S&P cuts U.S. outlook to negative on fiscal worry

From Reuters:

Standard & Poor's on Monday downgraded the outlook for the United States to negative, saying it believes there's a risk U.S. policymakers may not reach agreement on how to address the country's long-term fiscal pressures.

The S&P said the move signals there's at least a one-in-three likelihood that it could lower its long-term rating on the United States within two years.

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S&P cuts U.S. outlook to negative on fiscal worry | Reuters

IMO, this decision, with which I agree, makes it even more important that a credible fiscal consolidation path be tied to the forthcoming increase in the debt ceiling. To get there, Republicans will need to compromise on taxes and Democrats will need to compromise on entitlement reform. In its April 2011 Fiscal Monitor, the IMF stated:

Especially in advanced economies, substantial further adjustment will be required over the remainder of the decade to eventually restore debt ratios to prudent levels. The challenge is even greater when the impact of trends affecting entitlement spending is taken into account. Indeed, rising spending on health care is the main risk to fiscal sustainability, with an impact on long-run debt ratios that, absent reforms, will dwarf the financial crisis.

To put things into perspective, the required adjustment between 2010-2020 is projected by the IMF to amount to 11.3% of GDP in the U.S. Only Japan (13.3% of GDP) and Ireland (12.4% of GDP) face larger fiscal adjustment. Greece is at 10.5% of GDP. For the 2010-2030 timeframe, the projected U.S. adjustment is 17.5% of GDP. No country faces a greater 20-year adjustment.

This is totally correct to do as the US's GDP to Debt ratio is pretty much 1:1 and with the US having opened a 4th war theater in Libya, we are spending more money than ever.

donsutherland1 said:

From Reuters:



S&P cuts U.S. outlook to negative on fiscal worry | Reuters

IMO, this decision, with which I agree, makes it even more important that a credible fiscal consolidation path be tied to the forthcoming increase in the debt ceiling. To get there, Republicans will need to compromise on taxes and Democrats will need to compromise on entitlement reform. In its April 2011 Fiscal Monitor, the IMF stated:

Especially in advanced economies, substantial further adjustment will be required over the remainder of the decade to eventually restore debt ratios to prudent levels. The challenge is even greater when the impace of trends affecting entitlement spending is taken into account. Indeed, rising spending on health care is the main risk to fiscal sustainability, with an impact on long-run debt ratios that, absent reforms, will dwarf the financial crisis.

To put things into perspective, the required adjustment between 2010-2020 is projected by the IMF to amount to 11.3% of GDP in the U.S. Only Japan (13.3% of GDP) and Ireland (12.4% of GDP) face larger fiscal adjustment. Greece is at 10.5% of GDP. For the 2010-2030 timeframe, the projected U.S. adjustment is 17.5% of GDP. No country faces a greater 20-year adjustment.

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I think I now understand why S&P, Moody's & Fitch didn't get spanked butgood! for their ratings on those mortgage bundles....

Bolded above is big-big-big. Seems like everybody on earth gets this but Congress...

IMO, this decision, with which I agree, makes it even more important that a credible fiscal consolidation path be tied to the forthcoming increase in the debt ceiling. To get there, Republicans will need to compromise on taxes and Democrats will need to compromise on entitlement reform. In its April 2011 Fiscal Monitor, the IMF stated:

There ya go a man with common sense with a plan I can get behind and support...this Ryans plan to cut taxs on the wealthiest americans and corporations and sock it to the middleclass just sucks. Your plan is what ive been saying all along.

donsutherland1 said:

From Reuters:



S&P cuts U.S. outlook to negative on fiscal worry | Reuters

IMO, this decision, with which I agree, makes it even more important that a credible fiscal consolidation path be tied to the forthcoming increase in the debt ceiling. To get there, Republicans will need to compromise on taxes and Democrats will need to compromise on entitlement reform. In its April 2011 Fiscal Monitor, the IMF stated:

Especially in advanced economies, substantial further adjustment will be required over the remainder of the decade to eventually restore debt ratios to prudent levels. The challenge is even greater when the impact of trends affecting entitlement spending is taken into account. Indeed, rising spending on health care is the main risk to fiscal sustainability, with an impact on long-run debt ratios that, absent reforms, will dwarf the financial crisis.

To put things into perspective, the required adjustment between 2010-2020 is projected by the IMF to amount to 11.3% of GDP in the U.S. Only Japan (13.3% of GDP) and Ireland (12.4% of GDP) face larger fiscal adjustment. Greece is at 10.5% of GDP. For the 2010-2030 timeframe, the projected U.S. adjustment is 17.5% of GDP. No country faces a greater 20-year adjustment.

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But Don, you know that they won't do it later. They probably won't do the right thing now. We have known this was coming for 30 years and they kept kicking this can down the road. They don't want to face the political and electoral wrath of the American people (who have the entitlement mentality). The senior citizens, of which Baby Boomers joined for the first time this January, will not stand for a single change to their benefits, because the left has drilled it into their heads that they are entitled to every single penny. They supposedly "paid in" all their working careers, and now they are due their benefit. And to make matters worse, the Left is pleased by this. They are hysterically happy by the prospect of maintaining entitlements right where they are, and not a penny less. It's all about controlling the "General Welfare" of the United States.

Following S&P's move to place the U.S. on negative outlook, the White House criticized the measure as a "political judgment." According to CNBC, Austin Goolsbee, the White House's top economist declared, "What the S&P is doing is making a political judgment and it is one that we don't agree with." The tendency by governments to dismiss ratings decisions with which they disagree is not new.

For example, in December 2009, S&P downgraded Greece's debt drawing a quick reaction from the Greek Government. The Financial Times reported that Greece's Finance Minister, George Papaconstantinou stated that the downgrade did not 'reflect' the measures the Greek government was taking to stabilize its finances. On April 23, 2010, the Greek government formally requested EU/IMF assistance.

IMO, rather than passing off S&P's decision as a political matter, the White House should have used the decision to highlight the increasing urgency of dealing with the nation's fiscal imbalances. Attempting to dismiss the decision as merely a "political judgment" does not create the image of a government that is working aggressively to address the nation's fiscal imbalances. In short, it is a bad public relations strategy that can only undermine the nation's credibility with respect to its fiscal challenges.

donsutherland1 said:

Following S&P's move to place the U.S. on negative outlook, the White House criticized the measure as a "political judgment." According to CNBC, Austin Goolsbee, the White House's top economist declared, "What the S&P is doing is making a political judgment and it is one that we don't agree with." The tendency by governments to dismiss ratings decisions with which they disagree is not new.

For example, in December 2009, S&P downgraded Greece's debt drawing a quick reaction from the Greek Government. The Financial Times reported that Greece's Finance Minister, George Papaconstantinou stated that the downgrade did not 'reflect' the measures the Greek government was taking to stabilize its finances. On April 23, 2010, the Greek government formally requested EU/IMF assistance.

IMO, rather than passing off S&P's decision, the White House should have used the decision to highlight the increasing urgency of dealing with the nation's fiscal imbalances. Attempting to dismiss the decision as merely a "political judgment" does not create the image of a government that is working aggressively to address the nation's fiscal imbalances. In short, it is a bad public relations strategy that can only undermine the nation's credibility with respect to its fiscal challenges.

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House Republican leader Eric Cantor on Monday called the S&P downgrade "a wake-up call" against those seeking to "blindly increase" the U.S. debt limit.

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"I don't think that we should make too much out of that," top White House economist Austan Goolsbee said on MSNBC, referring to the S&P downgrade.

"What the S&P is doing is making a political judgment and it is one that we don't agree with," he said on CNBC.

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Could the difference between the attitudes of the parties be more stark? Democrats are voted into office to maintain the status quo.

donsutherland1 said:

Following S&P's move to place the U.S. on negative outlook, the White House criticized the measure as a "political judgment."

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the white house is in its own little world

from athens to sacramento, it's a tsunami

an irrestible wave of realization

there's no stopping it, it's physics

the obama administration is the last holdout against the wave, and it's not operating on hi ground

leadership, anyone?

donsutherland1 said:

IMO, rather than passing off S&P's decision as a political matter, the White House should have used the decision to highlight the increasing urgency

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this white house, for several fundamental reasons, most of them political, can not and will not EVER move to reign in entitlements

budget reform, for this administration---because of its character---is all outta bounds and off limit

it's the character of the occupant, it's the man, his dna

he can do no other

if obama were serious about restructuring the accounts which are killing us, he'd have passed a 2011 budget, his senate would have acted (up, down or sideways) on hr1 which it's been sitting on for months, his 2012 budget published in february would not look the way it does

if obama were sincere about fixing our finances, he'd be legislating insteada stumping

sorry

leadership, anyone?

The Prof said:

the white house is in its own little world

from athens to sacramento, it's a tsunami

an irrestible wave of realization

there's no stopping it, it's physics

the obama administration is the last holdout against the wave, and it's not operating on hi ground

leadership, anyone?

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Class warfare is a proven strategy........when power is your only goal.

donsutherland1 said:

Following S&P's move to place the U.S. on negative outlook, the White House criticized the measure as a "political judgment." According to CNBC, Austin Goolsbee, the White House's top economist declared, "What the S&P is doing is making a political judgment and it is one that we don't agree with." The tendency by governments to dismiss ratings decisions with which they disagree is not new.

For example, in December 2009, S&P downgraded Greece's debt drawing a quick reaction from the Greek Government. The Financial Times reported that Greece's Finance Minister, George Papaconstantinou stated that the downgrade did not 'reflect' the measures the Greek government was taking to stabilize its finances. On April 23, 2010, the Greek government formally requested EU/IMF assistance.

IMO, rather than passing off S&P's decision as a political matter, the White House should have used the decision to highlight the increasing urgency of dealing with the nation's fiscal imbalances. Attempting to dismiss the decision as merely a "political judgment" does not create the image of a government that is working aggressively to address the nation's fiscal imbalances. In short, it is a bad public relations strategy that can only undermine the nation's credibility with respect to its fiscal challenges.

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I view comments by he likes of Goolsbee and if he any counterparts in the republican party nothing short of traitors to this country. I understand that sounds extreme. But this is a person who understands economics and yet uses his title and learning not to fix the problems of the country. Rather his loyalty is to a political party.

Perhaps on an internet site called debate politics we should expect partisans. Nothing wrong wth that. But my sense is that this site os populated with unthinking partisans. So whatever nonsense comes out of the mouth of a leader from their respective side it gets parroted back ad naueum.

I am not sure if anyone listened to the author of the S&P report. He tried to make it a non-partisan discussion, saying that it isn't one plan is good while the other bad, but the concern that nothing get done. This interview was on a business cable show. Yet the "reporter" tried to pull the person into the partisan debate by asking which plan would be better for the economy. The fellow from S&P refused to get sucked in ( Even by that reporter Erin, Jim's girl) and made no judgement on either plan. Just said it was time to get on with it.

What don says makes some sense but what is the probability that this will be the result, nil. That is the problem. Doing just about anything is better than doing nothing about the debt, but that is where we are.

Simply put, there isn't a shell game left to put this off any further.

The proverbial rubber has met the road.

Socialism fails when you run out of other people's money to spend. And when half the country doesn't even pay income taxes, and there aren't any tricky ways left to borrow money and delay the inevitable further, the gig is up.

The...gig...is...up.

Erod said:

Simply put, there isn't a shell game left to put this off any further.

The proverbial rubber has met the road.

Socialism fails when you run out of other people's money to spend. And when half the country doesn't even pay income taxes, and there aren't any tricky ways left to borrow money and delay the inevitable further, the gig is up.

The...gig...is...up.

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What socialism? It is conservatism gone amok. It was Reagan and Bush jr that ballooned the debt... and are you calling them socialists?

The U.S. certainly has fiscal problems, but The S&P lost all credibility when they gave AAA ratings to completely worthless mortgages. They shouldn't be taken any more seriously than a pathological liar after what they pulled.

washunut said:

I am not sure if anyone listened to the author of the S&P report. He tried to make it a non-partisan discussion, saying that it isn't one plan is good while the other bad, but the concern that nothing get done. This interview was on a business cable show. Yet the "reporter" tried to pull the person into the partisan debate by asking which plan would be better for the economy. The fellow from S&P refused to get sucked in ( Even by that reporter Erin, Jim's girl) and made no judgement on either plan. Just said it was time to get on with it.

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You are correct that the decision was not a partisan or political one. Some excerpts:

We view President Obama's and Congressman Ryan's proposals as the starting point of a process aimed at broader engagement, which could result in substantial and lasting U.S. government fiscal consolidation. That said, we see the path to agreement as challenging because the gap between the parties remains wide. We believe there is a significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections. If so, the first budget proposal that could include related measures would be Budget 2014 (for the fiscal year beginning October 1, 2013), and we believe a delay beyond that time is possible.

Standard & Poor's takes no position on the mix of spending and revenue measures the Congress and the Administration might conclude are appropriate. But for any plan to be credible, we believe that it would need to secure support from a cross-section of leaders in both political parties.

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The full text can be found at: CTV News | Read the text of S&P's statement

rathi said:

The U.S. certainly has fiscal problems, but The S&P lost all credibility when they gave AAA ratings to completely worthless mortgages. They shouldn't be taken any more seriously than a pathological liar after what they pulled.

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Based on past debt and financial crises, the problem wasn't that S&P and other ratings agencies were overly negative or too aggressive in lowering ratings. The problem was that they were too positive and too slow to respond to deterioration in underlying variables that had a material impact on creditworthiness.

Hence, if there is a risk associated with the negative outlook, it is that the U.S. was placed on negative outlook too late, not prematurely. With the IMF noting that the U.S. had the third highest 10-year required fiscal adjustment and highest 20-year one (higher than Greece, for example), current absence of a credible fiscal consolidation path, and chronic significant current account deficits, the argument that the U.S. should not be on negative outlook is a strained one that relies largely on legacy.

the wave is irresistible, there's no stopping it

Detroit Moves Against Unions - WSJ.com

while madison was occupying all the air waves, the same fiscal phenomena were manifesting themselves thruout the rust belt, in ohio, indiana, illinois...

and in michigan, snyder signed what the msm's described as martial law, rushed thru both assemblies in lansing, recently repainted red, provisions added to code to allow city managers and school superintendents to rip up unilaterally and rewrite contracts, public and otherwise

well, the mayor, bing, and the emergency school manager, bobb, appointed by stabenow, are both RESORTING to the martial law provisions, unilaterally ripping up contracts and imposing austerity by fiat

massive cuts are going down, and teacher tenure and collective bargaining are targeted

this is detroit we're talking about, are you aware of the political culture in motown

chicago's next, how long do you think rahm can resist

cuomo's already caught on in new york, and in california jerry brown is bludgeoning TENS of billions

these are scrappings of govt spending of such depth and width americans have never seen the like before, ever, nothing even close

and neither of the two blue giants, new york and california, is even contemplating tax increases

whether they SHOULD or not look at revenues simultaneous with such DEADLY cuts is, in this context, neither here nor there

the fact is, they're NOT

it's just the seascape

it's not partisan, it's a tsunami

a wave of realization

cuomo's interminably long state of the state so much as said---we spend too much, it is that blunt and that simple; we just can't afford it; we don't get what we pay for; we have the worst business tax climate in the nation; new yorkers are voting with their feet; what made new york the empire state was a not a large government complex but a vibrant private sector that created jobs; pensions are exploding; we must relearn the lesson our founders knew and put up a sign that says new york is open for business, we are going to be a business friendly state; a fundamental economic realignment for our state; a radical reform; property taxes are killing new yorkers; highest property tax counties in the nation; it has to end, it has to end now; new york has no future as the tax capitol, our young will not stay, our business will not come...

"put it simply, the people of this state simply cannot afford to pay any more taxes, period"

"we get it"

GOVERNOR ANDREW M. CUOMO STATE OF THE STATE ADDRESS | Governor Andrew M. Cuomo

do you?

donsutherland1 said:

Based on past debt and financial crises, the problem wasn't that S&P and other ratings agencies were overly negative or too aggressive in lowering ratings. The problem was that they were too positive and too slow to respond to deterioration in underlying variables that had a material impact on creditworthiness.

Hence, if there is a risk associated with the negative outlook, it is that the U.S. was placed on negative outlook too late, not prematurely. With the IMF noting that the U.S. had the third highest 10-year required fiscal adjustment and highest 20-year one (higher than Greece, for example), current absence of a credible fiscal consolidation path, and chronic significant current account deficits, the argument that the U.S. should not be on negative outlook is a strained one that relies largely on legacy.

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I am not objecting to the fact that U.S. credit rating is starting to slip. I simply refuse to give the S&P any authority on the matter.

rathi said:

I am not objecting to the fact that U.S. credit rating is starting to slip. I simply refuse to give the S&P any authority on the matter.

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That is fair enough. S&P amd Moodys have not exactly done a great job the last several years.

Adding to my point concerning the slow speed at which ratings agencies have typically reacted to building crises, a post from almost a year ago when the Greek debt crisis had erupted and Portugal was sliding toward increased risk, provides additional insight worth repeating.

http://www.debatepolitics.com/break...tagion-pressures-eu-bonds.html#post1058716175

The following excerpts are relevant:

Ratings agencies are typically behind the curve when it comes to risk. There is a bias toward continuity. Hence, as the actual risk profile of an entity (state or firm) deteriorates, the gap between the actual risk and the risk implied by the ratings agencies grows. Unfortuntely, in behavioral studies, there is a pronounced human bias toward the status quo. Hence, when risk situations change, there is an invariable need to catch up. IMO, financial conservatism (erring on the side of assuming too much risk) would be better than maintaining a bias toward continuity.

In that context, I believe Greece should have had its debt rating at junk status months ago. The combination of annual budget deficits > 8% of GDP, gross public debt > 120% of GDP/net government debt > 100% of GDP, a current account deficit of nearly 10% of GDP suggested a country at high risk of default consistent with numerous past sovereign debt crises. To date, even as the Greek government has tried to cast itself as taking 'heroic measures' to deal with its debt situation, it appears that its steps are rather timid and more will be expected by the IMF.

With respect to the U.S., I believe the U.S. should already be on negative outlook (something I think probably won't happen until 2011 or 2012). The U.S. has no credible fiscal consolidation plan. The two political parties appear unwilling at present to consider the difficult choices necessary for such a plan. Domestic non-financial debt, gross public debt, net public debt are all rising. The current account deficit has ticked up in the recent quarter and is expected to rise further, though it remains well below the excessive current account imbalances for Greece and Portugal.

With respect to the U.S. fiscal situation, one should not focus strictly on external debt relative to GDP. In their seminal book, This Time is Different (Princeton University Press, 2009), Carmen M. Reinhart and Kenneth S. Rogoff offer three key points:

• Having a complete picture of government indebtedness is critical, for there is no meaningful external debt sustainability exercise that does not take into account the magnitude and features of outstanding domestic government debt, ideally including contingent liabilities.

• Debt sustainability exercises must be based on plausible scenarios for economic performance, because the evidence offers little support for the view that countries simply “grow out” of their debts. This observation may limit the options for governments that have inherited high levels of debt. Simply put, they must factor in the possibility of “sudden stops” in capital flows, for these are a recurrent phenomenon for all but the very largest economies in the world.

• The inflationary risks to monetary policy frameworks (whether the exchange rate is fixed or flexible) also seem to be linked in important ways to the levels of domestic debt. Many governments have succumbed to the temptation to inflate away domestic debt.

1. our domestic debt, even more so in the long run, is unsustainably encumbered with the liabilities imposed by our three big entitlement programs, awareness of which has now become coin of the realm; in the shorter term, the service on that debt, mere interest alone, is racing toward a full trillion per year (according to nyt)

2. the prime reason called out by the lady (december, 09) pointed directly at the implausibility of budget forecasts, their regular reliance on rosy growths and near zero interests, an ugly example of which is included in obama's 2012 budget, the only real plan he has so far submitted, which, by the way, is pretty much the opposite of what he's trying to say these days

3. our govt has succumbed to the quantitative easing of two point seven trillion dollars of garbage-backed crap---undiversified

in other words, it's that bad

what was the white house reaction to this development, again?

200 years to build it..........

.........2 years for the Kenyan Demolition......Barack HusSame Obama--The Most Expensive President in History.
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As bad as the $14+ trillion national debt sounds, it isn’t even close to the real debt numbers. In reality, current and future US taxpayers are already on the hook for well over $100 trillion dollars and that’s if we stopped promising social security, medicare/medicade, military pensions and benefits, civil service pensions and benefits etc. starting today.

PeteEU said:

What socialism? It is conservatism gone amok. It was Reagan and Bush jr that ballooned the debt... and are you calling them socialists?

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Such a childish understanding of America. It's a little more complicated than just applying it to the president of the time.

Unions are massivley socialistic in nature. Government handouts are socialism defined. When 35 percent of your population receives their entire income from the government, which is the case here, it bleeds socialism. And THAT is what's put us in this mess.

And now our socialist party expects the capitalists among us to fix their mess.