Budget Deficit

Standard & Poors Downgrades "outlook on the long-term rating of the U.S. sovereign"*

|

Either S&Ps to the White House, or Paul Krugman to S&P

Our massive debt is about to get more expensive. Worth reading the full report as to why; here's an excerpt:

"More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures," [Standard & Poor's credit analyst Nikola G.] Swann added.

In 2003-2008, the U.S.'s general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most 'AAA' rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover. […]

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 Oct. 1, 2013), and we believe a delay beyond that time is possible.

Translation: You people aren't serious.

Buh-bye

Some crunchy numbers:

In our baseline macroeconomic scenario of near 3% annual real growth, we expect the general government deficit to decline gradually but remain slightly higher than 6% of GDP in 2013. As a result, net general government debt would reach 84% of GDP by 2013. In our macroeconomic forecast's optimistic scenario (assuming near 4% annual real growth), the fiscal deficit would fall to 4.6% of GDP by 2013, but the U.S.'s net general government debt would still rise to almost 80% of GDP by 2013. In our pessimistic scenario (a mild, one-year double-dip recession in 2012), the deficit would be 9.1%, while net debt would surpass 90% by 2013. Even in our optimistic scenario, we believe the U.S.'s fiscal profile would be less robust than those of other 'AAA' rated sovereigns by 2013.

Fiscal denialists thought we could just keep getting away with having some of the worst finances in the developed world. That dream should now be over.

Link via Douglas Holtz-Eakin's Twitter feed.

* Headline re-written to stanch a long hair-splitting exercise in the comments.

NEXT: ObamaCare's 1099 Tax Reporting Provision Gets the Ax

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  1. Downgrading would imply that the US lost AAA status and a large number of funds would literally be *required* to sell US treasuries. They reduced the outlook to negative (i.e. threatening to downgrade in the future).

    Still ominous for those who weren’t able to read the writing on the wall, but nowhere near as bad as a downgrade.

    1. Exactly, the title is factually false. S&P lowered the outlook not the rating.

      1. Still ominous for those who weren’t able to read the writing on the wall, but nowhere near as bad as a downgrade.

        I disagree with this. Although the US fiscal situation is dire – the rating agencies always lag the market on this stuff (look at Greece and Ireland)… S&P downgrading the US is not the threat – it would only follow a massive liquidity event at which point the damage would already have been done.

    2. Would the funds be contractually required, or required by law, to sell?

      1. Don’t worry: the Feds will rule that any contractural constraint on holdings of US debt instruments is null and void.

        Just guessing here, but I imagine that the language already exists somewhere in FINRA or previous financial legislation. Not that it would make any difference: the Feds have already demonstrated that they don’t care about bond covenants, contracts, or two centuries of bankrupcy law with the GM and Chrysler cramdowns.

        1. Doesn’t matter. When the Republicans cave on raising the debt ceiling and $trillions in new bonds go up for sale, nobody is going to buy them – At least not until the rates of return are significantly higher.

          And when payments on the old bonds come due, everyone knows we’ll be borrowing more or printing money to pay them off.

          1. Then the Federal Reserve will just buy the bonds with their funny money.

            1. He’s probably referring to pension plans, insurance companies and banks. Most restrictions are due to regulatory hurdles on capital levels in various ratings (although its a bit complicated how it actually works).

              I don’t actually know of any structure for which a downgrade of US debt to AAA- from AAA would trigger forced selling. That said, you would see massive selling across the board and likely especially from soveirgn wealth funds.

              I think the reasoning is backward however, and a selling / liquidity event would likely trigger any downgrade, not the other way around.

          2. Helicopter Ben will decree QE III through infinity and buy the debt himself.

            And, Ben don’t need no stinkin’ Congress. Ben does what he likes.

            Unlike ordinary investors, Ben wants a low return on his investment, and he has unlimited funds.

    3. Downgrading would imply that the US lost AAA status and a large number of funds would literally be *required* to sell US treasuries.

      So the USA would have lost its AAA rating if S&P was honest?

      and the only reason it keeps its AAA status is because if it lost it it would trigger a global financial crisis?

  2. Cue Tony with his best Chip Diller impersonation and claims that S&P is beholden to those eeevvvviiiillll hedge fund operators and sundry other dirty speculators.

    1. It’s the Koch Brothers!

      They’re behind everything!

  3. “– We have affirmed our ‘AAA/A-1+’ sovereign credit ratings on the United States of America.”

    Misleading headline much?

  4. I’m wondering how the Left will explain this away. They have convinced themselves that the debt is an imaginary problem created by the Koch brothers. Apparently reality does not agree. I suppose they’ll say S&P was taken over by tea-baggers and right-wing militia groups.

    1. “I’m wondering how the Left will explain this away”

      By arguing that we need to raise the debt ceiling.

      1. Because when I can’t pay the minimums on my credit cards, clearly the solution is to raise my limits.

        1. If your name is Tim Geithner, then yes.

          Congress is going to have to raise the debt limit . They understand that. That’s absolutely essential to preserve the creditworthiness of the United States of America.

      2. ‘Scuse me Egon? You said crossing the streams was bad!

    2. EXCUSE me, sir, but I live in a reality based community. Debt doesn’t exist.

      1. I reject your reality and substitute my own.

    3. The Wall Street Journal has a good editorial today that blows away the liberal meme that taxing “the rich” more will take care of everything and the welfare state can continue on as is.

      The upshot (as always) is that when leftists talk about taxing “the rich”, the middle class always winds up being included in the group getting whacked.

      1. GHW Bush once defined the rich as anyone who has job.

        Of course, he was alleging that only his poitical opponent thought that way, but later demonstrated that all politicians use that definition.

        The sheep shearers fleece every sheep in the flock for as much wool as they can get.

        1. I hear flensing is bad for repeat wool production.

      2. The upshot (as always) is that when leftists talk about taxing “the rich”, the middle class always winds up being included in the group getting whacked.

        That’s why they offer that taxing the rich will fix the problem. By essientially taxing everyone that has a dollar, it could, arguably fix the problem.

        1. Worked for us!

    4. Get a load of this: the Me Worry Kid himself, Alfred E. Krugman, says that we don’t have to worry about anything because of… Japan! The country that has had zero economic growth for around sixteen years now, all while trying his precious Keynesian economics the whole time. That’s what we have to look forward to apparently.

      1. The country that has had zero economic growth for around sixteen years now, all while trying his precious Keynesian economics the whole time.

        Not that I want to defend Krugman but here’s an interesting article arguing that Japan did grow.

  5. “revised its outlook on the long-term rating of the U.S. sovereign to negative from stable.”

    1. If some investment bank said the same thing about a stock or other intrument it had a positive rating on (lotso fat fees!) and didn’t downgrade its rating at the same time soneone would be doing a perp walk in the post-Spitzer world.

      1. Don’t you mean “pre-Spitzer” world?

  6. I want the Federal Government’s credit rating to be so shoddy that no-one will loan the creeps in DC ANY money at even usury rates. One way to accomplish this is to repudiate the debt entirely. See, kill two birds with one stone!

    1. I’ve been extolling the virtues of debt repudiation for a while now, but I thought I was the only one.

      “I’m sorry that you thought you and Mr. Reagan had a deal, grandma, but I never agreed to pay you back for the money you loaned him before I was ever born. Go fuck yourself, slaver.” -Actual quote from a conversation between me and my grandmother, except I didn’t tell her to go fuck herself because that would have been disrespectful.

      1. but your grandmother was, in fact, a slaver? Cool!

        1. Well, she feels that she has a valid and moral right to the fruits of my productivity; so, yes.

        2. She’s a slaver?

          YOU WILL PAY FOR MY EVERY WHIM AND ENJOY IT. NOW, GO TO SLEEP.

      2. Excuse me, that’s “refudiate”!

      3. Awesome. I had a similar conversation about social security.

      4. My Grandma The Parasite, Wednesdays This Fall On The CW.

        1. HA HA HA

      5. California is about to lead the way. We will do our patriotic duty of kicking our bondholders to the curb and they will stop lending money to other states as well. You can thank us later.

      6. Yeah I’m not such a big fan of government or anybody simply reneging on its commitments on a whim leading to massive economic destruction.

        1. Maybe governments shouldn’t be allowed to borrow money.

      7. Did you tell her she’d probably be just as well off if she stayed with your parents and got her rocking chair by the fireplace?

  7. Anybody happen to notice that gold is at just $10 shy of $1500 per ounce? Wonder how the dollar is doing?

    1. Not well. I think I am not long for this world

      1. Don’t worry. You’re still the best-looking horse in the glue factory.

    2. Don’t forget silver as well. Once the little people realize they are hosed (Beginning to happen? Wish I were smart enough to know.) I wouldn’t be surprised to see silver outpace gold in terms of appreciation.

    3. At the moment, up about 1%.

      The markets never are anywhere near as simple or logical as anyone would like, which is why so many short-term traders go broke. Word on The Street is that Finland’s new anti-EU stance may put the euro at risk. Hence, the flight to safety relative safety.

      1. The dollar is still the prettiest girl at the dance…

        1. Least ugly.

          1. We foresee massive weight gain.

            1. and gross disfigurement.

              1. But she does exactly what I tell her.

        2. The dollar is still the prettiest girl at the dance…

          Well, she’s the easiest that’s for sure.

      2. The Swiss Franc has been up something fierce in the past year or so. Back in 2008 when it was near parity to the USD, the EUR/USD rate was about 1.59, so the EUR/CHF rate was around 1.62. Now the franc is well above the dollar, but with the EUR/USD rate around 1.42, the EUR/CHF rate is around 1.28.

    4. Sheesh! It just went to $5 shy of $1500.

    5. This doesn’t necessarily force the US$ down vis-a-vis other fiat currencies.

      Foreign central bank reserves largely consist of US$. When the US$ goes down, the value of asset backing foreign currency goes down.

      That’s why the central banks of India and China are acquiring gold by the tonne, which is one force behind the continued spike in gold prices.

  8. Get back to us when it’s a catastrophe.

    1. We’re winning the future, people!

    2. We will. Should we bring plenty of rope too?

      1. ELIMUNASHUNIST RHETORIC TEH THREATZZ ZOMG!!!

      2. Racist!

  9. Putting aside the current world financial woes, I have always found the “AAA” rating a bit silly. For me a AAA should imply near perfect finances, but this rating was handed out to countries with huge debt ratios and other hard to ignore financial problems.

    I have never being a fan of Moodys, Standard and Poor etc. like most things in life to have something independently verified requires real independence. Those companies are nicely in bed with the same people they are supposed to rate.

    1. Re: NotSure,

      For me a AAA should imply near perfect finances, but this rating was handed out to countries with huge debt ratios and other hard to ignore financial problems.

      Well, one can blame them for being too sanguine about the rating they give to profligate governments; but even so, it tells you SOMETHING when they STOP being sanguine about the U.S., doesn’t it?

    2. If you carry a lot of debt but always pay your minimum bill on time you’ll have great credit. It implies you are responsible enough to carry credit without defaulting, not that you can pay back the debt and certainly not that you have perfect finances.

      So to agree with OM, when they finally come out and say “we can’t even fake it any more” then that’s a good thing for real humans because it’s bad for government.

  10. From the Atlantic:

    The upshot is that this downgrade is insignificant as a piece of news and very significant as an omen. Think of the news today — falling stocks, higher yields, mild panic — and imagine if it were all multiplied by a factor of 10. This is why deficits matter.

  11. Even in our optimistic scenario, we believe the U.S.’s fiscal profile would be less robust than those of other ‘AAA’ rated sovereigns by 2013.

    Shrike: Lies! All lies! Bernanke knows what he’s doing! You’re nothing more than a bunch of buck-toothed goldbugs! All of you! Mommy!!!!

    (While he is dragged away in a straightjacket.)

    1. That’s pretty close to what he actually said.

      http://forums.penny-arcade.com…..20&page=62

      “As a casual observer of U.S. politics, the lack of faith seems well placed.

      I guess what this (credit warning)really means is that the S&P is looking for a plan, any plan, that realistically forcasts balanced budgets. The great philospher, The Joker, once said that people won’t panic as long as everything goes according to plan. Even if the plan is horrible.”

      Shrike: No, they are looking for a plan, any plan, period. They don’t really give a shit if it forecasts balanced budgets.

  12. This ends with Charleton Heston on a beach looking up at the statue of liberty’s severed head and arm.

    1. ftw

    2. Nah, she’ll get scrapped for her copper sheeting and whatever alloy her frame is made of.

    3. Kamandi, for the drowned world rubes. (Yes, I know that’s a Ballard novel.)

      1. Error 403, Sugarfree.

        1. Interesting. I can open the link just fine. And the image was visible in Chrome+reasonable. I refreshed, and the link still works for me, but the image doesn’t display.

          1. And now it’s back. Weird scenes inside the goldmine.

      2. I quite fancy the idea of paddling down to Piccadilly to visit the Ritz.

        I think I’d follow The Day of the Triffids and set up my base at Senate House.

    4. George Taylor: Do you have any weapons, any guns?
      Cornelius: The best, but we won’t need them.
      George Taylor: I’m glad to hear it. I want one anyway.

  13. It’s all that Marxist Mulatto’s fault! Here I am paying off my credit card debt, watching my money, avoiding vacations, yet while I’m doing my job, Obama wants to raise the debt ceiling. I can’t believe this idiot in the White House’s so popular. He’s not even patriotic!

    The National Park Service tries to make the Civil War “inclusive.”
    http://libertarians4freedom.bl…..-make.html

    1. And what, praytell, is wrong with being a mulatto, hmmm?

      [Disclosure: I’m technically a quadroon, but no less heroic.]

      1. Nothing as far as I am concerned – unless you also happen to be a Marxist and POTUS.

        1. Nothing as far as I am concerned – unless you also happen to be a Marxist and POTUS.

          But the skin-color genes passed to him from his parents have nothing to do with his political philosophy or ambitions, yes?

          1. Not to defend Gregoooooo!!! but he didn’t criticize the color of the Marxist’s skin.

            Marxist Mulatto, Heroic Mulatto…it’s just a noun. The adjective is what makes one good or bad.

            Who am I kidding? Gregoooooo!11!!1 probably did mean it negatively. (shrugs)

            1. Who am I kidding? Gregoooooo!11!!1 probably did mean it negatively. (shrugs)

              Remember, we need to keep precedent in mind. 🙂

              1. Mulatto is just long for mutt.

            2. Look, every time I read the liberal media I’m accused of being white, male, Christian, etc, etc, etc.

              Can’t I get to do it to somebody else once in a while?

              I’m so sick of Obama being praised for being the first AFrican-American president, so, I like to call him what he is, which is neither black nor white but a Mulatto. And since he’s a Marxist, then it’s The Marxist Mulatto. Seriously, it’s a great name, perhaps I should call him M&M for short or just MM.

          2. I think GREGGGGOOOOOO is simply a fan of alliteration, albeit without knowledge of what an “alliteration” is.

      2. What’s wrong with being white? Liberals today talk about “white privilege” and they certainly don’t celebrate White History Month.

        Besides, Marxist Mulatto has a nice ring to it, don’t you agree? It’s funny how telling the truth is racist nowadays.

        1. No, you’re just being the same kind of race-baiting dick you accuse liberals of being.

          1. Race baiting? Me? I’m just like MLK, I want everyone treated the same. No special treatment, no taxpayer funded Minority-history month, no PC BS!

            Should you wear a veil if you’re not a Muslim? Should you be threatened with death if you don’t?
            http://libertarians4freedom.bl…..e-not.html

    2. Re: Gregory Smith,

      It’s all that Marxist Mulatto’s fault! Here I am paying off my credit card debt, watching my money, avoiding vacations, yet while I’m doing my job, Obama wants to raise the debt ceiling.

      This goes back way, waaaaay back before Obama was soiling his diapers (I mean, before 1987.) You have a government that colluded with bankers to establish a fiat currency, thereby allowing government to get around the fiscal restrains imposed by the gold standard; and the imposition of the Income Tax, which allowed government to fleece the citizens out of their hard-earned cash; all to pay for wars and welfare (and make bankers wealthy, of course.) Obama is just a symptom, not the disease, of America’s love affair with fascism.

    3. Marxist Meathead
      Marxist Malefactor
      Marxist Mistake

      Alliteration without the racist side effects. See how easy that was?

      1. I am not fond of the Marxist Mulatto moniker, but it is obvious to whom it refers.

        Your alternates fail in this regard. ALL Marxists are meatheads, malefactors, and mistakes.

        1. You’re right. How about Marxist Mistake-in-Chief? Still pretty easy.

          Not trying to be PC, just hated to see the guy shoot himself in the foot. It’d be nice to live in a world where a man can be careless with freighted terms and still be understood. But we don’t.

          1. Don’t feel bad, the asshole does it all the time.

      2. Hegelian Head of State?

      3. So it’s ok to make fun of somebody’s whiteness but not their blackness or mulatoness? Give me a break.

        I hate everyone equally. Besides, I’m not racist, I love black Republicans and any black who’s politically incorrect and able to tell the Demoncratic Plantation to go f-k themselves.

        1. I’m not racist

          Didn’t say you were. Just suggested that you’d be more effective if you didn’t sound like one. Note that you got only one response to the actual substance of your comment, and multiple responses to your uneccessary introduction of race.

          Anyway, say what you like. This is after all a libertarian forum.

          1. Well Middle Age Crazy, you have a point. Maybe if I were more polite I’d be more effective, but then again, I’ve been treated like crap when I’m polite and PC, so I don’t do that anymore.

            Besides, people who focus on the style and not the substance aren’t worth my time. I’d rather debate those who see the argument instead of how the argument is formed.

            THREATENED WITH DEATH FOR NOT WEARING A VEIL.
            http://libertarians4freedom.bl…..e-not.html

  14. Headline re-written to stanch a long hair-splitting exercise in the comments.

    Wait, whut? Here?

  15. I remember some American economist, I think it was Stiglitz, saying that the US and UK will never lose their AAA rating. This reminded me of A Clarkes saying that if an old scientist says it is impossible it will soon be proven wrong. As soon as the economist made his bold claim I knew that he would be proven wrong.

    1. I believe we’re nearly at the point where the rating doesn’t even matter that much. If Moody’s, S&P, and Fitch no longer have any credibility with the key investment players around the world, then what they say is irrelevant.

      China has already arrived at that point, which is why they’ve created their own ratings agency.

      1. I suspect that this downgrading is partially about regaining credibility.

  16. In other news, more than 5,000 parasites in Michigan just got their walking papers… from a Democrat! “The union couldn’t be reached for comment.” Mu ha ha ha ha ha ha ha ha ha!

    1. Mayor Bing to Unions: “Como Estas, Bitches!!”

      1. Re: Almanian,

        “Como estan, perras!!!!”

        1. Old Mexican, thanks for the Spanglish to Spanish translation.

          However, I think the literal translation should be:

          “Como estan, putas!!”

          1. That’s more correct, but I did not want to put down such language – you know me…

            1. Estes pinches gabachos no saben nada carnal.

  17. Wonder how the dollar is doing?

    “I’m not dead! I’m getting better. I think I’ll go for a walk.”

    1. You’re not fooling anyone, you know.

      1. Could you help us out?

        1. The Dead Body That Claims It Isn’t: I think I’ll go for a walk.
          Large Man with Dead Body: You’re not fooling anyone, you know. Isn’t there anything you could do?
          The Dead Body That Claims It Isn’t: I feel happy. I feel happy.
          [the Dead Collector glances up and down the street furtively, then silences the Body with his a whack of his club]
          Large Man with Dead Body: Ah, thank you very much.
          The Dead Collector: Not at all. See you on Thursday.
          Large Man with Dead Body: Right.

  18. Somebody was talking about this a little while ago on the teevee, “comparing” the U S with Greece. He was comparing the default swap premium, and saying, “See? The market knows there’s nothing to worry about!”

    He forgot to mention Greece cannot print money to pay their loans anymore.

    1. or the price of gold

    2. He forgot to mention Greece cannot print money to pay their loans anymore.

      Neither can California – and it’s economy is at least as large as that of Greece. Wonder who will be bailing them out?

  19. It’s hard to believe that market instruments like the dollar and government debt would react to market forces at a time like this–but there it is.

    Market forces are behaving almost as irresponsibly as the Tea Party…

    Maybe the Koch Bros. are behind this!

    1. Kochtopus!

      Of course those evil Koch brothers are up to it. They’re behind EVERYTHING that is evil. Or something.

  20. I’m glad I’ve been saving all those nice American dollars that will continue to lose their value.

    http://www.intellectualtakeout…..-over-time

  21. Questions for the huddled commenters:

    Historically, how does the current US GDP/Debt ratio compare to times past? I had thought that we hadn’t had debt like this since WW2, but I am willing to shown where I’m wrong? How about compared to other countries? Are we in an inflationary period now, or are we not, or is it that we would be with the increase in M0, but that other global factors are hiding the increase in M0 from being an increase in prices? I thought that a lot of the rise in commodities was due to the increase in M0, no? (I know that inflation does not refer to an increase in prices, rather an increase in monetary supply, but I did think the two were usually related.)

    If the U.S. Gov’t wanted to pay down debt, would it be able to in the current economic climate without instituting some Argentine austerity type solution or official devaluing of the currency? I got told this, and think the statement is so wrong that it hurts, but lack the cites and evidence to show just how wrong it is.

    Thanks as always.

  22. My new budget will restore fiscal responsibility; the dark clouds will part and blue skies and prosperity will return. Don’t listen to the obstructionists and naysayers.

    1. One industry in which I plan to heavily invest taxpayer dollars is Defense. We have defensive actions going on all over the world now and predict an expansion of these activities.

  23. Gloomy news, but not surprising. The Global economy has changed, and US is having a harder time dealing with its own economic worries… Hey, if you are interested to learn how to make money through trading, check out this great site.

  24. “Fiscal denialists thought we could just keep getting away with having some of the worst finances in the developed world. That dream should now be over.”

    Never underestimate the power of stupidity.

  25. The good thing about this is that it could serve as a wake-up call for Obama and the Congressional Democrats to cut spending seriously!

    Right now they are managing to largely ignore the debate as “irresponsible,” but what is more irresponsible than being the first president for this to happen to?

    If he decides to continue to ignore it, then 2012 will be a walk in the park for a fiscally conservative candidate.

    objectivistpolitics.blogspot.com

  26. http://www.thebilderberggroup.info/?p=48

    The Bilderberg Plot Continues U.S. Credit Rating Downgraded by Standard & Poor’s; Commodities Plummet

  27. Would you consider yourself worthy of a good credit rating if you had to borrow huge amounts each year to pay your bills? Especially if you had no idea how you could payback the vast amounts you have already borrowed. US policy-makers need to understand that the seriousness of their financial situation and that it’s not going to be fixed by spending just a little less on cake and jam. The USA, EU and UK needs to become more responsible and stop borrowing their way out of trouble. It’s just digging a deeper hole. Borrowing could be eliminated if the west closed tax dodging loopholes for banks/corps/biggest earners which would enable public services. If wars and weapons were reduced. And if native manufacturing was restored.

  28. Would you consider yourself worthy of a good credit rating if you had to borrow huge amounts each year to pay your bills? Especially if you had no idea how you could payback the vast amounts you have already borrowed. US policy-makers need to understand that the seriousness of their financial situation and that it’s not going to be fixed by spending just a little less on cake and jam. The USA, EU and UK needs to become more responsible and stop borrowing their way out of trouble. It’s just digging a deeper hole.

    Borrowing could be eliminated if the west closed tax dodging loopholes for banks/corps/biggest earners which would enable public services. If wars and weapons were reduced. And if native manufacturing was restored.

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