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.
Moody’s:
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”.
Fitch:
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 $4 trillion in cuts. Cuts. The debt agreement, the one the BBC screamed bloody murder about for a week or more, barely achieves 6o% of that, and that’s only if the ensuing meetings and negotiations achieve the absolute best, most-perfect case scenario. In other words, while the agreement is a step in the right direction, it’s barely half of one.
And hell, it’s not even a real step. It just starts the conversation we so desperately needed.
Now, let’s review the “reporting” of the BBC on the matter.
Mark Mardell:
“He’s been forced off His agenda. Remember, He came to office promising hope and change, and talking about spending to stimulate the economy, and to change the way America was.
Instead, He’s been forced down a path of spending cuts. He didn’t want any of this.
Yes, and thank goodness He was forced off this path of destruction. As we’ve seen, every single ratings agency would have trashed the country’s credit rating if we kept on spending like Mardell thought we should. Yet when a few US states fix their own economies with Tea Party-inspired policies (reduced spending, reduced burdens on business, entitlement reform, no new crushing taxes), the BBC pretends it doesn’t exist.
For the last two weeks, we’ve heard from the BBC that the Tea Party is wrong, that spending more – or the Ed Balls line of not cutting too much too soon – is the way to go, and that the Tea Party-backed Republicans were the ones being intransigent, an angry, extremist minority trying to force things their way. And thank @@#$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.
