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Tuesday, April 19, 2011

Standard & Poor's Screams Over Obama; Silent During Bush's Reign

Yesterday Standard & Poor's Screamed Bloody Murder About America's Increasing Debt. The World Famous Credit Rating Agency Has Threatened To Lower Our Nation's Credit Rating From "Stable" To "Negative".

Ok So Why Weren't They Doing That When President Bush Was Still In Office, Running Up Trillion Dollar Debts From 2 Wars?

Inquiring Minds Would Like To Know.

Whether Those 2 Wars Were Necessary Or Not Isn't The Issue.

Debt Is Debt!!

Yes, Politics Is A Dirty Game.

Can S&P scare Congress into shrinking the deficit?

Standard & Poor's, one of the country's most influential credit-rating agencies, "fired a warning shot on Monday" about the growing U.S. debt load. S&P downgraded its credit outlook for the U.S. from "stable" to "negative," meaning it believes there is a one-in-three chance it will lower the government's sterling "AAA" rating within two years. The agency pointed to the political gridlock in Washington, and questioned whether President Obama and Republicans would agree on a plan to lower the deficit and reduce the national debt before the 2012 elections. Will S&P's downgrade get Obama and the Republicans on the same page?

This should spur Washington to act: Hopefully, this warning will act "as a catalyst" for politicians to agree on a "credible" package of reforms, says Mohammed El-Erian, CEO of bond giant PIMCO, in the Financial Times. Failure to do so would weaken the dollar and could drive up borrowing costs, "thereby undermining investment, employment and growth." The "time has come" for the U.S. "to take better control of its fiscal destiny — for the sake of American society and for the well being of the global economy."
"El-Erian: A warning for the US, and for the global economy"

If only our political system wasn't broken: S&P basically said that it has no confidence in our political leaders "because they're pretty much all spineless cowards," says Hamilton Nolan at Gawker. And the Treasury's response — that S&P "underestimates the ability of America's leaders to come together" — is "laughable" considering the partisan bickering that has gripped Washington for years. But, hey, "at least the problem is contained in a single sector: the economy."
"The American economy is collapsing some more today"

Who cares what S&P says? The agency "has a horrible track record for judging credit worthiness," says Dean Baker at the Center for Economic and Policy Research. It gave companies like Lehman Brothers, Bear Stearns, and Enron "top ratings" until they collapsed — and also gave good ratings to mortgage-backed securities that turned out to be junk. "Investors are aware that S&P's judgement does not mean very much."
"If a negative S&P outlook for the U.S. explains a drop in stock prices..."

S.&P. Lowers Outlook for U.S., Sending Stocks Down

The United States has long had a sterling credit report from ratings agencies because of the global preference for the dollar. But the latest deficit gridlock in Washington may have taken some of the luster off the reputation of the world’s largest economy and its currency.

On Monday, the ratings firm Standard & Poor’s lowered its outlook on the United States rating to negative. Although the agency did not actually lower its highest AAA rating on the country’s debt, it was the first time since the S.& P. started assigning outlooks in 1989 that the country was given an outlook that was something other than stable.

While it had not been completely unexpected, the S.& P. decision shifted the nation’s deficit debate out of the political arena — at least for the day — and thrust it on Wall Street. The action spooked investors, sending the three main stock indexes down more than 1 percent.

Treasury yields, or the interest rate that the country pays on its debt, spiked immediately after the announcement. Since the United States owes more than $9 trillion in outstanding debt to the public, even a one-tenth of a percent increase could potentially add billions to the deficit over time.

A lower credit rating for the government could also end up hurting consumers in the pocketbook since Treasury yields also affect rates on consumer loans, particularly mortgages.

“If the U.S. gets downgraded, the cost of issuing new debt will definitely increase,” said Guy LeBas, the chief fixed-income strategist for Janney Montgomery Scott. “It is a question of how much.”

Mr. LaBas’s firm estimated in a study this year that there could be a 6 to 6.5 percent decline in American stocks over three months as a result of any downgrade. Russell T. Price, a senior economist with Ameriprise Financial, said that any downgrade could also hurt perceptions of the dollar and perhaps trade.

“Even a small increase in the interest rate being charged on that debt could add significantly to the U.S. deficit problem,” he said.

On Monday, the markets turned sharply lower in reaction to the news. The Dow Jones industrial average closed down 140.24 points, or 1.14 percent lower, at 12,201.59. It was the Dow’s biggest decline since March 16.

The broader S.& P. 500-stock index declined 14.54 points, or 1.1 percent, to 1,305.14. The technology-heavy Nasdaq lost 29.27 points, or 1.06 percent, at 2,735.38.

Stocks also fell across the Asia-Pacific region early Tuesday, with the Nikkei 225 index in Japan down 1.5 percent by midmorning. Singapore’s main index fell 0.6 percent and in Australia, the S.& P./ASX 200 index fell 1.3 percent.

In its decision, the Standard & Poor’s ratings unit issued a strong warning to government leaders to agree on how to address the medium- and long-term budget challenges by 2013.

“More than two years after the beginning of the recent crisis, U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” said Nikola G. Swann, a credit analyst at Standard & Poor’s. The firm said that there was a one in three chance that it could lower its long-term rating on the United States in two years.

The statement initially made investors in Treasury bonds nervous, sending the yield on the benchmark 10-year Treasury bond as high as 3.45 percent. By the end of the day, the yield fell to 3.37 percent, down from 3.41 percent on Friday. The price of the 10-year bond rose 9/32, to 102 2/32.

Previously, on Jan. 14, the S.& P. and another major credit ratings agency, Moody’s Investors Service, warned that the United States might tarnish its triple-A credit rating if its national debt kept growing. At that time, the Obama administration was warning that the government could reach its legal borrowing limit within a few months and urged Congress to raise the debt ceiling to avoid a default.

Administration officials played down the S.& P.’s assessment on Monday while reiterating Washington’s determination to reach a compromise on the deficit.

Treasury officials “believe S.& P.’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” an assistant secretary for financial markets, Mary J. Miller, said in a statement.

Austan Goolsbee, chairman of President Obama’s Council of Economic Advisers, said in an interview with Bloomberg TV that President Obama in a recent speech had said that there would be actions taken to promote fiscal responsibility.

He said that S.& P.’s “political judgment” should not be given “too much weight.”

Both President Obama and Republican lawmakers have suggested plans to cut the federal deficit by at least $4 trillion over the next 10 to 12 years, but by different methods. And Mr. Obama plans to take his message on the road this week, traveling to the West Coast to promote his proposal, which combines spending cuts and revenue increases.

The Republican blueprint championed by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee, includes cutting nonmilitary spending, and a politically charged proposal to fundamentally reconfigure Medicare.

“We face the most predictable economic crisis in our history — a crisis driven by the explosive growth of government spending and debt,” said Mr. Ryan in a statement.

Congressional Republicans quickly seized on the Standard & Poor’s analysis as an argument for advancing the newly adopted House budget that would cut an estimated $5.8 trillion over a decade. They sought to increase the pressure on Democrats against increasing the federal debt limit without some significant new limits on federal spending.

“Serious reforms are needed to ensure America’s fiscal health, and today S.& P. sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit,” said Representative Eric Cantor, Republican of Virginia and House majority leader.

As Republicans claimed the report bolstered their case against increasing the debt limit without new spending limits, Representative Nancy Pelosi of California, leader of the Democrats, said she read the findings as an indication that the two parties must move carefully and cooperatively to show a united front in trying to tackle the nation’s fiscal woes.

“Both Democrats and Republicans must participate in the process initiated by President Obama last week to demonstrate our commitment to reducing our deficit through shared responsibility,” she said.

With many lawmakers back home beginning a two-week recess, the S.& P. warning could weigh on some voters as Republicans try to sell their new plan.

Standard & Poor’s did not take sides on any of the political proposals, saying that they were a good starting point. But it cautioned that “we see the path to agreement as challenging because the gap between the parties remains wide.”

Analysts said that there were not many immediate implications to the S.& P.’s action. But over time, other ratings agencies could reconsider their recommendations on the United States’ sovereign debt.

The S.& P. statement could spur the administration and lawmakers to find a way to reduce the nearly $1.5 trillion budget deficit and give the fiscal austerity debate a greater sense of urgency, said Capital Economics economists in a research note.

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Sources: CEPR, Fox News, NY Times, The Week, Youtube, Google Maps

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