It’s happened. Standard & Poor’s has downgraded the United States’ credit rating to AA+ for the first time in history. Worse still, they have a negative outlook on the country fixing things in the near future enough to restore AAA confidence. Earlier this week, Moody’s re-affirmed its AAA rating for the US, but also placed a negative outlook on maintaining that status. Fitch takes the same unhappy view.
Let’s be very, very clear here, clear enough to counter all BBC propaganda and ideological commentary (I hesitate to call it “reporting” at this point) on the debt agreement, and the entire process leading up to where we are now. As I’ve been saying for some time now, both S&P and Moody’s have stated explicitly that the debt agreement does not do anywhere near enough to lower spending enough to maintain their confidence in the country’s ability to right the ship.
In assigning a negative outlook to the rating, Moody’s indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year; (2) further fiscal consolidation measures are not adopted in 2013; (3) the economic outlook deteriorates significantly; or (4) there is an appreciable rise in the US government’s funding costs over and above what is currently expected.
First, while the combination of the congressional committee process and automatic triggers provides a mechanism to induce fiscal discipline, this framework is untested. Attempts at fiscal rules in the past have not always stood the test of time. Therefore, should the new mechanism put in place by the Budget Control Act prove ineffective, this could affect the rating negatively. Moody’s baseline scenario assumes that fiscal discipline is maintained in 2012, despite pressures for fiscal relaxation that often precede general elections and the difficult negotiations that are likely to arise due to the scheduled expiration of the so-called “Bush tax cuts” at the end of that year.
“Fiscal discipline”. “Fiscal consolidation”. No mention of tax rises, no demand for increased “revenues”.
While the agreement is clearly a step in the right direction, the United States, as in much of Europe, must also confront tough choices on tax and spending against a weak economic back drop if the budget deficit and government debt is to be cut to safer levels over the medium term.
The increase in the debt ceiling and agreement on the broad parameters of a deficit-reduction plan support Fitch’s judgment that, despite the intensity and theatre of political discourse in the United States, there is the political will and capacity to ultimately do the right thing. In Fitch’s opinion, the agreement is an important first step but not the end of the process towards putting in place a credible plan to reduce the budget deficit to a level that would secure the United States’ ‘AAA’ status over the medium-term.
“A step in the right direction”. Does this sound like what the BBC told you on Tuesday? No, it does not. To them, this was forced on the President by the extremist Tea Party movement, out of a desire for “purity”. Notice they don’t say “raise taxes”, only that we must face “tough choices on taxing and spending”.
The review will focus on the U.S. sovereign credit fundamentals relative to ‘AAA’ peers and medium-term economic and fiscal prospects in light of Sunday’s agreement on cuts of nearly USD1 trillion over 10 years on discretionary spending and the establishment of a bipartisan, bicameral Congressional committee that will identify an additional USD1.5 trillion of additional deficit reduction by year-end.
Cuts in “discretionary spending”. Not bleed the rich.
And finally, Standard & Poor’s (Actual statement is in a PDF file)
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.
“Containing the growth in public spending”. “Fiscal consolidation”. Yes, they alone talk about raising revenues, but don’t say how or how much. In fact:
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.
Revenues increase not only when the government raises taxes, but when business and industry pick up. Reaganomics – not Stephanomics – proved that. So S&P doesn’t particularly mean only that taxes must be drastically increased. And let’s be honest: only the massive, insane tax increase that the President was threatening not long ago would even put the tiniest dent in the trillions of debt. One could forcibly take all the wealth of every billionaire in the country, and that would barely even cover the one year’s worth of interest payments. Then next year, there won’t be any billionaires left, so that well will have run dry. Who else do you tax then? It’s simply not possible to do anything with the simplistic “tax the wealthy” prescription coming from the President in His speech on Tuesday, and from the BBC most of the time.
As a matter of fact, S&P is quite capable of upgrading a state when they reduce spending and get their house in order: like they did for Ohio. But that’s because a Republican Governor took care of things. There has been growth over the last year and more in Ohio because he reduced the regulatory burdens and extra taxes on business. The result is more revenue, and a stabilization of the state’s economy. So anyone who claims that S&P’s lowering of the US rating means specifically that the solution is to increase taxes is simply not telling the truth.
Most importantly, S&P says this:
Our revised upside scenario–which, other things being equal, we view as consistent 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.
Yes, if the evil Bush tax cuts on the wealthy expire, they project not quite $1 trillion more in revenue. And that’s a rose-tinted glasses view, hoping against hope that the business will actually still be there to provide that much. It obviously won’t be, the way things are going. Even then, even in this ideal situation, the debt will still rise and rise and rise. Not much of a solution, and no consideration given to how it might actually kill the business these taxes are meant to milk. In short, this is at best a drop in the bucket. And that’s their “upside scenario”, for heaven’s sake.
In fact, S&P was hoping for $4 trillion in cuts. Cuts. The debt agreement, the one the BBC screamed bloody murder about for a week or more, barely achieves 6o% of that, and that’s only if the ensuing meetings and negotiations achieve the absolute best, most-perfect case scenario. In other words, while the agreement is a step in the right direction, it’s barely half of one.
And hell, it’s not even a real step. It just starts the conversation we so desperately needed.
Now, let’s review the “reporting” of the BBC on the matter.
“He’s been forced off His agenda. Remember, He came to office promising hope and change, and talking about spending to stimulate the economy, and to change the way America was.
Instead, He’s been forced down a path of spending cuts. He didn’t want any of this.
Yes, and thank goodness He was forced off this path of destruction. As we’ve seen, every single ratings agency would have trashed the country’s credit rating if we kept on spending like Mardell thought we should. Yet when a few US states fix their own economies with Tea Party-inspired policies (reduced spending, reduced burdens on business, entitlement reform, no new crushing taxes), the BBC pretends it doesn’t exist.
For the last two weeks, we’ve heard from the BBC that the Tea Party is wrong, that spending more – or the Ed Balls line of not cutting too much too soon – is the way to go, and that the Tea Party-backed Republicans were the ones being intransigent, an angry, extremist minority trying to force things their way. And thank @@#$ing God they did. Without them, things would be much, much worse. There’s really no other way to put it.
A review of the above statements by all three major ratings agencies shows very clearly that more spending cuts were and are desperately needed. And which party refused to cut more out of intransigence, BBC? Which party’s ideology prevented them from achieving the level of deficit reduction we desperately need? Why have you been championing the President’s ideology when it’s all turned out to be the wrong idea?
Most people here have watched the Tea Party movement rise from a smattering of tiny, local gatherings to a nationwide phenomenon that changed the face of Washington in less than two years. Most people here have also watched the BBC ignore it, then denigrate it, then ignore it again, then really lay into it in the most negative fashion. We were called everything from racists to extremists to nutters to teabaggers. Oh, how the Beeboids laughed and sneered. In contrast, every time a Left-wing organization started up, pretending to be grass roots or non-partisan, the BBC leapt into action immediately to inform you.
What do you say now, BBC? Your reporting and opinion-mongering has been proven 100% wrong about all of it. It’s time to get rid of the entire newsgathering operation in the US. They serve no purpose other than to be a foreign mouthpiece for the White House. All at your expense.
Outrageously, Radio 4’s Today is reporting that the downgrading is due to lack of political stability. No mention of the real reason. This is a blatant example of twisting the truth to fit and agenda. Disgraceful.
Yes, the 8 o’clock news bulletin began:
“The USA has long its AAA status with one of one of the most influential credit rating agencies. In an unprecedented development, Standard & Poors has reduced the status of the world’s biggest economy to AA+. The company’s spokesman said the downgrading could have been avoided if the country’s debt ceiling had been raised in what he called ‘a timely manner’. The White House wants the firm to change its mind. It says S&P’s analysis of the US economy contains serious errors.”
So, as Alan says, BBC Radio 4 pretends to think the downgrading is mainly about the political squabbling over raising the debt ceiling, and quickly moves on to report the White House’s main talking point about S&P’s alleged errors.
Everyone else though, from the New York Times to the Wall Street Journal, is immediately making it very clear that the main reason for the downgrading is “because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilise the debt situation in the US” (as Sky News puts it). As far as I can see this morning, only Today’ news reports are downgrading the debt-cutting issue.
As if to further prove David’s closing point (“They serve no purpose other than to be a foreign mouthpiece for the White House”) the 8.30 news summary reduced the story to this:
“For the first time, one of the main credit rating agencies has stripped the United States of its AAA financial status. The White House said Standard & Poor’s decision to assign America a AA+ rating was based on analysis that contained serious errors.”
To be fair part of the S&P report did state
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.
You are right, however, that the BBC have ignored the other part of the equation
It’s true that, as paul points out, S&P made a clear statement about a lack of political stability. They’re not the only ones who have frowned at the crap going on in Washington, either. But S&P isn’t going to say why it exists, or who’s being intransigent. The BBC, on the other hand, is only too eager to shift blame from the President and the Democrats, so they seize on every choice word in S&P’s statement.
A failure of leadership leads to this kind of turmoil. The Tea Party movement doesn’t control the White House, or the Senate. When S&P says, as the BBC so helpfully points out, this downgrade could have been avoided if the debt ceiling has been raised sooner, they don’t say how it could have been done. The BBC also spins that.
The Tea Party movement did not control the House of Reps for the whole 19 months the President and the Democrats never passed a budget, but did pass ObamaCare. So to blame the turmoil and brinkmanship that delayed a debt ceiling vote on the Tea Party-backed Republicans is just ridiculous.
The BBC has to blame someone dont they? And they sure as sherbet cant blame their deomcreep friends, so its either S&P or the ‘tea party dominated’ republicans not to mention the bankers and Bush and Reagan will be probably jammed in there somewhere.
The truth was self evident to anyone with half a brain, the stimulus should have gone to tax cuts across the board, no messing about with state funded temp jobs or bungs or more government.
So the BBC is left looking rather pathetic, their one trick pony has broken a leg and now they are adrift and bereft. At the end of the day O’bama is soley and fully responsible for the current degeneration and whats worse all the money has gone, spent frittered away. If O’drama really truly wanted to bring the USA to its knees he has done a bang up job so far.
… The BBC has to blame someone dont they? …
Yes or to quote (ish) a recently run advert fpr some piss poor agitprop programme on the BBC; ‘We investigate the issues of the day and find out who is to blame.’
Not what are the causes, the consequences nor the solutions. Just ‘who’s to blame.’ And we know who that is don’t we boys and girls?
Who is to blame? Is it multiple choice?
A) Jews
B) Capitalists
C) Republicans
D) All of the above
and is the solution to the problem
A) Bigger State
B) Higher Taxes
C) Democrats
D) All of the above
Thank goodness the politically unbiased BBC is here to educate us to make correct choices.
I see the Beeb wish to continue with this narrative in their reporting:
S&P noted that the bill passed by Congress this week did not include new revenues – Republicans had staunchly opposed President Barack Obama’s calls for tax rises to help pay off America’s deficit.
Unfortunately the bit that S&P noted was this bit:
S&P noted that the bill passed by Congress this week did not include new revenues
The rest is the BBC’s addition, which as you pointed out David is their two dimensional view of revenue generation. Worse still is trots out the idea that the chosen one wanted the tax cuts to pay down the defecit when what he realy wants it for is to offset the cuts for further expansions in public spending.
It’s good news that the US have been downgraded to the AA club, as you know in the AA the first step tom recovery is admitting you have a problem
Possibly slightly off topic but I view the current problem to be a reflection of the post-war policies of most first and second world governments to finance the rapidly improving life style which the electors have had delivered by borrowing. Unfortunately most countries now appear to be maxing out the credit card bill and the lenders want to see some evidence of not just reducing the rate of increase in the card bill but some prospect of actually cutting it.
In the U.K. we had a golden opportunity to pay down some of our debts but because boom and bust had been abolished rising future tax revenues would cover the bills later so continue to borrow we did.
Disposable incomes etc. are already moving in reverse in the U.K. and have further to go.
The nations have been living beyond their means and some painful reductions in expectations will have to be swallowed.
All that has happened in the U.S. is the debate in Congress etc has focussed attention on the U.S. and made the “world” realise that the U.S. is actually in the same boat as described above!
I heard about the SandP downgrading MANY HOURS before the BBC started reporting it.
Their new line is that Obama is challenging the basis of the SandP calculations. OK, there is a dispute about whether total debt will reach only $20 trillion in 10 years’ time, not the $22 trillion Sand P have used. And the BBC keeps sliding in the idea that SandP and the other debt review agencies are untrustworthy.
Meanwhile, to get something like reality, out of the mouths of babes and children…a reprise of a couple of the recent Powerline competition entries. I played these to my 9 year old granddaughter last night, she understood the message immediately –
(the first one looks like going viral)
I don’t think either will feature in a Mark Mardell item telling us what is happening in the U.S.
I have watched several of the BBC’s reports, not once did they mention Obama by name.
‘Labour needs a Tea Party’. BBC-NUJ, please note.
The most sense ever written on LabourList: Miliband must admit that we’ve been fiscally irresponsible for years
By Tim Montgomerie
BBC just cannot accept that fiscal austerity is essential. Decades of BBC profligacy may explain this strange mental aberration?
That and and a rash of LSE grads.
Listening to BBC News coverage of this story this morning it’s quite clear that “S&P have made a mistake, according to the White House” and “this has come about because of squabbling between Democrats and Republicans”
let’s just cut to the case in all this eh?
it’s all the tea party’s fault
and especially that there Sarah Palin woman-and if not her that other woman who looks like she could run for high office,whatever her name is…….
/sarcasm off
Obama to blame? According to the Beeb: never.
As the motorist said to the policeman, “I was parked when the lamppost hit me”.
The usual gathering of left-liberals on Gavin Esler’s Dateline London were of one mind on the issue of the credit ratings agencies. They don’t like them:
The ex-Haaretz man Saul Zadka (usually sound): “I never liked the credit ratings agencies, especially since 2008 when they backed the sub-prime mortgages.”
Sir Michael White of the Guardian: “Absolutely right, yes, yes”
Oh-so-impartial presenter Gavin Esler: “Michael, I’m thinking about that great economic expert Butch Cassidy, who said ‘Who are those guys?’ I mean, who are the credits ratings people?”
Michael Goldfarb, the BBC’s favourite American commentator (who is that guy?): “This is proof that there are no original ideas in journalism because I had the same idea you did! Who are they? Well, as we’ve already heard, they’re the same guys who didn’t realise that the sub-prime mortgages…(etc)”
That said, Goldfarb argued they had a point about the squabbling of the political class in America and attacked the Tea Party and, very unusually for Goldfarb (who often gets very prickly when someone else even mildly criticises Obama), “a rather weak president” (another sign, perhaps, of how disenchanted the American Left are becoming with their man),
Obnoxious left-winger Bari Abdel Atwan (the programme’s most regular guest) ranted about capitalism and its “culture of greed and warmongering”. Sir Michael White, arch-defender of Labour’s wars, disagreed about those wars and got shouted down by Atwan. He then looked on the bright side (from his perspective) over the future of the Eurozone.
Goldfarb agreed with ‘Bari’ that the markets are “very dangerous”, being controlled by computer geeks, and wants more emphasis on growth than deficit-cutting.
On and on went the left-wing talking points…as usual.
In short the usual BBC Leftist crap.
You have got to be kidding me. The BBC brought in Goldfarb to carry the President’s water in the fight against S&P? YCMIU.
He didn’t want any of this
Apart from the implied sob, sob, I like that sentence. Maybe Old Mardell is more prescient than we thought: he has just constructed what could be the perfect political epitaph for The One when he loses the next election. Heh. I never thought he had it in him. Wicked!
Oh, I meant to mention that there is a debate on Radio 4 tonight at 10 15 about economics, chaired by Comrade Mason and featuring four economists of varying hue.
Don’t miss it! /sarc
Mark Mardell is at it again. His latest blog post How Washington’s politicians downgraded America could have been written by Whitehouse spokesman Jay Carney.
Linking to the S&P report, Mardell states that “the reason it gives” is the political squabbling and ‘brinkmanship’ of the recent weeks. This is spin, because it’s not the reason, it’s only a reason. The other reason is the one Mardell choses not to even mention – that the deal to cut the debt was only about half of the total cut S&P sees as vital.
As you would expect from Mardell, he also highlights the one specific criticism of the Republicans in the report.
Worst though, is his presentation throughout of President Obama.
S&P make it clear from the off that they are blaming Congress AND the Obama administration:
“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.”
That’s not the impression Mardell’s blog gives. Indeed, his president Obama is presented as the Great Healer, prepared to speak truth to power and scold those naughty partisan politicians (which, somehow, doesn’t seem to include himself), forever urging everyone to come together – a president who wisely sees the disfunction at the heart of government (ignoring the fact that he’s a big part of all that disfunctionality). The Obamamessiah indeed!
His devoted Democrat groupie readers are lapping it all up, as ever.
Disgraceful, and all too predictable. No mention that his beloved Obamessiah is responsible for offering a budget in 2009 that was so disastrous and far out that it was defeated in the Senate 72-0. His next effort was so much a Communisty Organizer’s waffle of platitudes that the CBO wouldn’t even score it, so no budgest was ever passed. Then He shoved ObamaCare down our throats anyway, and hundreds of billions to the budget that didn’t exist.
He even formed a commission to look into what had to be done and get back to Him so He could form a budget. They told Him to cut spending, so He threw it away. No budget.
And here we are. Yet He is blameless.
According to the BBC North America editor (time for a more…um…localized title, surely?), like Jesus could not tame the Jews, The Obamessiah cannot tame the horrible politicians. And Mardell places the blame squarely on the American people for voting them in.
Normally I’d say, “fair enough”, it’s an old saw, we deserve what we vote for. Except this time we voted to stop the President’s destructive agenda. That’s what Mardell hates most of all, and that’s why he shifts blame over and over again. It’s never His fault.
“You are from below; I am from above. You are of this world; I am not of this world. I told you that you would die in your sins; if you do not believe that I am he, you will indeed die in your sins.”
Jesus to the Jews at the Mt. of Olives (John 8: 23-24)
CORRECTION. It was the President’s budget for 2012 (offered earlier this year) that was so insane nobody voted for it. And the Senate vote was 97-0. Which is why we’re here now. The 72 number is the hours they supposedly must have to read it before voting. Sorry for the error, but like Stephanie ‘Two Eds’ Flanders, I’m a bit exhausted from all this ‘broadcasting’.
He offered nothing in 2009, and the House and Senate announced massive spending plans which they pretended was a budget, ramming it through with zero Republican votes. (Which is why the Tea Party movement was already a nationwide phenomenon by April 15 of that year, when the BBC finally admitted it existed, only to cast asperions, etc.) What was that Mardell said about the President being unable to get Washington to work together? He was fine with it then, of course, and denigrated the President’s opponents.
I see Stephanie floundering Flanders has displayed her lack of impartiality in her role as Newsnight host.
“It has been mildly nauseating the last few days the way the Chancellor has sort of crowed here about how we are a safe haven and no one is worried about our commitment to cutting the deficit.”
If the BBC believes in impartiality she would be sacked…