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Minnesota Loses AAA Rating on Budget Problems

donsutherland1

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From CNBC:

Minnesota lost its top credit rating on Thursday as Fitch Ratings downgraded the state's general obligation bonds one notch to AA-plus, citing the budget impasse...

The credit agency faulted Minnesota's use of so-called "one-shots", or nonrecurring revenues, to close deficits during the recession, a pattern it said likely will be repeated in the new budget.

News Headlines

Several quick thoughts:

1. There are adverse consequences when political leaders fail to take responsible decisions.

2. The use of gimmicks to balance the budget during the recession is something that could have adverse implications for Tim Pawlenty's Presidential campaign (damages his fiscal credibility and undermines the credibility of his call for a balanced budget amendment).

3. The use of budget gimmicks highlights the limitations of balanced budget amendments (Minnesota has a balanced budget requirement). Numerous states with such amendments have racked up growing debt and accumulated substantial unfunded liabilities.

4. The hindsight reaction of the ratings agency to the past use of budget gimmicks is a fresh argument that ratings agencies should become less reactive and more proactive. They should develop ratings based on the present and outlook 12-24 months down the road with the idea that the rating would be sustainable.
 
Do you feel if the US did something similar in August, it would lose is AAA rating?

And what effect would it have on the economy of the US and the global economy?
 
Do you feel if the US did something similar in August, it would lose is AAA rating?

And what effect would it have on the economy of the US and the global economy?

Yes, and deservedly so. Washington's policy makers should do well to consider the move Fitch made during Minnesota's shutdown. Even when that shutdown ends, its credit rating will almost certainly not be restored to AAA, because the bad decision making there has eroded confidence in its credit.

In the least bad outcome related to a failure to raise the debt ceiling (a short impasse of a few days' duration during which the country meets its debt obligations), the country would be left with a higher cost of capital that would slow macroeconomic growth and worsen its budget deficits. Something lengthier (weeks or longer) that disrupts significant amounts of payments would lead to a still higher cost of capital than the previous scenario and very likely a recession. Its during that longer scenario that debtholders could refuse to roll over debt, meaning the country would need to pay both interest and principal. That outcome would increase the risks of a full-fledged debt crisis with global consequences, especially if creditors' expectations concerning U.S. credit risk are materially lowered.

IMO, failure to raise the debt ceiling will be an extraordinarily irresponsible decision. It will also have long-lasting implications in the form of a higher cost of capital, even if it lasts just a few days.
 
I'm not sure how one figures that getting oneself even further into debt is the responsible action.
 
IMO, failure to raise the debt ceiling will be an extraordinarily irresponsible decision. It will also have long-lasting implications in the form of a higher cost of capital, even if it lasts just a few days.

Raising the debt ceiling as a short term response is fine to avoid the consequences of not doing it.

However we have to cut spending and borrowing to balance the budget.

Federal revenues are up 20% since Obama took over but spending is up 60%.

Anyone can see this has got to change, and if you can't seek help.
 
Raising the debt ceiling as a short term response is fine to avoid the consequences of not doing it.

However we have to cut spending and borrowing to balance the budget.

I agree. The U.S. needs a credible fiscal consolidation program that stabilizes the situation in the medium-term, and then lowers debt afterward. Hopefully, a decent downpayment on such reform will be possible as part of legislation to raise the debt ceiling.
 
I'm not sure how one figures that getting oneself even further into debt is the responsible action.

It's not getting further into debt. We already created it. It is about paying our bills, and not being deadbeats.
 
It is a shame for the people of Minnesota. Hopefully something good can come from this (pray i'm not asking for too much).
 
It's not getting further into debt. We already created it. It is about paying our bills, and not being deadbeats.

Not all of it. They've made some promises they can't keep. To keep it they will have to go further in debt. Maybe they have committed 12 million for the new city building. They'll just have to skip that. A regular business can't simply say that they've committed to X amount of employee's so we are simply stuck paying them.
 
A regular business can't simply say that they've committed to X amount of employee's so we are simply stuck paying them.

There is a major difference between the public and private sector. Anyone expecting them to behave in similar fashion is naive.
 
There is a major difference between the public and private sector. Anyone expecting them to behave in similar fashion is naive.

Granted, the private sector creates all the wealth. And there is absolutely no reason why we shouldn't expect them to act more alike. If you don't have the money to build a new city building, you don't build it.
 
Thank you, Mr. Sutherland. More than a few people on this board are advocating we just let the day come and go. I can't imagine what they're thinking.
 
Thank you, Mr. Sutherland. More than a few people on this board are advocating we just let the day come and go. I can't imagine what they're thinking.

Who said they were thinking at all?
 
Dear Idiot Pawlenty. Shut up. Really. Just shut it.

‘I share that with you because it's similar to the challenges seen in Washington D.C. going on with this debt ceiling limit issue. They've got the President and Republicans negotiating, and I urge our Republicans in Washington D.C. to stand strong. The only way you get real change in Washington D.C. is to draw lines in the sand. And if you notice, most politicians are like running water downhill. They want least resistance. So it's helpful, in having them do bold and courageous things, to put up some points of resistance.’ ”

I apologize if you were drinking something hot when you read that.

MinnPost - Millionaires, it turns out, not cool with tax increase idea
 
Granted, the private sector creates all the wealth.

Really? So NASA hasn't produced anything of wealth? So the entire nuclear industry isn't some form of wealth? So every major drug the NIH produced isn't a form of wealth? So everything that gets commercialized out of public universities isn't wealth?

Hint: It's time for you to vacate the thread.
 
Thank you, Mr. Sutherland. More than a few people on this board are advocating we just let the day come and go. I can't imagine what they're thinking.

Probably because they're super poor and have nothing to lose? Ever notice how it was the rich folk who championed TARP? They had the most to lose from a financial collapse.
 
Probably because they're super poor and have nothing to lose? Ever notice how it was the rich folk who championed TARP? They had the most to lose from a financial collapse.

Actually not. I can't really tell, but they seem to either be so pissed at the President, they're willing to do ye old "cut off nose, spite face" routine, or they ... I got nothing. One claims to be rich, but since he doesn't use punctuation half the time, I can't honestly believe he's a success in life.
 
Actually not.

Well some of the detractors here have admitted to less then luxurious lives.

I can't really tell, but they seem to either be so pissed at the President, they're willing to do ye old "cut off nose, spite face" routine, or they ... I got nothing.

That is possible, the crazies here are numerous.

One claims to be rich, but since he doesn't use punctuation half the time, I can't honestly believe he's a success in life.

lol. I know what you mean. It does amuse me watching people try to compensate for piss arguments when circumstantial claims. I swear so many people here don't understand the differences between showing expertise and wealth and telling people you have it.
 
Well some of the detractors here have admitted to less then luxurious lives.



That is possible, the crazies here are numerous.



lol. I know what you mean. It does amuse me watching people try to compensate for piss arguments when circumstantial claims. I swear so many people here don't understand the differences between showing expertise and wealth and telling people you have it.

I want somebody to create an lolcat that says "Wealth. I haz it." with a butt-ugly dog wearing diamonds. :D
 
Yes, and deservedly so. Washington's policy makers should do well to consider the move Fitch made during Minnesota's shutdown. Even when that shutdown ends, its credit rating will almost certainly not be restored to AAA, because the bad decision making there has eroded confidence in its credit.

In the least bad outcome related to a failure to raise the debt ceiling (a short impasse of a few days' duration during which the country meets its debt obligations), the country would be left with a higher cost of capital that would slow macroeconomic growth and worsen its budget deficits. Something lengthier (weeks or longer) that disrupts significant amounts of payments would lead to a still higher cost of capital than the previous scenario and very likely a recession. Its during that longer scenario that debtholders could refuse to roll over debt, meaning the country would need to pay both interest and principal. That outcome would increase the risks of a full-fledged debt crisis with global consequences, especially if creditors' expectations concerning U.S. credit risk are materially lowered.

IMO, failure to raise the debt ceiling will be an extraordinarily irresponsible decision. It will also have long-lasting implications in the form of a higher cost of capital, even if it lasts just a few days.

Careful or you'll lose your Centrist rating by me. It's really tough to get on my centrist list, since you're the only one on it. You failed to support debt reduction measures when you said not raising the ceiling was irresponsible. That puts you squarely leaning left...not center. Don't believe me, keep an eye on who's "Liking" your posts.
 
Careful or you'll lose your Centrist rating by me. It's really tough to get on my centrist list, since you're the only one on it. You failed to support debt reduction measures when you said not raising the ceiling was irresponsible. That puts you squarely leaning left...not center. Don't believe me, keep an eye on who's "Liking" your posts.

Oh, please. EVERYBODY can see what's happening in Washington, and it's not just liberals.

http://www.nytimes.com/2011/07/05/opinion/05brooks.html

Of course, now the blog-o-sphere has decided that this obviously conservative journalist is no longer conservative, based on that post.

http://en.wikipedia.org/wiki/David_Brooks_(journalist)

People are going to say things. Shock-n-awe, y'all. It doesn't mean they've suddenly changed their political stance. It means they're honest.
 
Oh, please. EVERYBODY can see what's happening in Washington, and it's not just liberals.

http://www.nytimes.com/2011/07/05/opinion/05brooks.html

Of course, now the blog-o-sphere has decided that this obviously conservative journalist is no longer conservative, based on that post.

http://en.wikipedia.org/wiki/David_Brooks_(journalist)

People are going to say things. Shock-n-awe, y'all. It doesn't mean they've suddenly changed their political stance. It means they're honest.

Then liberals better get with the program, and start cutting spending.
 
Do you feel if the US did something similar in August, it would lose is AAA rating?

And what effect would it have on the economy of the US and the global economy?

my opinion is that the US won't risk default. our government may be partisan and petty, but it's not suicidal.

what will happen is that both sides will posture long enough to scare wall street. and that could have consequences.
 
Then liberals better get with the program, and start cutting spending.

You might want to get with the progam. That's what they've had on the table all along. It's the party of No that's stuck on stupid.
 
2. The use of gimmicks to balance the budget during the recession is something that could have adverse implications for Tim Pawlenty's Presidential campaign (damages his fiscal credibility and undermines the credibility of his call for a balanced budget amendment).

Let Pawlenty do for America what he did for Minnesota?????
 
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