S&P goes a step further in downgrade warning

by Norm Leahy

Standard & Poors takes Moody’s threat to downgrade U.S. debt if there’s no deal and goes a step further, saying, in effect, that while it believes the political class will come to some sort of deal, not all deals are created equal:

Congress and the Administration might also settle for a smaller increase in the debt ceiling, or they might agree on a plan that, while avoiding a near-term default, might not, in our view, materially improve our base case expectation for the future path of the net general government debt-to-GDP ratio. U.S. political debate is currently more focused on the need for medium-term fiscal consolidation than it has been for a decade. Based on this, we believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years. We view an inability to timely agree and credibly implement medium-term fiscal consolidation policy as inconsistent with a ‘AAA’ sovereign rating, given the expected government debt trajectory noted above.

That would seem to indicate that if all parties concerned adopt Mitch McConnell’s “Plan B,” which would shift responsibility for debt ceiling increases to the President and avoid any serious changes to either spending or the tax code, S&P will likely downgrade U.S. debt within 90 days.

But one thing that has gotten lost in all the hand-waving, petulance and posturing over the debt ceiling is that none of the plans past, present or future would really cause spending to go down. As the Richmond Time-Dispatch reminds us this morning, even that draconian, world-ending plan from Rep. Paul Ryan would see federal spending continue to increase, though at a slower rate than that proposed by the President:

You might not have heard this from the president’s cheerleaders in the establishment media, but nobody in power has proposed to shrink the federal budget. Nobody. The current federal budget totals about $3.8 trillion. The Republican proposal, from Rep. Paul Ryan, would raise spending to $4.7 trillion over the next decade. Obama wants to raise it to $5.7 trillion. The fight is not over whether to raise spending — but by how much.

Mind you, those increases would come on top of the already staggering recent growth of the federal budget — which stood at $2.9 trillion just three years ago. Spending has ballooned 30 percent, and Republicans agree to grow it more.

In short, no one in Congress or the White House is talking about using honest math.

Good grief…

(Cross-posted at Score Radio Network)

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19 responses to “S&P goes a step further in downgrade warning”

  1. larryg Avatar

    ” , even that draconian, world-ending plan from Rep. Paul Ryan would see federal spending continue to increase, though at a slower rate than that proposed by the President:”

    that’s because Paul Ryans plan ONLY cuts entitlements and not other spending. He relies on supply-side economics – and a 3% unemployment rate to generate the supposed increased revenues to “eventually” balance.

    Neither Ryan, nor Cantor, nor McDonnel nor Boehmer have proposed a list of cuts – sufficient to address the 1.5 trillion deficit – of which David Stockton (and others including those on the two deficit commissions) have stated unequivocally that it cannot be done with cuts alone.

    So WHERE are the list of cuts that the Republicans propose to go towards the 1.5 trillion deficit.

    Groveton thinks the Republicans are the “adults” in this.

    I think they are the children. They want to fight two wars, and pass a subsidized prescription drug plan AND cut taxes at the same time and then throw a tantrum when their “plan” for fixing this mess is to kill social security and Medicare.

    The Republicans have NO PLAN for truly addressing the deficit and yet, at the same time – if someone else – namely the President does not make cuts, they would like to shut down government.

    this is Newt Gingrich style government folks.

  2. I suggest that none of them are being adults. They all want to spend more. The argument, such as it is, is how much more. The whole exercise is built on baseline budgeting, one of the greatest scams the political class has foisted upon the public.

  3. larryg Avatar

    Norm, my view is that the Democrats have never claimed to be fiscal conservatives and have never been the party that has shown discipline in cutting govt so my question is – are the Democrats acting inconsistently with regard to their overall philosophy?

    I think they are not. They know we need to cut but they’ve never claimed any great virtues in making cuts unless pressured by the Republicans and their own Blue Dog members.

    The Republicans, OTOH have ALWAYS claimed to be the party of responsible fiscal conservatism – i.e. paying your way … not spending more than you take in – and if things get out of kilter – make the changes – cuts and tax changes to get things back into balance.

    Every since Bush came into office, the Republicans have acted irrationally and irresponsibly refusing to pay for the wars but worse … deciding that cutting taxes was also acceptable – turning a slight surplus into an instant 5 trillion+ debt.

    And so we are here now – with them saying we have a spending problem not a revenue problem but the party of fiscal conservatism has NO LIST OF CUTS of their own and instead insists that this is the job of the Democrats.

    Tell me where I got things wrong here…..

    Are the Democrats supposed to LEAD on the cuts?

  4. larryg Avatar

    Oh.. sorry… WELCOME BACK Norm!

  5. Groveton Avatar

    So, LarryG –

    You are now admitting that the Republicans are inconsistent with their overall philosophy while the Democrats have an overall philosophy which is inconsistent with reality?

    I guess I can agree with that.

  6. larryg Avatar

    Groveton – I have always relied on the Republicans to be the adults in the fiscal responsibility department as I am fully aware of the far left’s affinity for “govt” help.

    I’m only pointing out that until Mr. Bush came into office, we could count on the Republicans and the blue dog Dems to keep the fiscal ship pointed in the right direction. I never counted on the Democratic Party as a whole to be fiscal hawks but I did expect the Republicans to staunchly hold that flag.

    So what are the Republicans doing now? Well they are kicking and screaming and covering their eyes and ears when Mr. Obama talks about getting our financial house in order. “No, no, no” they say. “nothing is allowed but cuts but we refuse to say what cuts because we want Mr. Obama to do that”.

    Total hypocrites Groveton. Admit it man.

  7. Canada had $6 in spending cuts for every $1 of tax increases. Would the parties buy that?

  8. larryg Avatar

    our taxes (and consequently our tax revenues) are the lowest in 50 years.

    At the end of Clintons’s term we had a slight surplus and a 5 trillion debt and taxes were higher than now but if things continued – we would have further whittled down the debt.

    At the end of Bush’s term we had a 10 trillion debt and a 1.5 trillion annual deficit and a Republican Party that insisted that if anything was needed – more/continued tax cuts were – and blame the deficit/debt on entitlements and social security instead of what was truly causing them – right now – and not in the future.

    I don’t know what level of tax hikes might be needed – AFTER the economy recovers. I am perfectly willing to do it with cuts alone if someone will step forward and show how to do it.

    Neither deficit commission nor Paul Ryan nor any of the current “we have a spending problem” Republicans have provided such a list.

    David Stockton says it is impossible.

    my question is WHO do we EXPECT traditionally to LEAD on fiscal conservatism? The Democrats?

    bonus question. If the Republicans will not LEAD on specifying the cuts necessary to deal with the 1.5 trillion deficit – who will?

    Obama has given it a shot..but he does want some compromise on taxes – which seems prudent given the advice of both deficit commissions AND David Stockton AND others.

    where are the Republicans on deficit reduction beyond trying to kill SS and Medicare (which will peel off MAYBE 1/3 of the deficit if you include MedicAid.

    I’m all for it. Let’s do the job necessary – in a way that works. I’m willing to listen to all proposals cuts-only or a balanced… but the Republicans current position is unconscionable in my view.

  9. Republicans want big government more slowly than Democrats want big government.

  10. Buy Spanish bonds paying 24%. If they don’t default you make a bundle. If America defaults the dollar crashes and you make or save money on your euros. If they both crash you lose either way, but you get to write off a loss that would have been worthless anyway.

  11. larryg Avatar

    neither Democrats nor Republicans should tolerate a financial condition for the country that is unhealthy – all politics aside.

    if the problem is that we already tax too much and spend too much – for those that say that – let them show how to do the cuts without tax increases,

    for those that believe otherwise, let them show their plans that include both cuts and increases.

    but at the end of the day, those who say we can get there with cuts alone – need to show how or otherwise find some other line of work perhaps as carnival barkers or such.

  12. […] S&P goes a step further in downgrade warningBacon’s RebellionYou are now admitting that the Republicans are inconsistent with their overall philosophy while the Democrats have an overall philosophy which is inconsistent with reality? Groveton – I have always relied on the Republicans to be the adults in the …The Tea Party Philosophy is 'A Bunch of Garbage'Gather.com"What we have here is . . . failure to communicate."OpEdNews […]

  13. You will see on the front page of today’s wapo that two thirds of the debt is money we owe ourselves: 4 of it is money the federal government borrowed from itself. We and our represeentatives borrowed from our retirement plans. Now some reps want to renege on previous promises to repay.

    So, we are going g to pay the bills. But the distribution among us changes dramatically. If entitlements are cut, they will be cut for rich ands poor, but for rich people, social security is such a small part of their retirement plan, they will hardly notice.

    It makes no difference whether they raise taxes or cut entitlements, the money comes from us either way.

    If we cut other spending, we will have achieved what we never could do before, cut actual government operations and services. That might well prove to be the most expensive way to repay the debt, as the recent finance debacle suggests.

  14. 40% of debt is money the government owes itself. No.eyes borrowed from one agency and one purpose by another agency with a different agenda.

  15. larryg Avatar

    doesn’t sound like Standards and Poors buys that idea…..

  16. 70% of the borrowed money is OURS ,one way or another. How can you default on yourself?

  17. If you have already defaulted on yourself WTF do you care what S&P

  18. OMG we are going to have to pay another quarter of a percent. – to , just in case we are dumb enough to loan to this sub prime crowd, again.

  19. Lets see, 70% of the debt is money that we owe to ourselves, same as if an individual borrowed against his 401k plan.

    1). We can do without some other current “needs”: spend less as a nation now and pay back the money money out of general fund receipts that the general fund previously borrowed.

    2) We can tax ourselves more, which amounts to the same thing, except it means we have to cut back personally, and spend less personally, rather than as a nation.

    3) We can refuse to pay back the loan to our collective 401k, cut back on our planed Social Secrity benefits, and resolve the debt by defaulting.

    Re 1). In the past, we have never been able to achieve number one.. Just as in our persoanl lives, there always seems to be another crisis that smashes the budget: lightning strikes the refrigerator, boiler goes out, teenage son gets arrested. The idea that we can suddenly not only live within the budget, but 15% below it, so we can pay back the loans, seems unrealistic, but this is the Republican position.

    Re 2).Seeing as how taxes are at an all time low, compared to the GDP, the idea that we could tax ourselves more without destroying the economy seems to have some merit. Except, for most people paying more taxes means they will personally have to do without some other things.

    Is that because we have become accustomed to living profligrately? Has mass overconsumption devoured our ability to pay more taxes? I don’t think so. I think we are paying more hidden taxes, in the form of user fees, tolls, subsidies, etc. that hide the true amount of tax we pay. And there is the increased cost of energy – taxes we pay to foreigners.

    So, yes, we could tax ourselves more, but an honest acccounting would show what our true tax burden is. Then we would see why this is so unpopular: it means shifting the hard decisions from the congressional budget to our personal budgets.

    Re 3). We can refuse to pay back our loan to ourself. Our 401k will have less money in it. When the time comes to use it, it won’t be there, and agan, we will have to make hard choices, just later and not now. This is the preferred position of the fiscal conservatives who claim they do not wish to burden future generations. This is a no-brainer for the wealthy, since they depend very lttle on social security and medicaid.

    This is the same furture generation that will be stuck with doing more home care for their parents, so I’m not sure how much they will we have somehow protected them, or provided for them.

    We can do some combination of the three , but no matter what we do there will be some hard choices to make – now or in the future. We don;t have any good choices now, because we already made the bad choices, back when we borrowed the money from ourselves.

    If the Chinese loan us money, they take a risk. but if we loan ourselves money, there really is no risk: it is like foreclosing on your home, when you own the bank.

    This would be senseless,and it is just as senseless to let this go to default while we argue over which of our three bad choices is the least bad.

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