Free Markets, Free People


US credit rating in jeopardy if Obama budgets pass

I’m not sure how much more of a blatant warning than this can be sounded over the financial path the Obama administration plans on taking us:

Moody’s Investor Service, the credit rating agency, will fire a warning shot at the US on Monday, saying that unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialise, there would at some point be downward pressure on the triple A rating of the federal government.”

That’s a very civilized way of saying “cut spending and cut borrowing or we’ll cut your credit rating so you can’t borrow and can’t spend”. The budget deficits projected by the Obama administration would eventually see 15% of the government’s future revenue committed to debt service – about the same as in 1983. However:

This time the servicing burden would be harder to reverse, however, because it would not be caused by high interest rates but by high debt levels.

Moody’s says it doubts the political will to raise taxes significantly from their present 14.8% of national income level or to cut spending from 25.4% of national income. That, of course, means an ever increasing gap between revenue and spending and jeopardizes the nation’s credit rating.

Moody’s isn’t the first rating firm to issue this type warning:

The report follows concerns recently expressed about the US public finances from the other large rating agencies. Standard & Poor’s warned last week the triple A status of the US was at risk unless the country adopted a credible medium-term plan to rein in fiscal spending. Fitch Ratings issued a critical report on the US in January.

Fitch said: “In the absence of measures to reduce the budget deficit over the next three to five years, government indebtedness will start to approach levels by the latter half of the decade that will bring pressure to bear on the triple A status.”

Or, we’re headed toward a financial cliff and right now our leadership is hitting the accelerator. If you think we have financial problems now, watch what happens of we suffer through the downgrading of our national credit rating.

~McQ

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28 Responses to US credit rating in jeopardy if Obama budgets pass

  • Moody’s Investor Service, the credit rating agency, will fire a warning shot at the US on Monday, saying that unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

    >>> How long until Obama starts demogauging and demonizing Moody’s and it’s entire industry?

    • Exactly.  I also expect lot and LOTS of “Bush did it, too!” as well as scholarly “analyses” from people Krugman and various other lefty economists who will assure us that having debt loads that high are not so bad, we’ve gotta spend more money to kick-start the economy and save or create jobs, and, anyway, it was even worse when Reagan was in office.

      Many people comment that Imeme has never run anything in his life.  I’m begining to wonder if that jug-eared idiot can even manage to balance his checkbook or keep up with a credit card.

  • More change from the land of Hope and Change.

    • Indeed, wasn’t it the Bush policies that wrecked the economy and led to the Democrat takeover?
      Didn’t the Dem’s campaign in 2006 that the economy then was “…the worst economy since the Great Depression”?

  • Moody’s says it doubts the political will to raise taxes significantly from their present 14.8% of national income level or to cut spending from 25.4% of national income.

    And that’s only the half of it – them comes the states, cities and counties that spend just about as much as the Feds.
    In Sum: IT’S THE SPENDING, STUPID! And 3/4ths of that has no Constitutional (LEGAL) authority.

  • Not to throw a monkey-wrench into the works, but aren’t US Treasuries the definition of “AAA” ?
    This sort of Möbius logic could trigger a real panic in the markets.
    Just saying …

  • Spending is the only way to protect our right to free health care, receive credits on taxes we didn’t even pay, help illegal immigrants use our infrastructure to do jobs Americans won’t do, and ensure we get ‘our fair share’ when the census has been completed!

     

  • Somewhere in DC right now there are lawyers drafting a bill to ban credit agencies from rating government debt.
    The Greeks already want CDS gone.
    Because if the symptom can be hidden, it means your healthy.

  • Well, if the economy hadn’t been in collapse and deep recession when he took over, we’d not have had to spend so much.  The good news is that there are real glimmers of hope that things will start getting better as soon as summer.   I do think we need to cut debt levels, but to blame it all on Obama, rather than thirty years of growing public and private debt, and structural imbalances that led to meltdown in 2008, is crass partisanship at its worst.

    • So you think we need to cut debt levels.  Glad to hear it.  But your Messiah is producing “budgets” (talk about a misnomer) that will double the debt in his first term.  And you stand there and claim it is everybody’s fault but his!  Well, wake up and smell the barley there Erb.   Your Messiah, the same one who campaigned on responsible stewardship, is spending like a drunken whore and your constant support of his actions “is crass partisanship at its worst.”

      • Again, SShiell, why do you people on the right want to pretend that those more to the left consider Obama a “messiah.”  I mean, that’s like saying you thought George W. Bush walked on water.
        I’ve criticized Obama many times in my own blog about debt, and questioned even his health care policy (though today I make the argument that due to politics, he needs to get this passed).   But remember — this is a deep and intense recession with massive job loses.   Economic logic says you need to stimulate the economy.   I’ve said that what he has to do is more aggressively make cuts once the economy starts growing again.  At this point, I don’t think the Obama administration is planning on being aggressive enough on that front, and I will be even more critical of him moving forward if that’s the case.
        Of course, you live in some kind of fantasy land where you think I don’t criticize Obama or think he’s somehow a ‘messiah.’  I guess if you assign others opinions they don’t hold it’s a lot easier than really responding, eh?   That’s sort of a wimpy way to debate, but hey, if that’s all you got, then I guess it’s what you need to do.

        • To tell you the truth I do not care one whit that “I’ve criticized Obama many times in my own blog about debt, and questioned even his health care policy. . “   All we see is what you write here.  And when you continue to defend Obama in spite of his doubling the deficit in his first term then I can only think you must feel some sort of  protective religious zeal in defending the man.

          And if the best way you can respond to my criticsms is to attack my “wimpy way to debate” then Erb you need to read what you just wrote and then remove the beam from your own eye before you talk about the splinter in mine.  It is writing crap like that while claiming to maintain the moral high ground  that cause the vast majority of us here to despise you.

          And, by the way, if what you write in your own blog is all you got – well, that ain’t shit!  I’ve seen better discourse from second graders with crayons!

        • “why do you people on the right want to pretend that those more to the left consider Obama a “messiah.””
          I wonder…could it be because asswipes on the left keep finding artistic ways to imply he is?
          Checked out the latest NYT photo - Cross, White House, Obama, blended nicely together….yeah, no worshiping going on here kids, move along.   Not that you did it, but give the world a freaking break, there’s a Mess in the man all right, but there sure as hell isn’t a Messiah.

    • I’m sure this isn’t helping either …

      This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

      … but .. I forgot .. Democrats have been telling us for years that this would be no crisis.
      Politicians prevaricating … gambling at Rick’s … I’m shocked.

    • This is not a case of blaming Obama for decades of past fiscal irresponsibility.  This is pointing out that our continuing fiscal irresponsibility, this time under Obama’s presidency, could have disastrous results.  And right now, our government continues to do the same things it has in the past, talking about deficit reduction (instead of debt reduction) and talking about putting spending limits in place (with so many loopholes as to render them ineffective).

      • No, this is worse.  Obama is using the excuse of some prior fiscal irresponsibility in the past for astronomical fiscal irresponsibility now.
        It’s sort of like saying that because I took pain killers in the past, I can ingest the entire bottle without it killing me.

        • I suggest that it’s more of, “He committed petty larceny, so I get to knock over a bank.”

      • I’ve made the same argument many times.  I was convinced last year, after initially opposing the stimulus plan, that given the depth of the recession, it was necessary.   But cuts need to be made, and while I’ll give Obama some slack given that our economy almost collapsed in 2008 and needed to be revived (and so far the dollar is holding up OK), I think he needs to pivot aggressively to a mix of tax increases and spending cuts in order to avoid a very dangerous risk to the dollar.

    • Scott Erb:
      March 17, 2009 at 09:52
      Well, while you are fine at throwing out silly insults, I disagree with you that the budget isn’t going to be cut.  It has to be, and the President knows it.  This year will be a bad one for the deficit, but starting with the next budget I believe we’ll see serious cuts.  You can disagree with that, and then support your position by insulting me — I guess that’s the way a lot of people do political debate these days.    I suspect you’ll be surprised (though I’m doubting you’ll admit you were wrong if and when it happens).”
      “Scott Erb:
      March 17, 2009 at 06:05
      We cannot have a big Keynesian boost when we’re already over $10 trillion in debt.  That risks not only making the hole deeper, but inflation (and if we’re not careful, hyperinflation).   This is especially dangerous given that the Europeans are not so keen to increase spending by increasing debt, and this may help the Euro relative to the dollar over the longer term.   Obama’s plan can only work if he uses funds to invest in the economy (which is needed — and states need relief from unfunded mandates) while cutting programs that aren’t needed or don’t work well.  In other words, he spending more should only be very early and short term, he has to spend smartly.  If the debt grows even half as much in the next seven years as it did on Bush’s watch we’re facing long term structural economic weakness.   I don’t think people have come to grips with how bad the 90s and 00s were for our economic viability.”

      A year later almost to the day – how’s that budget cut doing there Scott?  You don’t need to post anything new, just go over your posts for the last year, and about the same time you can post what you already wrote… “this is like deja vu all over again”.
       

      • When Bush was sworn in on January 20, 2001, the national debt was $5,727,776,738,304.64.
        When “W” left office on January 20, 2009, the national debt was $10,626,877,048,913.08.
        The growth in the national debt during his eight years in office: $4,899,100,310,608.44.
        The average yearly growth in the national debt during Bush’s presidency: $612,387,538,826.05.

        Projectecd growth in deficit for the next 8 years is roughly $8,000,000,000,000.  It won’t take Obama more than another year to surpass Bush’s 8 years of debt growth.

        • How much spending was already approved for 2009 when Bush left office (and was signed into law by Bush)?   But here’s the big problem:  Bush deficit spent when the economy was growing and unemployment low. That is when you should be running surpluses, and bringing down the debt — or at least the budget into balance.   That was a missed opportunity, instead Bush spent while the economy boomed.   Now with a recession, a mix of higher costs due to unemployment and other factors, lower tax revenues due to a recession, and a need to start the economy make it necessary to accept short term higher debt.   When the economy starts to grow again, Obama needs to pivot to getting budgets more aggressively in line.   I’d say by 2012 the economy should be looking more sound, and that’s the year Obama needs to make some major inroads in spending cuts.   Anything else happening in 2012?

          • Given the Obama’s focus is on increasing entitlements, it is a joke to expect any fiscal sanity from him.

          • No Scott.  The only spending approved under Bush that has continued is TARP and much of that has been repaid.  We should also note TARP was not designed to be spent on GM and Chrysler.   This $800 billion+ stimulus was all Obama (actually Pelosi and Reid), but even though he abdicated, Obama is still responsible.   The budget is all Obama.  It is also annoying to see you and Obama continue to blame Bush.  Obama inherited nothing.  He volunteered for every bit of it.

            I also think you are wrong about the economy.  Keynesian economics has never worked.  Ask Japan, FDR, and now Obama.  In spite of all the good words, the banks are still bankrupt.  We are just hiding it better.   And that is before commercial real estate starts to come down.  We have had a deficit of 10% of GDP to get a temporary increase (1 quarter worth) of 5.9%.  That is a losing strategy.  If you looked, inventory adjustment about ended last month and the consumer spending is not picking up.  Consumer debt is going down.  Less debt, less spending add up to fewer jobs and less GDP growth.  We are a long way from out of this because we have fixed virtually nothing.

            You may have noticed the Moody threat today.  Of course, Moody (along with Fitch and S&P) rated the MBS’s as AAA right up to the end.  Maybe Moody is serious this time or maybe it is a futile gesture to get their reputation back.

          • Look, Erb, you are the one who said “If the debt grows even half as much in the next seven years as it did on Bush’s watch we’re facing long term structural economic weakness. “  But not only is the debt not going to grow at a slower rate than when Bush was in office, it’s going to grow at double the rate.  You can’t blame that on Bush.  Stop trying to deflect:  what Obama is proposing over the balance of his term in office is utterly ruinous to our economy.
             

          • As Rick point out, the only 2009 spending of Bush’s was TARP, which Obama voted for. And Obama then mis-spent TARP of GM, etc.

            So Obama shares the blame for TARP passing along with Bush and McCain, and he fully owns the blame for his use of TARP.

            As far as Bush deficits go, I’ve seen the charts which indicate they tracked economic bad times, post 9/11, etc., and obviously our defense priorities. Bush certainly did some bad things–TARP, Medicare Part D, and McCain-Feingold come to mind–but his handling of things were nowhere as bad as Obama’s.

            In fact, the very few things Obama has done right has been contiuation of things Bush did, Gitmo, A’stan, etc. I can’t give much credit since he does seem inclined to mess these things up.

        • Recall that 2009 was the massive, delayed budget that Obama signed, not Bush.