S&P Downgrades US Credit Rating to AA-Plus

[Roselle]

One area that will help greatly with our out of control debt problem is means testing for our entitlement programs of Medicare and Social Security. Economist Thomas Sowell had a nice write up about this earlier in the week:

How Images Of ‘Poor,’ ‘Elderly’ Distort Reality

snippet:

Various attempts have been made over the years to depict Americans in poverty as “ill-fed” but the “hunger in America” campaigns that have enjoyed such political and media popularity have usually used some pretty creative methods and definitions.

Actual studies of “the poor” have found their intake of the necessary nutrients to be no less than that of others. In fact, obesity is slightly more prevalent among low-income people.

The real triumph of words over reality, however, is in expensive government programs for “the elderly,” including Medicare. The image often invoked is the person who is both ill and elderly, and who has to choose between food and medications.

It is great political theater. But, the most fundamental reality is that the average wealth of the elderly is some multiple of the average wealth owned by people in the other age brackets.

Why should the average taxpayer be subsidizing people who have much more wealth than they do?

If we are concerned about those particular elderly people who are in fact poor — as we are about other people who are genuinely poor, whatever their age might be — then we can simply confine our help to those who are poor by some reasonable means test. It would cost a fraction of what it costs to subsidize everybody who reaches a certain age.

But the political left hates means tests. If government programs were confined to people who were genuinely poor in some meaningful sense, that would shrink the welfare state to a fraction of its current size. The left would lose their human shields.

It is certainly true that the elderly are more likely to have more medical problems and larger medical expenses. But old age is not some unforeseeable misfortune. It is not only foreseeable but inevitable for those who do not die young.

It is one thing to keep people from suffering from unforeseeable things beyond their control. But it is something else to simply subsidize their necessities so that they can spend their money on other things and leave a larger estate to be passed on to their heirs.

People who say they want a government program because “I don’t want to be a burden to my children” apparently think it is all right to be a burden to other people’s children.

Among the runaway spending behind our current national debt problems is the extravagant luxury of buying political rhetoric.

The rest can be read at:

investors.com/NewsAndAnalysis/Article/580251/201108021818/How-Images-Of-Poor-Elderly-Distort-Reality.htm

 

[Soldier_Of_God]

Please don’t let the fact the S&P make a $2 trillion error in their analysis (which they acknowledge) undermine your confidence in their assessment. Apparently, this discrepancy of overstating the US debt outlook has not “meaningfully affected” their evaluation.

 

[ProVobis]

I very much doubt that would happen. DO think it would be interesting, to say the least.

Just know this----possible Market crash on Monday. May God help us.

Yes, but you would think that people won’t be rushing into the “safe havens” of Treasuries anymore. In other words, stocks will become less risky in terms of those bonds. But I’m usually wrong in such predictions.

 

[sw85]

Please don’t let the fact the S&P make a $2 trillion error in their analysis (which they acknowledge) undermine your confidence in their assessment. Apparently, this discrepancy of overstating the US debt outlook has not “meaningfully affected” their evaluation.

I doubt it was an error. S&P’s estimated discretionary spending at $2 trillion higher than the CBO – which is notoriously always rosily low in its spending estimates and high in its tax revenue estimates. Part of this is because CBO can only “score” based on the information given to it by Congress. Garbage in, garbage out.

I’d take S&Ps estimates over CBO’s any day of the week.

 

[ProVobis]

All this means is that they’re always late to show – and once they make a determination, *everyone *knows it’s final.

As I said before, this should’ve been done years ago.

I agree. An immediate downgrade should have been done as Nixon was taking us off the gold standard in 1971 with subsequent downgrades to match. So far it’s been obvious these rating agencies have been under tremendous pressures from various administrations, thus distorting the true (more objective) ratings of U.S. bonds.

Now if anyone can provide some true CPI numbers.

 

[ProVobis]

One area that will help greatly with our out of control debt problem is means testing for our entitlement programs of Medicare and Social Security.

Yes, but not that much according to estimates. Part of the problem is that these programs (which are funded separately) are lumped into the general funds. I would think that if anything, war bonds should be issued to pay for the wars, and so on, so that proper accounting can be made.

 

[sw85]

I agree. An immediate downgrade should have been done as Nixon was taking us off the gold standard in 1971 with subsequent downgrades to match. So far it’s been obvious these rating agencies have been under tremendous pressures from various administrations, thus distorting the true (more objective) ratings of U.S. bonds.

Now if anyone can provide some true CPI numbers.

John Williams at Shadowstats calculates inflation according to the old, pre-Boskin Commission standards. Pay to access, unfortunately, though there’s a chart that’s visible that suggests inflation’s been north of 5% since 1987 and is presently in the vicinity of 10%.

 

[Soldier_Of_God]

I doubt it was an error. S&P’s estimated discretionary spending at $2 trillion higher than the CBO – which is notoriously always rosily low in its spending estimates and high in its tax revenue estimates. Part of this is because CBO can only “score” based on the information given to it by Congress. Garbage in, garbage out.

I’d take S&Ps estimates over CBO’s any day of the week.

S&P admits the error. You’ll see that “neither side disputes the error” in the article.

cnbc.com/id/44043459

 

[sw85]

S&P admits the error. You’ll see that “neither side disputes the error” in the article.

cnbc.com/id/44043459

Well, if that’s the case, then there’s hardly any reason to be complaining about the error if it was not, evidently, of a magnitude sufficient to change the rating.

 

[OrdinaryMelkite]

Yes, but you would think that people won’t be rushing into the “safe havens” of Treasuries anymore. In other words, stocks will become less risky in terms of those bonds. But I’m usually wrong in such predictions.

True.

 

[Soldier_Of_God]

Well, if that’s the case, then there’s hardly any reason to be complaining about the error if it was not, evidently, of a magnitude sufficient to change the rating.

That’s the opinion of S&P, who is exercising damage control. I find that action highly self-serving. It doesn’t strike me as having an unbiased perspective.

 

[gilliam]

John Boehner last night:
“This decision by S&P is the latest consequence of the out-of-control spending that has taken place in Washington for decades. The spending binge has resulted in job-destroying economic uncertainty and now threatens to send destructive ripple effects across our credit markets.
“Republicans have listened to the voices of the American people and worked to bring the spending binge to a halt. We are no longer debating how much to spend, but rather how much to cut. Unfortunately, decades of reckless spending cannot be reversed immediately, especially when the Democrats who run Washington remain unwilling to make the tough choices required to put America on solid ground.

“The Administration and Democrats in Congress had sought an increase in the debt limit without any spending cuts or reforms. Republicans made clear the American people would not tolerate that and fought for the largest spending cuts possible. With the Budget Control Act, we made a positive first step toward reducing the debt, but much more must be done.

“In May, I warned, ‘if we don’t act boldly now, the markets will act for us very soon.’ It is my hope this wake-up call will convince Washington Democrats that they can no longer afford to tinker around the edges of our long-term debt problem. As S&P noted, reforming and preserving our entitlement programs is the ‘key to long-term fiscal sustainability.’

“Republicans remain committed to ensuring the United States always meets its obligations. Though we are outnumbered in Washington, we will continue to press Democrats to join us in taking meaningful steps to rein in our debt and deficits.”

 

[gilliam]

Bachmann’s statement, along with Mitt Romney’s, Jon Huntsman’s, Herman Cain’s, Ron Paul’s and Rick Santorum’s statements, are here Primary Event.

 

[OrdinaryMelkite]

A guy on Fox just told Neil Cavuto that this was the most “telegraphed downgrade” in history.—And he is right. For at least two week S & P had been hinting that the deal reached by Congress cut too little and was unacceptable----so we really can’t all heap scorn on the S & P.

What a stain on his Presidency. Though I will say----there’s blame to go around. But it happened on his watch. Have a feeling next year he won’t be in the White House anymore.
Wonder if the Treasury bonds people are still buying as of today will be good some time from now?

Wonder how somebody like Beau feels about this?

 

[sw85]

That’s the opinion of S&P, who is exercising damage control. I find that action highly self-serving. It doesn’t strike me as having an unbiased perspective.

I’m not really convinced by that. The “error” was brought to their attention before their report was even released – they had plenty of time to alter the decision accordingly. They elected not to.

Is there really any debate here about America’s creditworthiness? We’re deficit-spending nearly 12% of our economic output annually. An error of $2 trillion over 10 years is negligible.

 

[OrdinaryMelkite]

I’m not really convinced by that. The “error” was brought to their attention before their report was even released – they had plenty of time to alter the decision accordingly. They elected not to.

Is there really any debate here about America’s creditworthiness? We’re deficit-spending nearly 12% of our economic output annually. An error of $2 trillion over 10 years is negligible.

It was important enough that S & P thought it necessaryto slam the U. S. with it. Do soemthing that has never been done before. Basically a nice little message they are sending.

“Negligible” is a relative term. Let’s see if it is “negligible” later in this new decade.

 

[JimG]

Actually, that’s false. When it comes to a company, the first people that get money if it goes bankrupt are the shareholders. The bondholders (debtholders) are actually last in line. Government tax comes before bonds.

For people and government though, they don’t have anything in the hierarchy above bonds (debt), so it does come first.

No, in a bankruptcy, secured creditors–and that includes bondholders–are first in line; next come unsecured creditors, and then owners, i.e., shareholders.

 

[Soldier_Of_God]

I’m not really convinced by that. The “error” was brought to their attention before their report was even released – they had plenty of time to alter the decision accordingly. They elected not to.

Now you are trying to rationalize that they were aware of the error before hand and they elected not to simply correct it, despite the fact it would undermine their credibility. I’m not sure you’re being sensible or dispassionate.

 

[EmperorNapoleon]

That’s the opinion of S&P, who is exercising damage control. I find that action highly self-serving. It doesn’t strike me as having an unbiased perspective.

Lets take a minute to point out why the downgrade is a fair assessment.

1. $2.2 trilion over 10 years amounts to only $220 billion per year. That represents only a 17% annual decrease in deficit spending at current levels.
2. The rise in the debt ceiling exceeds the amount of spending cuts so there will still be a net budget deficit.
3. There is no provision for generating additional tax revenue.
4. S&P views the spending cuts as insufficient and rightly so. This bill represents, in the eyes of S&P,10 years of insufficient spending cuts and therefore shows a lack of any real commitment to reduce the debt.
5. Projections over a period of 10 years are meaningless because they depend on the application of current spending levels over a period of 10 years. The federal budget changes every year and there is no guarantee that current spending levels will last that long. In fact, they never do. There is no guarantee that there will be $2.2 trillion in spending cuts over the next 10 years and such an assumption runs contrary to the historical reality of federal budgeting.

 

[Warrior1979]

The United States lost its top-notch triple-A credit rating from Standard & Poor’s Friday, in a dramatic reversal of fortune for the world’s largest economy.

Who takes them seriously? S&P and Moody have their own agenda. Look no farther than their ratings months before the housing crash.

Maybe they have an agenda, and if anything, it was waiting far to long to do the utterly obvious. Any country that monetizes debt, has out of control spending, and artificially and dramatically tampers with the interest rate do not deserve a triple-A rating. In fact, given that few real steps have been taken and resistance to future steps is very significant, it most certainly wasn’t reduced enough.