Obama Plays Down S&P Outlook Change

[markomalley]

CNBC reports:

The Obama administration moved swiftly Monday to downplay ratings agency Standard & Poor’s downgrade of its U.S. credit outlook, calling the decision a political judgment that should not be taken too seriously.

They earlier reported,

Standard & Poor’s on Monday downgraded the outlook for the United States to negative, saying it believes there’s a risk U.S. policymakers may not reach agreement on how to address the country’s long-term fiscal pressures.

“Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable,” the agency said in a statement.

Which, of course, caused the Dow to go down.

 

[Claire_C]

Of course he doesn’t want people to take it seriously - if they took it seriously, they might look to him to lead on the issue.

 

[lynx]

Of course he doesn’t want people to take it seriously - if they took it seriously, they might look to him to lead on the issue.

Yeah, it’s not like perception in the stock exchange matters right?

 

[edwest2]

So who’s running the country? Standard & Poors? What I believe is actually going on is final hardball negotiations about the budget. Each side is waiting for the other to blink so they can get their way, tell everyone they were right, and hopefully, depending on which party “wins,” embarrass the President and further hurt his reelection chances.

S&P is just applying pressure to the process.

Peace,
Ed

 

[Claire_C]

So who’s running the country? Standard & Poors? What I believe is actually going on is final hardball negotiations about the budget. Each side is waiting for the other to blink so they can get their way, tell everyone they were right, and hopefully, depending on which party “wins,” embarrass the President and further hurt his reelection chances.

S&P is just applying pressure to the process.

Peace,
Ed

Probably, and hopefully it will work. But I don’t think Obama is just trying to keep the market up by sounding confident - I think he knows he’s stuck.

 

[Claire_C]

Yeah, it’s not like perception in the stock exchange matters right?

Sure, but the time for boosting investor confidence by making speeches is long gone. I think people are going to listen to S&P, China, the IMF, and the host of other players who say our economy is on the edge because of debt. I believe he thinks we can just tax and/or inflate our way out of it.

 

[lynx]

Sure, but the time for boosting investor confidence by making speeches is long gone. I think people are going to listen to S&P, China, the IMF, and the host of other players who say our economy is on the edge because of debt. I believe he thinks we can just tax and/or inflate our way out of it.

It’s never too late to keep the sweet talk coming in the market. Inflation and taxes have been a way of dealing with debt historically.

 

[Claire_C]

It’s never too late to keep the sweet talk coming in the market. Inflation and taxes have been a way of dealing with debt historically.

Sweet talk in the market could be helpful if it was used to buy time to make real changes, but don’t hold your breath here. As far as taxes are concerned, every single person in the country, not just the evil rich, would have to get a tax hike to even start to help, some as much as 150%. Never mind the fact that there is no way any politician could pull this off, but it wouldn’t work, because hiring would slow down. And please understand, I believe everyone should pay some taxes, so everyone has skin in the game. And maybe inflation has worked in the past, but we are looking at hyperinflation here, and one of the reasons S&P is concerned is because of the bond market. Inflation will destroy our bonds, as well as hit the poor with higher prices. And the only way to balance inflation is wit higher interest rates, which hits lending. Methods that may have once worked are fast becoming ruled out.

A broader tax base with lower rates would work better. And of course spending cuts. That’s what Obama is avoiding here.

 

[Roselle]

Thought John Steele Gordon had a nice article about the bind Democrats find themselves in concerning the debt.

“The Democrats’ Bind”
commentarymagazine.com/2011/04/18/democrats-bind/

From the article:

It is hard to see how President Obama in particular and the Democrats in general can offer a real deficit reduction plan based on spending cuts alone without fatally alienating their base. That base, after all, consists of the very interests that have been driving the federal budget towards the cliff for decades. That leaves them basically two options in the current political climate.

They can play with numbers, such as talking about spending reductions—as yet largely unspecified—over 12 years. As everyone who follows federal budget matters knows, budget outlooks come in 1-year, 5-year, and 10-year varieties. So when President Obama mentioned 12 years in his speech last Wednesday, a lot of red-light political claptrap alerts started flashing. And they were right, as Keith Hennessey points out. This sort of statistical three-card monte works well enough with the Washington press corps and the New York Times editorial board, but it is working less and less with the economic press, and as Abe observed this morning, it is not working with the green-eye-shade boys at Standard and Poor either. It is hard to see how a president who cost the country its 94-year-old AAA bond rating could survive in an election. The 30-second TV attack ads almost write themselves.

The second option is to follow the late Senator Russell Long’s formula for political success: “Don’t tax you and don’t tax me, tax that man behind the tree.” The man behind the tree in this case, of course, is “the rich.” But, as the Wall Street Journal noted this morning, you could do to the rich what Philip the Fair did to the Knights Templar when he needed their money, and it still wouldn’t be enough. The real money is with the middle class.

 

[Raskolnikov]

While this change in outlook could be troublesome, it’s never a good idea to ascribe much predictive power to the stock market. An economist, I forget his name, said, “the stock market is such a good indicator of economic developments that it has predicted 12 of the last 3 recessions.” Or something like that. Basically, it’s volatile, and can be a self-fulfilling prophecy when people base their decisions on what the stock market does. The questionable long term outlook for the US economy is something much more worth worrying about that S&P’s predictions for next year.

 

[curlycool89]

Well, it’s about time someone noticed. The idea that the US has a AAA rating is a joke. Canada has a AAA rating, and there are plans to return to a surplus in 4-5 years after a decade of surpluses, and then there’s the US who’ve had a completely unsustainable deficit for a decade with no end in sight.

 

[EmperorNapoleon]

But, as the Wall Street Journal noted this morning, you could do to the rich what Philip the Fair did to the Knights Templar when he needed their money, and it still wouldn’t be enough. The real money is with the middle class.

The WSJ is misleading and flat out wrong. Misleading because it compares 1 years worth of tax revenue with 10 years worth of spending and declares that taxing the rich 100% for one year wont fix a 10 year deficit. Of course one years worth of tax revenue isn’t enough to pay for 10 years of expenditures! Compare tax revenues and expenditures year by year and you have the real answer; a gradual reduction in the deficit. The WSJ is flat out wrong because, as the Federal Reserve has noted, the top 10% possess 70% of wealth while the bottom 50% possess only 2.5% of wealth. The real money is clearly with the top 10%.

And by the way; why is anyone even considering Paul Ryan’s plan. A plan which he admitted would increase the deficit in the “short term”. And of course you have the usual…well 10-20 years from now…hogwash. If Paul Ryan’s plan is going to work then the budget cannot deviate by a single penny between now and 2020-2030. Get real folks.

 

[SamH]

The WSJ is misleading and flat out wrong. Misleading because it compares 1 years worth of tax revenue with 10 years worth of spending and declares that taxing the rich 100% for one year wont fix a 10 year deficit. Of course one years worth of tax revenue isn’t enough to pay for 10 years of expenditures! Compare tax revenues and expenditures year by year and you have the real answer; a gradual reduction in the deficit. .

So you agree that taxing people that make over $250,000 at 100% won’t erase the budget deficit - only gradually reduce it year by year. I don’t understand why you say the WSJ is wrong when you agree with them. Where do you get the “10 years worth of spendign from”?

 

[manualman]

The WSJ is misleading and flat out wrong. Misleading because it compares 1 years worth of tax revenue with 10 years worth of spending and declares that taxing the rich 100% for one year wont fix a 10 year deficit. Of course one years worth of tax revenue isn’t enough to pay for 10 years of expenditures!

I don’t mean to be insulting, but you know the difference between total debt and deficit, right? Deficit is how much revenue falls below expenditures PER YEAR. Total Debt, hopefully speaks for itself ($14 trillion, or $178,000 PER US Citizen). Boggle that for a second: My family of five’s portion of our debt is almost $900,000.

But nah, we don’t need to cut spending. No, that would be unfair to the poor. Let’s just keep things the way they’re going now…

 

[EmperorNapoleon]

So you agree that taxing people that make over $250,000 at 100% won’t erase the budget deficit - only gradually reduce it year by year.

It wont erase the total debt outright but raising taxes on the top 10% and closing tax loopholes would result in a budget surplus which could gradually pay down the debt. It worked under Clinton and theres no reason why it wont work now.

 

[bbarrick8383]

It wont erase the total debt outright but raising taxes on the top 10% and closing tax loopholes would result in a budget surplus which could gradually pay down the debt. It worked under Clinton and theres no reason why it wont work now.

I’m no expert, but I would think that it would take quite some time for the top 10 percent to come up with 14 trillion +. The feds interest on it’s borrowed debt could pay for the Iraq war and then some at over 1 trillion per year.

 

[EmperorNapoleon]

I’m no expert, but I would think that it would take quite some time for the top 10 percent to come up with 14 trillion +.

Gross federal debt as of 2010 is estimated to be $13.7 trillion. The difference between receipts and expenditures in 2010 is estimated to be $1.5 trillion. Of course, as I pointed out in another thread, cuts are necessary but not the kind the Republicans want. There needs to be a comprehensive study of how the federal government actually spends the money it allocates and those responsible for keeping tabs on the expenditures of their respective departments or agencies should go to federal prison if they dont retain and produce enough financial records for the GAO to perform an audit. Expenditures they cant account for, and this amounts to hundreds of billions of dollars at the very least, should be slashed from their allocation in the next budget. If they dont know what they’re spending it on then they dont need it.Taxes will still have to be raised to pay down existing debt and they should be applied to the top 10% and coporations. How high would depend on the results of the audit. The tax cuts were unsustainable from the day they were implimented anyway.

 

[Raskolnikov]

bbarrick8383:

I’m no expert, but I would think that it would take quite some time for the top 10 percent to come up with 14 trillion +. The feds interest on it’s borrowed debt could pay for the Iraq war and then some at over 1 trillion per year.

Well, there’s actually no reason to even try to pay off the debt in its entirity. The idea is just to get it moving downward. That will gradually reduce the cost of servicing it, and most of the money going to pay it off will go back to investers who own bonds, which also help the economy. So there are many good reasons to get to the point where it’s moving in the right direction, even if there’s no chance of the debt being payed off in the remotely forseeable future.