Michael Moore, the “documentary” film maker who has pushed various liberal causes with extraordinarily slanted films, has called on President Obama to “show some guts” and arrest the head of Standard & Poors.
“Pres Obama, show some guts & arrest the CEO of Standard & Poors. These criminals brought down the economy in 2008& now they will do it again,” Mr. Moore wrote.
Yes, it’s all S&P’s fault. Somehow the 100% of GDP debt, 4 trillion of which was heaped on the pile within the last 3 years, was an S&P plot. Apparently Moore is of the opinion that credit rating agencies ought to align themselves politically and if they don’t, or won’t, well they’re open to arrest. S&P obviously should have just kept to itself and supported the outrageous spending this administration has committed itself too.
It seems in Moore’s world the rating agency’s job is to turn a blind eye to actions and activities which, for any other country, would have earned a downgrade quite a while ago.
It it is telling that on the liberal side of things, the first inclination is to attack the messenger. And that inclination is driven by one primary thing – politics. Specifically the politics of personal destruction. The downgrade obviously hurts Obama politically. And all the spinning in the world doesn’t change that.
Because they see this as a desperate situation, the mask slips a bit and you see the true face of "liberalism". Imagine, in a Moore approved regime, how dissent would be handled if he’s now calling for the arrest of the CEO of S&P.
Mr. Moore went on to note that the “owners of S&P are old Bush family friends,” continuing a theme he has developed through several films about capitalism as essentially a crony system for the rich and Wall Street, especially the Bush family.
He went on to link approvingly to an article last week in the Guardian, a left-wing British newspaper, about a police raid in Milan against the offices of S&P and fellow ratings agency Moody’s. Italian police were searching for evidence on whether the rating agencies, in the words of a local prosecutor, “respect regulations as they carry out their work”.
Two more interesting points – somehow it is “Bush’s fault” (there’s a surprise). Additionally it is “important to respect regulations” when these agencies carry out their work. Of course Italy was downgraded by Moody’s and the reaction there by government has been much the same as here – “what us? How dare you”. Fallback? Government regulations, of course.
Naturally Moore doesn’t bother to point out that the government of Italy is run by a right-wing Prime Minister who, at any other time, he’d now be calling a “fascist” for doing that.
Vintage Moore. Vintage liberalism. Liberalism in very deep trouble. And that’s always when its inner totalitarian usually begins to show.
Following the downgrading of the US sovereign debt, S&P has also downgraded the credit ratings of the two quasi-government agencies, Freddie Mac and Fannie Mae, to the same level as the US (AA+). The reason given by S&P:
The downgrades of Fannie Mae and Freddie Mac reflect their direct reliance on the U.S. government. Fannie Mae and Freddie Mac were placed into conservatorship in September 2008 and their ability to fund operations relies heavily on the U.S. government. In addition to the implicit support we factor into our ratings, the U.S. Treasury has demonstrated explicit support by providing these entities with capital quarterly, as necessary.
The projected cost to bailout Fannie and Freddie through 2020 is estimated to be between $373 billion and $376 billion. The agencies which Barney Frank assured us were in fine financial shape are, in fact, giant money pits. They are indeed reliant upon the US government for their subsidy as is obvious by the future funding that’s being planned for them. It is believed that approximately $291 billion dollars was necessary in 2009 to prop up the two agencies.
Of course it is possible that the administration will try to attack this finding by S&P as well. However, the reality is the agency’s downgrade has indeed had an effect, no matter how hard the administration and various Democrats attempt to attack the messenger. Everyone has known at some point it wasn’t a matter of “if” the US debt would be downgraded, but “when”. And all the grousing and griping we’ve seen the last few days, all the attempts at blame-shifting and attack politics don’t change that simple bit of reality. Freddie Mac and Fannie Mae’s downgrade simply puts a cherry on the downgrade sundae.
“Look at the history of this – the fact of the matter is that this is essentially a Tea Party downgrade. The Tea Party brought us to the brink of a default.” –David Axelrod, top political consultant to President Obama, in an appearance on “Face the Nation”, Sunday, 7 August, 2011
Damn those Tea Partiers, and their rigid insistence on slashing the Federal budget. If only they were more flexible on spending and increased taxes, we’d be just fine. Their demand that we substantially cut federal spending, balance the budget, and pay down the debt without significant tax increases has now caused S&P to conclude that we aren’t serious about getting debt under control.
That’s the Democrats’ argument anyway. And they’re sticking to it.
I will defer to Protein Wisdom’s Jeff Goldstein for his response:
For all those — both left and (establishment) right — inclined to excuse their own complicity and try to scapegoat the TEA Party, which remains the one faction who actively pushed for serious, actual debt reduction and a return to fiscal sanity, take note here: we recognize that it’s been your strategy since the downgrade to seize on the warnings against “political gridlock” in order to insist that a failure to “compromise” on the part of the TEA Party supporters is what led to the downgrade. We also recognize the dishonesty and cynicism of such a strategy: as has been noted time and again, Cut Cap and Balance was the compromise, with the vast majority of TEA Party supporters in the House voting for the bill, which gave the President his debt ceiling increase in exchange for both real cuts and a mechanism by which to control future deficit spending and debt.
Who didn’t compromise — and whose political intransigence is at the heart of the downgrade — is the Democrats, who refused to come up with their own plan, and who then refused to even allow CC&B come up for a vote. This faction — along with the go along/get along GOP establishment — is now looking to pass blame for their own willingness to block compromise onto the TEA Party.
It won’t work. 66% of the population backed CC&B; 75% backed a Balanced Budget Amendment. What they got instead was more spending (the single largest increase in history) for more empty promises of future cuts in the rate of spending.
This didn’t come anywhere near to what the credit agencies demanded, and it is not lost on us, no matter how feverishly you wish to spin it, that what is missing from any plan but those pushed by the TEA Party is any “‘stabilization and eventual decline’ of the federal debt as a share of the economy,” something that simply won’t happen without real cuts. Raising taxes on “millionaires and billionaires,” even were you to confiscate all their wealth by taxing them at 100%, would run this government for less than a year. And once you confiscated it all, you’d have to then look elsewhere for new “revenues” to keep the government running.
The political class is unwilling to accept a simple premise: They’ve looted the system. And they’ve looted it to such an extent that some notional increase in revenues obtained by taxing the "rich" can never make up for the spending.
Blaming the downgrade—or anything else—on the only group in America who are willing to fix the problem, rather than kicking it down the road as far as they can, is just a non-starter.
Or, it would be, if there weren’t so many people who weren’t so desperate to believe the gravy train can roll forever.
The yield on the 10-year note has dropped to 2.44%, down from 2.57% at Friday’s close. I’m thinking this is telling us the economy’s on the way into the toilet, as the standard reaction for a credit downgrade is rising interest rates, to cover the extra risk. The Dow’s long slide, which began on 22 July–and continues with a 250 point loss so far today–is probably telling us the same thing, as earning expectations slide. Since the downgrade was one agency only, and the downgrade only to AA+, economic factors are clearly weighing more on the bonds than the downgrade. On the other hand, if you’re a gold investor, you’re probably a little happier today, as Gold hit $1,715/oz.
The key takeaway so far today is the continuing decline in yields, which isn’t good news. Thank goodness there’s no economic releases today. I’d hate to see what more bad news would bring.
So, back into recession, it looks like.
One of the more interesting things I’m wondering about, in a horrified kind of way, is what effect the downgrade has on corporate paper. A number of institutions have investment rules that require they concentrate their investments in AAA-rated securities. But, one of the general rating rules is that subsidiary corporate and government instruments cannot have a higher rating than their sovereign instruments. So if the US Government doesn’t have a AAA rating, no subsidiary US corporate or government paper should have a AAA rating either.
So, what does this mean for the handful of corporate and government instruments that were rated AAA prior to the downgrade? Do they get downgraded, too? If so, where do the institutions with a AAA rating requirement go with their money?
I’m not at all sure how this works. As we’ve been saying a lot in the last week or so, we’re in uncharted territory.
END OF DAY WRAP-UP: Well, that could’ve been worse, I suppose.
|Dow||10,810.83 -634.76 (-5.55%)|
|S&P 500||1,119.46 -79.92 (-6.66%)|
|NASDAQ||2,357,69 -174.72 (-6.90%)|
|10-Year Yield||2.34% -0.22%|
|Comex Gold||$1,710.20/oz (+3.7%)|
I’m not sure how much worse it could’ve been, though.
In this podcast, Bruce, Michael, and Dale discuss concerns about Turkey, and the debt limit.
The direct link to the podcast can be found here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.
Well, this is encouraging:
U.S. government officials are bracing for the rating agency Standard & Poor’s to downgrade the country’s credit as early as this evening or take other possible action, according to someone familiar with the matter.
Open comment thread to answer the question: How screwed are we?
UPDATE: ABC news adds more:
A government official tells ABC News that the federal government is expecting and preparing for bond rating agency Standard & Poor’s to downgrade the rating of US debt from its current AAA value.
Officials reasons given will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited. [Emphasis added—Ed.]
So, it’s all your fault, Republicans.
UPDATE II: Politico’s Ben White (@morningmoneyben) tweets, "Senior govt official tells me S&P had planned to downgrade 2nite. And now may not. Weirder and weirder".
UPDATE III: Jake Tapper updated the ABC story above with new developments:
A third official says that S&P made a "serious mistake" in its analysis, "based on flawed math and assumptions," so the Obama administration is pushing back. But even though "S&P has acknowledged its numbers are wrong, it’s unclear what they’re going to do.," the official said.
S&P refused to comment.
What a strange set of developments.
Update IV: The Wall Street Journal provides a clearer look at what’s happening:
A mathematical error discovered late Friday by Treasury Department officials threw into limbo, at least temporarily, plans by ratings firm Standard & Poor’s to downgrade the top-notch AAA credit rating the U.S. has held for 70 years, people familiar with the matter said…
S&P officials notified the Treasury Department early Friday afternoon it was planning to downgrade the debt, a government official said, and the firm presented its report to the White House. S&P has previously warned such a downgrade might come if Washington didn’t move to comprehensively tackle its long-term fiscal woes.
After two hours of analysis, Treasury officials discovered that S&P officials had miscalculated future deficit projections by close to $2 trillion. It immediately notified the company of the mistakes.
S&P officials later called administration officials back to say they agreed about the mistakes, though they didn’t say whether it would affect the rating. White House officials remained waiting Friday evening to see what the company would do.
That’s an enormous mistake for S&P. If you’re about to issue a downgrade to the United States, you’d better check yourself, son. After this, the Treasury Department will go to the wall on S&P if they try to downgrade.
Big black eye for Standard & Poor.
UPDATE V: Holy crap! CBS White House reporter Mark Knoller (@markknoller) just tweeted: “S&P has downgraded US Treasury securities from AAA to AA+. S&P bills downgrade as an ‘unsolicited rating.’" Oh, it’s on now. S&P has got big brass ones, because the Treasury Department and White House will now go 10-8 on their ass, after finding that $2 trillion math error.
UPDATE VI: Well, the first responses for the downgrade are in at Reuters. They seem pretty measured. Optimistic even.
While all the angst and hang-wringing continue over the Giffords shooting and the false flag of “vitriolic rhetoric”, Moody’s and Standard & Poor’s Corp have again warned the US it’s credit rating is in jeopardy:
Moody’s Investors Service said in a report that the U.S. will need to reverse an upward trajectory in the debt ratios to support its triple-A rating.
"We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the U.S., the likelihood of a negative outlook over the next two years will increase," said Sarah Carlson, senior analyst at Moody’s.
Standard & Poor’s Corp. also didn’t rule out changing the outlook for its U.S. sovereign-debt rating because of the recent deterioration of the country’s fiscal situation. The U.S. has a triple-A rating with a stable outlook at both raters.
"The view of markets is that the U.S. will continue to benefit from the exorbitant privilege linked to the U.S. dollar" to fund its deficits, Carol Sirou, head of S&P France, said at a conference in Paris on Thursday. "But that may change. We can’t rule out changing the outlook" on the U.S. sovereign debt rating in the future, she warned. She added the jobless nature of the U.S. recovery was one of the biggest threats to the U.S. economy. "No triple-A rating is forever," she said.
Note the line I emphasized. That is the primary reason it hasn’t happened yet. The dollar is the true benchmark currency of the world. Or perhaps a better way of saying that is it is the benchmark currency of the world at least for the time being. But busting through 14 trillion dollar debt ceilings and continuing uncontrolled spending is a very quick way to have other countries consider other currencies or perhaps a market basket of currencies to replace the dollar.
If that happens, our triple-A rating will disappear faster than a pizza at a Weight Watchers convention. But even if it doesn’t, we’re well on the way to a downgrade anyway:
The most recent official figures show the ratio of federal debt to revenue averaging 397% of gross domestic product in the period to 2020, while the ratio of interest to revenue will rise to 17.6% by 2020, from 8.6% in the last fiscal year. "These figures are "quite high for an Aaa-rated country," Moody’s said.
Debt affordability is "very important to the rating process," Ms. Carlson said. U.S. general government debt affordability, including states and municipalities, is "rising over time to a high level for an Aaa-rated country," the report said.
Or said more succinctly, the only thing keeping us at the Aaa level is the fact that we are the home of the dollar. Otherwise the ratios above would most likely have seen us downgraded already.