rating.reaction.cnn/index.html?hpt=hp_t2
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reasonfreedom
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Post by reasonfreedom on Aug 6, 2011 9:57:40 GMT -5
I don't think the downgrade has been factored into the market yet. I think we are in for the so called recovery(money pumping by the government) back to recession. The employment numbers are killing the economy, our labor has been shrinking from 66% to 64% since 2009 and our population has been increasing. The government unemployment numbers are so jacked it is not funny, I wouldn't doubt that they put out bad numbers just because the market was tanking. I think the only thing that will save the false bull market is another round of QE or whatever Ben wants to call it this time. We spent trillions on foreign governments to prop up the global economy and trillions on our government they can only do it for so long before they realize it is going to work.
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Post by privateinvestor on Aug 6, 2011 10:03:02 GMT -5
You have to believe financial analysts are all working this weekend on Wall St to determine if borrowing costs for their companies will cost billions of dollars especially those who seek mortgages, credit cards, and small and big business loans......Plus who knows how much more this will cost the government and finally us taxpayers.....
I am just not smart enough to do that math or financial analysis to even guess.
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Post by Deleted on Aug 6, 2011 10:13:49 GMT -5
There's more than enough blame to go around. Since they've decided to stretch out the pain for another six months and since businesses will most likely hold back until the next election we're just going to continue suffering.
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Post by privateinvestor on Aug 6, 2011 10:17:16 GMT -5
Standard & Poor’s announced Friday night that it has downgraded the United States credit rating for the first time, dealing a huge symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system. Lowering the nation’s rating one-notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bi-partisan agreement reached this week to find $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would have no luck achieving more savings later on. The decision came after a day of furious back-and-forth between the Obama administration and S&P. Government officials fought back hard, arguing that S&P made a flawed analysis of the potential for political agreement and had mathematical errors in its initial analysis, which was submitted to the Treasury earlier in the day. The analysis overstated the U.S. deficit over 10 years by $2 trillion.
“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokesperson said Friday.The downgrade will push the global financial markets into unchartered territory after a volatile week fueled by concerns over the European debt crisis and the slowdown in the U.S. economy. Analysts say that, over time, the downgrade is likely to push up borrowing costs for the U.S. government, costing taxpayers tens of billions of dollars a year. It could also drive up costs for borrowing for consumers and companies seeking mortgages, credit cards and business loans. A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising the cost of borrowing for schools, roads and parks. But the exact impact of the downgrade won’t be known until at least Sunday night, when Asian markets open, and perhaps not fully grasped for months. Analysts say the impact on the markets may be modest because they have been anticipating an S&P downgrade for weeks. Federal officials are also examining the impact of a downgrade in large but esoteric financial markets where U.S. government bonds serve an extremely important function. They were generally confident that markets would hold up, but were closely monitoring the situation. S&P’s action is the most tangible vote of disapproval so far by Wall Street on the deal between President Obama and Congress to cut the deficit by at least $2.1 trillion over 10 years. S&P has said that it wanted at least $4 trillion of deficit reduction. The downgrade is likely to be used as a weapon by both Republicans and Democrats as they argue the other side has not taken deficit reduction seriously. Other credit rating agencies — Moody’s Investors Service and Fitch Ratings — have decided not to downgrade the United States credit rating. But they’ve warned that, if the economy deteriorates significantly or the government does not take additional steps to tame the debt, they could move to downgrade too. In April, S&P first said it might downgrade the United States credit rating on concerns that lawmakers would not be able to come to a deal on reducing the debt. In July, as efforts stagnated, S&P said the odds of a downgrade within three months had moved up to 50 percent. The ultimate deal between Obama and Congress ultimately failed S&P’s benchmark. Obama administration officials have been critical of S&P for making what was essentially a political judgment and for failing to conclude that the country was making a strong first step to reducing its deficit. www.washingtonpost.com/business/eco...eIxI_story.html
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djAdvocate
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Post by djAdvocate on Aug 6, 2011 10:57:05 GMT -5
there were at least three points in the S&P summary where they mentioned the inability to raise revenues as a significant factor in the decision.
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deziloooooo
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Post by deziloooooo on Aug 6, 2011 11:03:41 GMT -5
Meanwhile our congress is on vacation living the good life until next month. And when they return the in fighting and finger pointing will pick up where it left off At least they just point at each other. Us Americans just get the finger. you deserve this one..funny as hell..
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verrip1
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Post by verrip1 on Aug 6, 2011 11:41:03 GMT -5
dj: ... and it gave equal or greater weight to the opposition to control entitlement spending in any way. They found the spending reductions far too low and pushed out too far to avoid having debt exceed GDP by the middle of this decade. They noted that spending structural controls were all to be borne by the Select Committee, whose recommendations still require congressional acceptance. Here's the link to the S&P report: www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DUS_Downgraded_AA%2B.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243942957443&blobheadervalue3=UTF-8And here is the text of their rationale: "We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade. Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see "Sovereign Government Rating Methodology and Assumptions," June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government's other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged. We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government's debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years. The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability. Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating and with 'AAA' rated sovereign peers (see Sovereign Government Rating Methodology and Assumptions,"June 30, 2011, especially Paragraphs 36-41). In our view, the difficulty in framing a consensus on fiscal policy weakens the government's ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher, the needed medium-term fiscal adjustment potentially greater, and the inflection point on the U.S. population's demographics and other age-related spending drivers closer at hand (see "Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even More Green, Now," June 21, 2011). Standard & Poor's takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.'s finances on a sustainable footing. The act calls for as much as $2.4 trillion of reductions in expenditure growth over the 10 years through 2021. These cuts will be implemented in two steps: the $917 billion agreed to initially, followed by an additional $1.5 trillion that the newly formed Congressional Joint Select Committee on Deficit Reduction is supposed to recommend by November 2011. The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them. The act further provides that if Congress does not enact the committee's recommendations, cuts of $1.2 trillion will be implemented over the same time period. The reductions would mainly affect outlays for civilian discretionary spending, defense, and Medicare. We understand that this fall-back mechanism is designed to encourage Congress to embrace a more balanced mix of expenditure savings, as the committee might recommend. We note that in a letter to Congress on Aug. 1, 2011, the Congressional Budget Office (CBO) estimated total budgetary savings under the act to be at least $2.1 trillion over the next 10 years relative to its baseline assumptions. In updating our own fiscal projections, with certainmodifications outlined below, we have relied on the CBO's latest "Alternate Fiscal Scenario" of June 2011, updated to include the CBO assumptions contained in its Aug. 1 letter to Congress. In general, the CBO's "AlternateFiscal Scenario" assumes a continuation of recent Congressional action overriding existing law. We view the act's measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future. Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow. Under our revised base case fiscal scenario--which we consider to be consistent with a 'AA+' long-term rating and a negative outlook--we now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is high in relation to those of peer credits and, as noted, would continue to rise under the act's revised policy settings. Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade. Our revised upside scenario--which, other things being equal, we view asconsistent with the outlook on the 'AA+' long-term rating being revised to stable--retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021. Our revised downside scenario--which, other things being equal, we view as being consistent with a possible further downgrade to a 'AA' long-term rating--features less-favorable macroeconomic assumptions, as outlined belowand also assumes that the second round of spending cuts (at least $1.2 trillion) that the act calls for does not occur. This scenario also assumes somewhat higher nominal interest rates for U.S. Treasuries. We still believe that the role of the U.S. dollar as the key reserve currency confers a government funding advantage, one that could change only slowly over time, and that Fed policy might lean toward continued loose monetary policy at a time of fiscal tightening. Nonetheless, it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021. Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. From our perspective, the effect of these revisions underscores two related points when evaluating the likely debt trajectory of the U.S. government. First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher. Second, the revised data highlight the sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions. We believe the sluggish pace of the current economic recovery could be consistent with the experiences of countries that have had financial crises in which the slow process of debt deleveraging in the private sector leads to a persistent drag on demand. As a result, our downside case scenario assumes relatively modest real trend GDP growth of 2.5% and inflation of near 1.5% annually going forward. When comparing the U.S. to sovereigns with 'AAA' long-term ratings that we view as relevant peers--Canada, France, Germany, and the U.K.--we also observe, based on our base case scenarios for each, that the trajectory of the U.S.'s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015. Standard & Poor's transfer T&C assessment of the U.S. remains 'AAA'. Our T&C assessment reflects our view of the likelihood of the sovereign restricting other public and private issuers' access to foreign exchange needed to meet debt service. Although in our view the credit standing of the U.S. government has deteriorated modestly, we see little indication that official interference of this kind is entering onto the policy agenda of either Congress or the Administration. Consequently, we continue to view this risk as being highly remote.
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djAdvocate
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Post by djAdvocate on Aug 6, 2011 11:53:25 GMT -5
verrip:
i read the S&P summary yesterday, 45 mins after it was published. i have either referenced OR quoted it at least 10x since then. and i agree that they did mention entitlement spending as much as revenue increases.
here is the thing- the reason S&P wanted a bipartisan agreement, and why the tone of the summary is one of approbation for the lack of ability to come together on this, is that a unilateral agreement has a HIGHER LIKELIHOOD of getting overturned. it is in the interest of long term stability that they wanted both parties working together and making sacrifices on this. this is precisely the same thing that Obama wanted- and he made broad concessions to spending, because as several posters have pointed out, that is where most of the problem is right now.
the "grand compromise" that was proposed on July 6th (?) was about the ONLY measure that had any chance of passing by both S&P AND Obama (and, incidentally, contained concessions on medicare). why it wasn't really even debated is beyond me.
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djAdvocate
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Post by djAdvocate on Aug 6, 2011 11:57:56 GMT -5
verrip- just as a side note, do you agree with the S&P opinion? if not, which parts do you disagree with?
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Post by privateinvestor on Aug 6, 2011 12:08:18 GMT -5
S&P is right on acrimony and brinkmanship got us into this financial mess and debt crisis and acrimony and brinkmanship will NOT get us out of this mess.... They sent Obama and congress a strong message to get their act together or watch our debt be downgraded again Our government looks like the Italian Parliament with all due respects to my Italian friends but our government is the problem and will not be the solution IMHO And our governement includes both congress and the Obama administration in case you are wondering what the hell I am trying to say or not say..
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djAdvocate
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Post by djAdvocate on Aug 6, 2011 12:08:59 GMT -5
CORRECTION TO EARLIER POSTS:
i incorrectly stated earlier that Japan had a AAA rating. it doesn't. it is AA-, which is below where the US is currently. that makes sense if you consider that they have a debt ratio of 2.25 and a generation of stagnant economy.
however, i was correct in my statement that several countries with higher debt ratios than the US have AAA ratings. they are Germany, France and Singapore. Singapore is actually significantly more indebted than the US, at over 100% of GDP. this would correspond to roughly $20T in debt by US standards.
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Post by privateinvestor on Aug 6, 2011 12:13:18 GMT -5
CORRECTION TO EARLIER POSTS: i incorrectly stated earlier that Japan had a AAA rating. it doesn't. it is AA-, which is below where the US is currently. that makes sense if you consider that they have a debt ratio of 2.25 and a generation of stagnant economy. however, i was correct in my statement that several countries with higher debt ratios than the US have AAA ratings. they are Germany, France and Singapore. Singapore is actually significantly more indebted than the US, at over 100% of GDP. this would correspond to roughly $20T in debt by US standards. You also have several US companies with AAA ratings which is higher than the United States......what a shame for our government to let this happen...now will investors shun our debt?? This is a crisis of leadership IMHO and we deserve better
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djAdvocate
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Post by djAdvocate on Aug 6, 2011 12:15:08 GMT -5
CORRECTION TO EARLIER POSTS: i incorrectly stated earlier that Japan had a AAA rating. it doesn't. it is AA-, which is below where the US is currently. that makes sense if you consider that they have a debt ratio of 2.25 and a generation of stagnant economy. however, i was correct in my statement that several countries with higher debt ratios than the US have AAA ratings. they are Germany, France and Singapore. Singapore is actually significantly more indebted than the US, at over 100% of GDP. this would correspond to roughly $20T in debt by US standards. You also have several US companies with AAA ratings which is higher than the United States......what a shame on our government to let this happen... it really is. it is time for some serious introspection. something Americans have never been particularly good at.
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Post by privateinvestor on Aug 6, 2011 12:16:49 GMT -5
The S&P Ratings is a rating on our dysfunctional government and maybe they will get the message that gamesmanship and partisan politics costs us all big time IMHO
Now we have to pay more because of a downgrade to our nation's debt.....something to think about and forget who is to blame but rather what will our government do to fix this problem??? Today Obama was on the radio blaming congress, and the Treasury claims the S&P debt estimates are wrong by @$2 Trillion.. members of congress want Geithner to resign. Liberals blamed the tea party and conservatives, and conservatives blame Obama....what a mess we got handed today by the Obama administration and congress..
I also don't like having to pay more to borrow for my business or to pay more taxes but it is something we may have to deal with I guess?? But what will this do to hiring more workers in the US??
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fairlycrazy23
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Post by fairlycrazy23 on Aug 6, 2011 12:22:21 GMT -5
Actually I'm not even sure if it is appropriate for these agencies to rate the United States the same as companies, they are fundamentally different types of entities.
Also comparing the United States debts to other countries is often very misleading as most counties include total municipal debt, where we are only talking about federal debt, for some reason people keep forgetting that we are a republic.
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djAdvocate
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Post by djAdvocate on Aug 6, 2011 12:49:40 GMT -5
The S&P Ratings is a rating on our dysfunctional government and maybe they will get the message that gamesmanship and partisan politics costs us all big time IMHO Now we have to pay more because of a downgrade to our nation's debt.....something to think about and forget who is to blame but rather what will our government do to fix this problem??? Today Obama was on the radio blaming congress, and the Treasury claims the S&P debt estimates are wrong by @$2 Trillion.. members of congress want Geithner to resign. Liberals blamed the tea party and conservatives, and conservatives blame Obama....what a mess we got handed today by the Obama administration and congress.. I also don't like having to pay more to borrow for my business or to pay more taxes but it is something we may have to deal with I guess?? But what will this do to hiring more workers in the US?? it will hamper it. it is competing for revenue, just like labor costs. the other way it might emerge is in inflation. if my cost of borrowing goes up, i WILL pass that on to my customers. actually, the bill itself will ALSO reduce employment. so it is a double whammy on the employment front. i think Obama will have trouble growing jobs enough to get re-elected, now. it was starting to look like a longshot in June, anyway.
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