U.S. Credit Downgrade - Who is to blame?

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I saw this article on Yahoo and thought it was pretty good. My moron of a Senator is leading the charge to blame the Tea Party. While I understand them being blamed for pushing everything to the brink, I can't help but think that they are the only ones who actually want to fix this. They are trying to curtail spending and pay off the debt, while the Democrats and the "Establishment" Republicans want to continue to spend. The only difference between those two is how much they want to spend, but both plan on spending.

Spoiler

Standard and Poor's strips the federal government of its AAA status, and a fingerpointing epidemic breaks out in Washington

Standard and Poor's controversial announcement on Friday that it would downgrade the U.S. government's credit rating — from AAA to AA+ — shook up global financial markets. As soon as American markets opened Monday morning, the Dow Jones Industrial Average plunged more than 200 points. And predictably, the first credit downgrade in U.S. history ignited a heated blame game in Washington. S&P said it lowered the rating because Congress and the White House had failed to come up with a credible plan to get the national debt under control. Sen. John Kerry (D-Mass.) branded the move the "Tea Party downgrade," while conservatives blamed President Obama's "reckless spending." Whose fault is it really? Here, five possible culprits:

1. The Tea Party
During the debt-ceiling battle, Tea Party leaders made it clear they were willing to let the nation default on its debts and "cause a full-fledged economic disaster" if they didn't get all the spending cuts they wanted, says Charles Johnson at Little Green Footballs. They held the U.S. economy hostage while demanding massive cuts and no new revenues, and that made the federal government look so unreliable and dangerous that Tea Party Republicans effectively forced "the first U.S. credit downgrade in history, and that's not too shabby. Maybe next time, the apocalypse."

2. President Obama and Democrats
The Left is in full spin mode to hide the downgrade's obvious cause — the "massive two-year binge of deficit spending embarked on by President Obama, Nancy Pelosi, and Harry Reid," says Robert Stacy McCain at The Other McCain. During the debt-ceiling debate, instead of dealing honestly with the debt problem, Obama insisted Republicans were trying to "steal Granny's Social Security check" so the rich could keep their corporate jets. "Democrats don't want to fix the problem, they want to score political points against Republicans."

3. President Obama and House Speaker John Boehner
"The bond rating drop unequivocally is a direct result of the Barack Obama-John Boehner national-debt deal," says Gregg Easterbrook at Reuters. The last-minute agreement is "as phony as a three-dollar-bill," with no real effort to reduce our ballooning debt. Everybody knows we can't balance our finances without trimming Social Security and other entitlement programs, and raising taxes. But "both parties, and both the White House and Congress, are more interested in blowing smoke than in firm action."

4. Standard and Poor's
The analysts at S&P are supposed to base their decisions on an "honest appraisal" of the nation's financial health, says Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi, as quoted by Bloomberg. Instead, they got entangled in the partisan political fight over the national debt, sticking to the downgrade even after the government pointed out an error in S&P's calculations that caused a massive $2 trillion overestimation of next decade's debt. "The U.S. is not out of money, it has the financial resources to make good on its debt, and it should not have been downgraded."

5. Every politician in Washington
"Ultimately, S&P didn't only downgrade the U.S. credit rating. It downgraded the whole political system," says Jonathan Allen at Politico. Democrats would only consider minor changes to entitlement programs; Republicans flatly ruled out new revenues without which there is no solution. "In the eyes of the raters, both parties punted the tough decisions"

 

Bush's fault.

 

Pippa Middleton's fault.

 

Military spending and wars that amount to >40% of global military spending?

 

Ultimately, you're right. At least, it pushed us down that path. Without the massive war budgets of the last decade and a half we wouldn't be in this spot.

 

She's overrated. I prefer Kate.

 

I wish this would fit in my signature.

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
- Cicero - 55 BC

 

Deficit is a matter of revenue, expenses and confidence. If revenue is too low, or expenses too high, you have to borrow, and create deficit. If people don't believe you can pay it back, you have a problem.

In general, I do think the "Tea Party" congressmen deserve a large part of the blame for the downgrade. Not necessarily of what they passed or didn't pass, but of making a huge spectacle of what was supposed to be a routine procedure, thus undermining the confidence of onlookers that the procedure (which was necessary for the US to continue operating smoothly, imo) would pass at all. The US can run bigger deficits (not that it should, but can) and as long as there is confidence in the creditors that it can and will pay back, it will continue to receive money. Some tolerance for temporary issues can be granted - a lot of the lost revenue AND the increased expenses that caused the higher deficits from 2008 on are directly due to the recession, and a recovery would fix the problem. Yet when something as minor as adjusting an arbitrary debt limit becomes a pitched battle, how exactly are investors to be reassured the US can get its financial s..t in order? If it is not only unwilling to raise revenue, but attempts to decrease it, they might have a hard time believing it will be able to slash its other expenses so much to guarantee their money back. For that matter, not everyone believes that the policies taken will help it recover faster.

Now, I may have to go on a tangent, but there's also one thing that really annoys me from the Tea Party - the mantra of "cutting spending" in general. What are they going to cut? By how much? I hear stuff like "the US gives too much to foreign countries" - iirc that's about or just under 0.2% of the budget. Even if that was removed - and I'd say without some of that aid, the US might find itself having to spend a bit more on defense if stability in some key areas goes down the drain - that's a drop in the sea. So what about the other 99.8%? Fire thousands of public servants who now have to be paid benefits and compete with everyone else in trying to get a job? Cancel building projects construction companies depend on? There are two sides to every coin. In the end, it all strikes me as "I want to keep all my stuff, get more if I can and have my *** covered - let some other schmuck pay."

Perhaps some cuts are necessary, but let's be aware they will be painful, that they WILL have adverse effects, and people who lose the services that would be cut will have losses just as much as the people who might see their taxes raised. Frankly, I think that removing the 2001/3 tax cuts entirely is a minimum to balancing the US budget, spending cuts or no. Someone, sometime, will have to cough up the money that people borrowed to pay through the 2000s. If not this generation, the next one.


By the way, here's what the US government spending was as per the 2010 budget, with changes from 2009 in parentheses. Have fun trimming it down to fit revenues in the ballpark of 2.5 trillion - and that's being optimistic about the next year or two.

* Mandatory spending: $2.173 trillion (+14.9%)
o $695 billion (+4.9%) – Social Security
o $571 billion (+58.6%) – Other mandatory programs
o $453 billion (+6.6%) – Medicare
o $290 billion (+12.0%) – Medicaid
o $164 billion (+18.0%) – Interest on National Debt

* Discretionary spending: $1.378 trillion (+13.8%)
o $663.7 billion (+12.7%) – Department of Defense (including Overseas Contingency Operations)
o $78.7 billion (−1.7%) – Department of Health and Human Services
o $72.5 billion (+2.8%) – Department of Transportation
o $52.5 billion (+10.3%) – Department of Veterans Affairs
o $51.7 billion (+40.9%) – Department of State and Other International Programs
o $47.5 billion (+18.5%) – Department of Housing and Urban Development
o $46.7 billion (+12.8%) – Department of Education
o $42.7 billion (+1.2%) – Department of Homeland Security
o $26.3 billion (−0.4%) – Department of Energy
o $26.0 billion (+8.8%) – Department of Agriculture
o $23.9 billion (−6.3%) – Department of Justice
o $18.7 billion (+5.1%) – National Aeronautics and Space Administration
o $13.8 billion (+48.4%) – Department of Commerce
o $13.3 billion (+4.7%) – Department of Labor
o $13.3 billion (+4.7%) – Department of the Treasury
o $12.0 billion (+6.2%) – Department of the Interior
o $10.5 billion (+34.6%) – Environmental Protection Agency
o $9.7 billion (+10.2%) – Social Security Administration
o $7.0 billion (+1.4%) – National Science Foundation
o $5.1 billion (−3.8%) – Corps of Engineers
o $5.0 billion (+100%-NA) – National Infrastructure Bank
o $1.1 billion (+22.2%) – Corporation for National and Community Service
o $0.7 billion (0.0%) – Small Business Administration
o $0.6 billion (−14.3%) – General Services Administration
o $0 billion (−100%-NA) – Troubled Asset Relief Program (TARP)
o $0 billion (−100%-NA) – Financial stabilization efforts
o $11 billion (+275%-NA) – Potential disaster costs
o $19.8 billion (+3.7%) – Other Agencies
o $105 billion – Other

Note that the stimulus expires this year, which will reduce expenditures somewhat - but may have some negative effects if the CBO's estimate of created jobs is to be believed.

 

Jimmy Buffett's to blame. It's his own damned fault.

 

I don't know - Pippa has a much better name, and I'm not sure she isn't hotter than Kate. I'm undecided. I think I might like Pippa better just because she is NOT a princess. IDK.

On topic - I'll take reason #4. Here's a good article on why the US may deserve it's downgraded rating, but also why the S&P thing is an imperfect predictor:

Examples: While neither France nor the US is consider a high risk country for default, most people believe France is two or three times higher risk than the US, yet France is still AAA, while the US is AA+.

As of this morning, Spain has a higher rating than Japan. Nuff said.

Linky

 

There is little doubt in my mind that the Tea Party morons are to blame for creating the crisis. But they are just a front for those corporations who don't want to pay more in taxes. They don't give a flip about what happens to the middle class.

And btw, for anyone who believes differently just about every piece of legislation from these clowns has been about killing NPR, Planned Parenthood, Obamacare, Medicare, unions, education, etc -- when it's not about abortion or woman's rights. For them to pretend that it's about the deficit is complete bull. It's about an agenda that has nothing to do with "total" government spending. The Tea Potters are nothing but frauds, just like the one we had on our boards pretending to be black and race baiting anyone who disagreed. The Teas are a wholly despicable lot.

 

Don't forget that whole butt appreciation society thing. A hundred thousand Facebook friends can't be wrong.

 

To be fair, I wouldn't kick either of them out of bed for eating biscuits.

 

FFS cut the military spending. Cut arts spending. Cut welfare to people who have never contributed a damn thing to the public good. Cut spending in prison luxuries. Cut subsidies to underperforming businesses. Lots of cuts to be made.

Raise taxes on big conglomerates. If they try to shift their operations elsewhere, tax them on that. Seize the assets if rich douchebags who lie on their tax forms.

What can America sell to generate revenue? There must be some uninhabited holdings they could sell off.

You can't tell me taxes can't be raised. You also can't tell me that cuts can't be made -- it'll hurt, but the trick is to make sure it hurts the right people -- the liars, cheats, thieves, and other criminals. In fact, I suggest that serious felons be slain and their organs auctioned off to the wealthy who need transplants. What a revenue stream!

Maybe that's a bridge too far. But the other stuff I stand behind 100%!

 

It's a fantastic article about the ratings agencies and that's even without going into the subprime mortgages debacle. The only fly in the ointment is that it shows the ratings agencies are usually too lenient and slow to move. There's a good argument the US should have lost the rating a good while ago. Still, you could always follow Italy's lead and try raiding them because they're not nice to you .

Bush bears a massive portion of the blame. It's not just the two massive wars. He also introduced massive tax cuts while failing to cut spending elsewhere.

Here and now it's hard to look past the Tea Party as the major problem. They were playing petty politics and seemed oblivious to the fact that they were actually dealing with something important. And for all their tantrums I don't see them being remotely helpful at actually closing the deficit. Tax rises are an obvious part of the solution, the US is one of the most low tax countries in the world. Seeking to put the emphasis on spending cuts is one thing but trying to refuse any tax increases is another.

Anytime I've read about the potential US solvency problem the Obama stimulus rarely gets mentioned. Sure it can't go on forever but it's intended to be short term. Like the rest of the West the big problem is that an ageing population is going to have massive pension and medical bills in the future if they have the same entitlements they do at present. Forgive me if I'm looking at the wrong media reports but I haven't seen much from the Tea Party about raising the retirement age or cutting back old folks' healthcare.

 

A lot of different people are to blame.

 

It doesn't get mentioned because it's a sunk cost at this point. The stimulus was passed in early 2009, with the money being spent over a two year period. So that money has already been rationed out. You might still see signs in construction zones on the highway that say "Putting America to Work" Program (aka the stimulus) but all those projects were started before the two years were up, and there is no more money in the stimulus yet to be obligated.

I do agree that we need to reform some entitlement programs, and we need to change the tax rates. We've passed the point where it makes sense to pick whether we want to cut spending OR raise taxes - both need to be done.

As for entitlement programs, I think tow things need to be done. One - take the cap off of the SS tax. If the guy making $50K can afford 6.7% of his income, so can the guy making $500K. Secondly, we haven't raised the age at which people can start receiving SS benefits in decades. People live a lot longer now, and SS wasn't a system that people weren't meant to live on for decades. So get rid of all that stuff of collecting when you're 62 or 65 or 67 or whatever. Everyone starts to collect when they're 70. Those two things alone will fix SS.

Onto Medicare, and this is where a slight tax increase is in order. The make Medicare work, and not have doctors turning away patients with Medicare, we need to increase it from the current 1.45% up to 2%. That's a measly 55 cents for every $100 you earn. And that's on everyone.

Finally, we need new tax brackets. I like the 2% increase on people making in excess of $250K, but we can do better than that, and have one of the easiest marketable tax increases in history: I call in the millionaire tax. Earnings in excess of $1 million are taxed at 40%. Who - besides millionaires - wouldn't like the millionaire tax? It tells you exactly who is affected by it, and who's taking the hit - easiest sell ever.

 

Aldeth - Exactly. Tax rates are at historic lows, while spending is at just the opposite - at historic highs. The two don't mix. They need to address both issues.

The stimulus should have been much larger than it was. But again Obama allowed Congress to put together a pork barrel dream. Rather than show leadership, he continues to play the role of a haphazard negotiator. To be honest, he pretty much sucks at negotiating, and can pretty much be bluffed into retreating from any position.

It was great that the stimulus saved state jobs and programs, but now those are being lost anyway. Now there is no chance of a second one, and with the private sector spending at next to nothing [cash heavy corporations, just sitting on their asses and complaining], we are now heading for a double-dip.

 

There are a few problems with that, actually. Shifting the age upward is a possibility, but if it means keeping people at work longer, it means there is less demand for new workers. If I'm allowed to oversimplify a bit, a person who retires opens a position someone else has to be hired on. Also, I don't believe retirement ages should be the same for all professions. A lawyer or a doctor (some doctors, at least) can be fairly good at their job at 65, but I'm not so sure about a miner or a pilot. Essentially, you want it to be linked to how long they work, not just decide on a fixed number that benefits some and screws others. I'd suggest allowing for different "indexing" of professions that determines how much they should pay, but I'm not sure how feasible this is in practice.

One more thing, by the way - I'd say you don't need big adjustments. IIRC the SS system was reformed in the mid-80s, I think people didn't die all that early then, and chances are they did know what the "baby boom" was and would lead to. As far as I know Social Security is in a fairly passable state at the moment - and that's a time where revenues for it are low and expenses are high due to the high unemployment. It's one of the areas where there doesn't need to be a momentous change - unless you just want to get money from it for something else.