T Nation

S&P: 50% Chance of US Debt Rating Cut


#1

Obama's Legacy ------- ROFLMAO!!!!

"S&P said it had put U.S. sovereign ratings on formal credit watch and that, â??owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days.â??

S&P had already lowered its outlook on the U.S. AAA long-term rating to negative in April, but since then â??the political debate about the U.S. fiscal stance and the related issue of the U.S. government debt ceiling has, in our view, only become more entangled,â?? it said.

Obama, doing the work of Pastor Wright and William Ayers, completing the destruction of a great country.


#2

The ratings have been lowered because the GOP wont budge on repeal of the Bush tax cuts for the rich and tax breaks to big oil and other big corps. Good luck winning an election with that strategy.

Ok, cue the Austrian, supply-side, trickle down, bs>


#3

I am not a fan of Obama but the country was already headed downhill long before he got into office.


#4

And it seems to me there is enough blame to go around on both sides. I find it hard to blame one side exclusively. (I'll probably get harassed for this comment.)


#5

Yeah, the dept isn't the problem, it's the 14 trillion dollar limit we have on it.


#6

I don't see how those are conflicting positions. You say that the debt is the problem, garcia is saying how the Bush tax cuts for the rich and tax loop holes/subsidies/corporate welfare for the transnational corps/big oil are contributing big time to that debt. Seems to me like you two are actually in agreement.


#7

Oh brother.
One of my biggest pet peeves of the left is that they always want to increase the burdern for others, but not themselves. If you think taxes should be increase, then lead by example, pay more yourself, then you can call on others to pay more. How you ask? Claim no deductions.

Now let's take left and right out of it and talk facts. If you raise taxes now, when then the effect is multifaceted and all bad. First, raising taxes on 'big oil and big corporations' will do the following. These guys are as evil as you think, rather than just accept the tax increase, they are going to pass it along. Unless you can afford to boycott, YOU will pay the increase. Also, since the cost of goods and services will go up, this will cause and economic slow down because with a 9.2% unemployment and low economic confidence will discourage spending. Lastly, this will devalue the dollar further as confidence wanes and the same dollar goes less far.

Let's compromise....I will agree to a temporary tax increase when we hit a bull market and have a strong economy. In other words, let's do it when we can afford it. It would be a disaster right now.

This deal going on right now, is going as it should. It is glacial, but it is moving. It should not be done in haste. Both sides need to give and receive. I think the system is working right now, let it run it's course and see. With both sides working as hard as they have to, to get the deal done I think we will get a good package out of it. I wouldn't want this done in haste. The stakes are to high.


#8

Massive, uncontrolled debt IS a problem. It's embarrassing that our government deals with credit like a fucking drug junkie. We are in poor, pathetic shape with this massive debt. We need to get out of the fucking wars, cut out all the waste, get all of the TARP money back with interest, live below our means for a while and get out from under this oppressive debt.

Tell all the crybabies to worry about CONTRIBUTING a service for a change instead of sitting on their duffs whining about a handout. MAYBE we can once again be a solvent, wealthy nation instead of one OWNED by non-Americans.


#9

"Oh Brother" is right, Pat...because it's not nearly as simple a problem to correct (our huge deficit)...and it's even more complex than what I'll present.

The starting point is what makes up the vast majority of our Federal Spending...(and it's not Planned Parenthood and Education).

While people are always "playing with the numbers" to support their own agenda...close to 50% of Federal Spending is on Social Security and Medicaire...50%! (and that's a conservative estimate).

Another 20% or so is on Defense. (These numbers tend to vary, but this also represents a conservative number).

6-10% is interest on the Debt...with about 15-20% "everything else".

So from 70-80% of Federal Spending is on Social Security, Medicaire, Defense and Interest on the Debt.

IF the REAL Goal is Deficit Reduction, then the choices are:

1) Reduction in the Cost of SS, Medicaire, Defense PLUS an increase in revenue.

2) DRAMATIC cuts in SS, Medicaire and Defense with no increase in revenue.

And therein lies the impasse between the President and the GOP.

Yes...you can reduce spending without revenue increases...but you will do little to reduce the overall deficit because of the it's shear size and interest cost.

In other words, "cutting spending" is NOT the same as "reducing the deficit"...any more than you eating out less will decrease your overall consumer Debt.

Also...we tend to think of SS and Medicaire in terms of "checks" , prescriptions and doctors appointments for people who aren't doing anything...and a single Military Base can literally drive the economy of almost a whole State.

The reality is that these programs permeate all aspects of our economy; from major employers like hospitals and Bases...to the extensive chain of care for the disabled.

The economic impact of what you pay at the pump pales in comparison to SUDDEN and DRAMATIC cuts in SS, Medicaire and Defense.

I am NOT suggesting "do nothing"...that is not an option. Defense and Entitlement spending at current levels is not sustainable, and nor is the soaring deficit.

However, the "bitter pill" is the "reality" of deficit reduction...and that is reductions in spending with revenue increases, because the "economic house" of the U.S. government has gotten that bad.

And that's the fault of both Democrats AND Republicans.

Mufasa


#10

Undoubtedly, this is the fault of both parties, and I've even go so far as to say the Republicans deserve more of the blame (but that could change in a minute).

For years, Republicans operated without a care as to deficit spending. Under their near-mustical belief in the supply-side magic of "starve the beast", the thinking was that as long as we were cutting taxes, the tax cuts paid for themselves (via enhanced economic growth which produced enhanced revenue), so deficits were not a concern, and "starving" the government (by not providing the revenue to pay for government spending) would shrink it.

So, for quite some time, Republicans haven't been fiscal conservatives. Deficits were fine, even desirable when the GOP could use enhanced spending as a political tool to gain votes (i.e., Medicare Part D).

This, of course, left the door wide-open for the Democrats, who decided that once they achieved a true majority (including the WH), they'd engage in cramdown bill passage and never have to justify paying for the massive expansion of the entitlement state.

One of the main constraints, you see, holding back this expansion was always an common sense argument that in order to pay for it, we'd have to have massive tax increases, and these ideas were DOA because there'd be no way the citizenry would foot the bill for them.

Thanks in no small part to the GOP - who adopted wholesale a fiscal philosophy where taxation and spending somehow have no connection to one another - the Democrats could now use their own game against them, pass massive expansionary bills with borrowed money, and never have to answer how they'd pay for it.

Then, when the bills starting coming due and people began fretting about the yawning size of the deficit, the Democrats - with the bills already made law - can now demand that we pay for programs. As such, the Democrats adopted what some have called "gorging the beast" - growing the entitlement state and then demanding that taxes increase to pay the bill.

The GOP has no one to blame but itself.

As for the solution, the best thing I've seen is the Bowles-Simpson approach (but I would be more aggressive with cutting spending). I don't like tax increases generally, but we are at a seminal moment in our history where tax increases may be required to teach a valuable lesson:

[i]But hereâ??s the case: one problem with our current tax policy is that at the moment the American people as a whole are receiving a dollar of government for the price of only 60 cents. (I donâ??t say a â??dollarâ??s worth of government,â?? but letâ??s leave that snark for another time.) Any time you can get a dollar of something at a 40 percent discount, you are going to demand more of it. My theory is simple: if the broad middle class of Americans are made to pay for all of the government they get, they may well start to demand less of it, quickly.

Thereâ??s corollary point to this. Back in the Reagan years, there was a vigorous internal debate about whether to resist tax increases because â??starving the beastâ?? would hold down spending. But evidence is now in: this strategy doesnâ??t work. My witness on this point is the Cato Instituteâ??s chairman, William Niskanen (who was chairman of Reaganâ??s Council of Economic Advisers at one point, and a person whose libertarian credentials are hard to beat). Niskanen noted this striking finding in a Cato Policy Report a while ago:

In a professional paper published in 2002, I presented evidence that the relative level of federal spending over the period 1981 through 2000 was coincident with the relative level of the federal tax burden in the opposite direction; in other words, there was a strong negative relation between the relative level of federal spending and tax revenues. Controlling for the unemployment rate, federal spending increased by about one-half percent of GDP for each one percentage point decline in the relative level of federal tax revenues. . . One implication of this relation is that a tax increase may be the most effective policy to reduce the relative level of federal spending.

Other economists have reached the same conclusion. In other words, if you want to limit government spending, instead of starving the beast, serve the check. (Well, I can hear everyone now, thereâ??s goes your invitation to Grover Norquistâ??s Wednesday meetings! True that.) Right now the anti-tax bias of the right has the effect of shifting costs onto future generations who do not vote in todayâ??s elections, and enables liberals to defend against spending restraints very cheaply. Time to end the free ride.[/i]


#11

Excellent post. "Starve the beast" hasn't worked. Even today, there's no real climate open to meaningfully deep cuts and reform. It's time for the GoP to support tax raises. There is nothing more conservative, more traditional, than "if you insist, then you will pay for it." Once the bill hits, once Americans realize just how expensive and consuming their government has becomes, maybe attitudes will finally change. Right now though, there's no reason to change. They get their services, paying piddly squat to nothing (relative to the real cost). The bulk of the bill for it all shuffled off to Americans not even born yet. And no, hikes on only the wealthy won't cover it. It's that massive of a problem. Tax hikes could harm what might be a fragile economy for some time? That might be exactly the wake up call Americans would need.


#12

Excellent post, TB. (As always).

Mufasa


#13

http://spectator.org/archives/2009/01/21/was-there-ever-a-default-on-us#

"Granted, the circumstances were somewhat different in those days, since government finance still had a real tie to gold. In particular, U.S. bonds, including those issued to finance the American participation in the First World War, provided the holders of the bonds with an unambiguous promise that the U.S. government would give them the option to be repaid in gold coin.

Nobody doubted the clarity of this "gold clause" provision or the intent of both the debtor, the U.S. Treasury, and the creditors, the bond buyers, that the bondholders be protected against the depreciation of paper currency by the government.

Unfortunately for the bondholders, when President Roosevelt and the Congress decided that it was a good idea to depreciate the currency in the economic crisis of the time, they also decided not to honor their unambiguous obligation to pay in gold."

Wish we would quit defaulting. This is getting old.


#14

Agreed.


#15

I agree that the reps fucked up royally, but they weren't alone. They relied on the unsustainable economic bubble they thought would never end, but that's not the whole story. There is plenty of culpability on the other side of the isle and the motif of thrusting strait in to a tax and spend bubble up approach is a horrendously bad idea. Like I said, let's get this economy back on it's feet before we suck more money out of circulation. I'll expound more later, I am tired.


#16

Raise top rate on people making 1mil or more to 39%

Means test SS and Medicare

End all presence of ground troops around the globe

Cut defense spending by 1/4-1/3 as aresult of this

Raise the contribution rate on payroll taxes to NO LIMIT, instead of the first 107k. This is a regressive tax

Decriminalize pot and free non-violent drug offenders from prisons

End farm subsidies and tax breaks to big oil

Make it cost-prohibitive to offshore American jobs

Raise tariffs on Chinese goods until they properly value their currency

THATS how you do it.


#17

"We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions . . . . With those taxes in there, no damn politician can ever scrap my social security program."

  • President Franklin D. Roosevelt

Heh, things sure do turn out funny.


#18

Damn right it is both parties fault. The Republicans are bad and the Democrats are worse.

Less power in the hands of the Federal government should be the default position.


#19

Means testing is nonsense. Raise the age of retirement. A 20 year vacation at the end of life is ridiculous and unsustainable.


#20

A means test nor raise of retirement age would never stick. If there actually was an attempt to, there would be a mass riot. Its a "give me, give me" system now. It certainly is the most logical thing to do and I wholeheartedly agree but it would turn ugly.