Great news: Downgrade could come as soon as Friday

posted at 9:25 am on July 26, 2011 by Ed Morrissey

Barack Obama has spent the last several weeks warning that a failure to raise the debt ceiling by the “drop-dead date” of August 2nd would cause a ruinous downgrade of Treasury bonds and an economic disaster for the US.  However, the downgrade may come sooner than that, because the debt ceiling is actually a secondary condition to the ratings agencies.  The problem, as they see it, is not that America can’t pay its debts next month, but that America has grown its debt to such a degree that we can’t pay them in the long run without serious restructuring of the federal government — and this administration refuses to consider it:

Only seven days stand between the U.S. and the effects of a credit default. But a downgrade of the nation’s stellar AAA credit rating seems a lot more likely, and a lot sooner.

The White House had been alerted repeatedly over the past month by rating agencies that without a strong, long-term plan to restructure the country’s debt, they would lower America’s credit rating as soon as this Friday, according to two officials familiar with the process. The White House was warned that the deal would have to be significant—and not a short-term fix over the next few days to avoid a credit drop. …

Some analysts have given up hope for the U.S. maintaining its rating. “We’re at a point that the odds of having a downgrade make it pretty much inevitable,” says Peter Cohan, a financial analyst and head of venture capital firm Peter S. Cohan and Associates. “I see a downgrade as being inevitable. The question is whether markets see that as being significant.”

With so many moving parts in the global economy, it’s difficult to measure the precise impact of aU.S. credit downgrade on the global economy. One specific effect would be a mass sell-back of U.S. bonds. Billions of dollars in outstanding bonds are held by people, countries, and agencies that only hold bonds guaranteed by AAA sellers. All of those would likely move immediately to sell in the wake of a credit downgrade, or change internal policies to retain the bonds. The ratings of all viable U.S. institutions, including Fannie Mae and Freddie Mac, would fall as well, potentially increasing mortgage-interest rates and borrowing costs on other loans.

So it’s not the debt ceiling that’s triggering a potential ratings change — it’s the trajectory of debt generated by the federal government.  This explains why the White House abandoned its “clean debt-ceiling increase” demand so early in the process.  It wouldn’t have done anything to avoid a downgrade anyway.

The debt-ceiling debate does impact the ratings agencies’ decision in one way: it forced Congress and the American people to confront the problem of escalating deficits and runaway entitlements.  That’s the debate we need to have, and the debate that Obama has been hoping to avoid.  Unfortunately, any significant restructuring of debt and future liabilities has to involve restructuring the programs that by far generate the worst of both.  Obama knows this, but doesn’t want to lose his party by participating in the inevitable reform of Medicare and Social Security.  Instead, he refuses to offer any plan, and hopes that Congress will rescue him from himself.

As I wrote earlier, that’s leadership in the era of Hope and Change.

Instead, as early as Friday, the bill will come due for decades of overspending and averting our eyes from the easily-calculated entitlement catastrophe that we built.  As long as we keep doing that, we are a poor risk for more loans, and the ratings agencies will only be reflecting reality when they match our ratings to our behavior.

Addendum: Jake Tapper picks up on the fact that the “drop-dead date” might have dropped out a little further:

It does not appear that date any longer will be the day will be the one when the U.S. officially no longer has the ability to pay its bills.

On Aug. 3, the federal government will have $32 billion in payments to make. Will the U.S. government have the money to make those payments? Previously analyses said no.

Now, however, analysts at Barclays Capital Research say incoming revenues to the U.S. Treasury have been a little stronger than projections — on the order of $14 billion.

So Barclays now says the government will have enough funds to pay its bills until Aug. 10.

Final thought: There is no small amount of irony in S&P and Moody’s punishing the US for its bad debt behavior.  Democrats pilloried the ratings agencies in 2008-9 for their role in overestimating the soundness of financial institutions before the economic collapse of 2008.  They accused the agencies of ignoring the very behaviors in which Congresses and White Houses under the control of both parties engaged and insisted that these agencies do a better job of highlighting risks.  Be careful what you wish for …

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We haven’t deserved to have a AAA rating for a long time. By my measure, not since the foolish stimulus package passed.

RBMN on July 26, 2011 at 9:29 AM

They accused the agencies of ignoring the very behaviors in which Congresses and White Houses under the control of both parties engaged and insisted that these agencies do a better job of highlighting risks.

Reap what you sow…

OmahaConservative on July 26, 2011 at 9:29 AM

Instead, he refuses to offer any plan, and hopes that Congress will rescue him from himself.

Is this anything like voting “Present”?

dirtseller on July 26, 2011 at 9:29 AM

Damn Bush…

right2bright on July 26, 2011 at 9:31 AM

I hope it comes ASAP.

artist on July 26, 2011 at 9:33 AM

There is no small amount of irony in S&P and Moody’s punishing the US for its bad debt behavior. Democrats pilloried the ratings agencies in 2008-9 for their role in overestimating the soundness of financial institutions before the economic collapse of 2008.

Yes, and on this one I actually have some sympathy with the D’s position. These rating agencies aren’t omniscient and completely blew it with respect to estimating the likelihood of various institutions going under. Now the President is pushing his idea of a grand bargain, and these shops are rushing in to act as his favorite talking point. Meanwhile, Moody’s economist Marc Zandi, one of the biggest cheerleaders for the stimulus package, both before and after, to the point of putting out junk-science anaysis of the glories of it, is now wagging his finger about the dangers of government debt.

Color me unimpressed. These shops may have heft, but they know precious little about the ins and outs of government fiscal policy.

Chuckles3 on July 26, 2011 at 9:34 AM

What’s scary? Obama trying to convince (and he will) the people that the debt ceiling is what is causing the downgrade. And I actually think he thinks that is the cause.
Scary because he can’t see the solution, if he doesn’t understand the cause.
Said many, many times by others…the most clueless president we have ever elected.

right2bright on July 26, 2011 at 9:34 AM

Ratings agencies are and always have been a lagging indicator of financial health. That they are catching up with the government’s fiscal problems should show just how far down the hole we actually are.

JohnTant on July 26, 2011 at 9:34 AM

*Sigh*

What a disappointment, I was momentarily distracted by the won’s sheer brilliance with that incredibly original speech on class warfare that I missed the part on his plan to fix this crisis.

Can someone instruct me on what most assuredly has to be the most incredible piece of budgetary brilliance the world has ever seen?

NMRN123 on July 26, 2011 at 9:34 AM

I thought the ratings agencies were very clear that only long term restructuring would satisfy them. But if you listened to Obama and the democrats, or the MSM, it was all about the debt ceiling. Willful ignorance.

Dee2008 on July 26, 2011 at 9:34 AM

Default bad.

But is a downgrade a big deal? I don’t think so. 1/4% or 1/2% increase in interest rate is what I heard. Hurts borrows (good) and helps savers (good).

huckleberryfriend on July 26, 2011 at 9:35 AM

I hope it comes ASAP.

artist on July 26, 2011 at 9:33 AM

Chess proverb, “The threat is worse than the execution”.

Fallon on July 26, 2011 at 9:37 AM

@RBMN: I suspect not since the Fed assumed implicit responsibility for “full employment” which would have been decades ago.

Seth Halpern on July 26, 2011 at 9:37 AM

…America has grown its debt to such a degree that we can’t pay them in the long run without serious restructuring of the federal government…

Would IMPEACHMENT happen to fall under the category of “serious restructuring of the federal government”?

pilamaye on July 26, 2011 at 9:38 AM

Little Bammie wants Republicans to miss the August 2nd deadline, or whatever the deadline really is. He wants a further default. He wants to find a reason to stop Social Security checks, a reason to shut down the Washington Monument.

Little Bammie and his handlers have looked at his polls and concluded that they need a game-changer, and a disaster fits the bill. He wants a default that he can blame on Republicans, and with the help of his liberal media allies he thinks he has it.

His reelection is all that matters to him, default, credit rating or the economy be damned.

slickwillie2001 on July 26, 2011 at 9:39 AM

However, the downgrade may come sooner than that, because the debt ceiling is actually a secondary condition to the ratings agencies. The problem, as they see it, is not that America can’t pay its debts next month, but that America has grown its debt to such a degree that we can’t pay them in the long run without serious restructuring of the federal government — and this administration refuses to consider it:

That’s the money line right there. The downgrade isn’t because we aren’t borrowing money, it’s because we borrowed TOO MUCH!!!!

Talon on July 26, 2011 at 9:39 AM

As I wrote earlier, that’s leadership in the era of Hope and Change.

It’s not so simple. Boehner had committed to reaching a ‘grand bargain’ that included more compromise than his base was willing to accept. Neither side has been willing to fully divulge every concession that was put on the table for fear of drawing outcries form their own party. And Obama was at least wiling to compromise on entitlement reform, something that unfortunately many other Dems won’t be willing to touch.

bayam on July 26, 2011 at 9:41 AM

Final thought: There is no small amount of irony in S&P and Moody’s punishing the US for its bad debt behavior. Democrats pilloried the ratings agencies in 2008-9 for their role in overestimating the soundness of financial institutions before the economic collapse of 2008

Yeah, I don’t get that.

BallisticBob on July 26, 2011 at 9:42 AM

Downgrade hurts only because it is the first time it has happened. The real question is whether there is ultimately a default (the answer, of course, in No). The other question is whether people will bail on the US as the reserve currency of the world…highly unlikely.

neoavatara on July 26, 2011 at 9:42 AM

BS–they’re just ratcheting up the scare. Because their efforts to panic the market so far have failed.

james23 on July 26, 2011 at 9:45 AM

I wonder what the Petulant Child in Chief will be doing today to solve the problem…go on tv and blame republicans again?

scalleywag on July 26, 2011 at 9:46 AM

So the question is, which plan (or even theoretical plan -just to be fair and make sure we’re letting the Democrats play too) so far discussed would avoid this downgrade?

BKeyser on July 26, 2011 at 9:47 AM

james23 on July 26, 2011 at 9:45 AM

Bingo.

Fallon on July 26, 2011 at 9:49 AM

This is one big govt circle. They need the debt ceiling increase because they will have to pay more in interest to borrow the money needed to keep all the welfare programs going and the 80M checks going out each month. That’s one huge can they are trying to kick down the road. The tea party has always been about stopping the spending of money we don’t have. We’d all have been better off since 2009 if DC had listened.

Kissmygrits on July 26, 2011 at 9:50 AM

I’m surprised that nobody has picked up on the idea that the debt ceiling is also a defacto balanced budget amendment. That is, the government can no longer spend more than the tax revenues that it takes in. With the Republicans holding the House, there will be no tax increases to fund increased spending.

The bottom line: if we never increase the debt ceiling, then the math says that going forward, we will always have a balanced budget.

Old Fritz on July 26, 2011 at 9:51 AM

“…he [Obama]refuses to offer any plan, and hopes that Congress will rescue him from himself.”

Someone in the White House needs to dial 911 because Obama is ill: ill-advised, ill-equipped, ill-humored, ill-mannered, ill-conceived, ill-tempered, illogical, and some would argue illegitimate and illegal. Does it have anything to do with being from Illinois?

Yoop on July 26, 2011 at 9:51 AM

I wonder what the Petulant Child in Chief will be doing today to solve the problem…go on tv and blame republicans again?

scalleywag on July 26, 2011 at 9:46 AM

When your only tool is a hammer…

Extrafishy on July 26, 2011 at 9:51 AM

So the question is, which plan (or even theoretical plan -just to be fair and make sure we’re letting the Democrats play too) so far discussed would avoid this downgrade?

BKeyser on July 26, 2011 at 9:47 AM

One way to ask this question- how much entitlement reform must the Dems accept in order to get the GOP to accept an end to Bush’s tax cuts for the upper class?

This seems to the basic sticking point. Everyone can agree to spending cuts but unless the GOP is willing to trade tax cuts for entitlement reform from Dems, you end up with the Reid plan- it has no tax cuts and no entitlement reform but is completely inadequate.

bayam on July 26, 2011 at 9:52 AM

The problem, as they see it, is not that America can’t pay its debts next month, but that America has grown its debt to such a degree that we can’t pay them in the long run without serious restructuring of the federal government

This analysis fails because Obama can’t use it to blame Republicans. /

Seriously, when did living within your means (no longer borrowing) become “Armageddon” and continuing to borrow when you’re already completely over your head in debt become “fiscal sanity”? Is everyone insane?

Paul-Cincy on July 26, 2011 at 9:53 AM

There was a good discussion of this at Ace’s the other day. As I said there, it is very much like an individual’s credit score. Your credit score depends not only on paying your bills on time, but also on the total amount of debt you are carrying. Your credit score can drop even if you are never late on a payment, if you are running up your credit lines and reaching the maximum on them. The ratings are based on the likelihood of a default. The closer you are to maxing out your available credit, the more likely a default is.

In the U.S. case, the agencies are looking at the total amount of debt, and the interest payments as a percent of the total budget and of GDP, and it is looking scary. They know that there is only so much more debt the world will buy from the U.S. at close to zero interest, and that at some point the rates are going to go up, and then we will have even higher interest payments on the debt. They also see that we are doing nothing to stop the spending binge we have been on for the last 6 years.

There is no question that the likelihood of a U.S. default i no longer zero, and is getting larger all the time. One thing the rating agencies have learned over the last few years is that they need to be much more conservative in their default scenarios for any debt rated AAA. It’s impossible to imagine them having any credibility left if they do NOT drop the U.S. to AA pretty soon.

rockmom on July 26, 2011 at 9:53 AM

Here’s Denninger’s take on the speech:


No, You’re Not King Sir Jackass

That was an absolute disaster for Obama.

Let us not forget that this President came into office and ran the credit card to the extent of more than $1,500 billion a year for the last two years. He continued the bankrupt policies of George Bush who did the same damn thing. He has blown money like crazy, yet has utterly refused to face the fact that there is no way he can continue to do what we’ve been doing with these deficits for the indefinite future.

We were told these deficits were necessary due to a crisis in 2008. But we have also been told the crisis is over. That our economy is recovering. That Wall Street is “healthy.” That the banks are “ok” and “well-capitalized.”

These are lies and The President knows it! The economy is a damn wreck. The banks are only “solvent” because they’re lying about asset values. And Wall Street is punch-drunk – again – on cheap leverage, headed for yet another utter and complete disaster.

So now, having run smack into the Tea Party and Boehner saying “no more damnit; we’re going to blow up if this crap continues!” The President now turns around and throws a temper tantrum on national television threatening the old “tanks in the streets” (effectively) if he does not get what he wants – which is yet another blank check.

Well Mr. President I want to know when the blank check demands stop!

Why? Because there’s no damn money, that’s why. The US Government is unable to keep doing this crap forever.

It has to stop!

In fact S&P has clearly stated that if you pull the crap you intend the downgrade you claim you’re trying to avoid will come.

I know in advance it is going to suck when the deficit spending stops. I’ve been writing on it for more than four years and have been utterly consistent. There is no escape from the mathematical facts.

So, Mr. President, if you intend to demand this crap continue, you have the affirmative obligation to tell the American people exactly when and how this is going to stop because you are not a King, you’re a President and you are subservient to the people – not the other way around.

If you can’t or won’t then Congress has the absolute responsibility to say NO – period – and force a balanced budget right now, since you will have, by doing so, declared that you never intend to resolve the underlying problem.

It’s that simple.

(you have to go to the lin for Karl’s original emphasis)

And here is his latest:

The Market Is Discounting The Downgrade

The best line:

The issue is not “avoiding a default” because no default is going to occur. We have enough tax revenue to pay the interest due; ergo, there is no default. What we’re actually arguing over here is when and how the “free stuff” folks will stop getting their 80 million checks (they mathematically can’t keep getting them on a forward basis.)

flyfisher on July 26, 2011 at 9:53 AM

When Obama said he graded his administration B+, who knew he was predicting our credit rating…uggh

reppac122 on July 26, 2011 at 9:54 AM

There is no question that the likelihood of a U.S. default i no longer zero, and is getting larger all the time. One thing the rating agencies have learned over the last few years is that they need to be much more conservative in their default scenarios for any debt rated AAA. It’s impossible to imagine them having any credibility left if they do NOT drop the U.S. to AA pretty soon.

rockmom on July 26, 2011 at 9:53 AM

A VC firm put together an excellent presentation that shows just how bad things have become:

http://www.youtube.com/watch?v=JnD0daTCcbg

bayam on July 26, 2011 at 9:55 AM

Great news: Downgrade could come as soon as Friday

I wonder if state run media factored that into their after speech push polling?

The nation is on the edge of the abyss and the press is more concerned with the bias needed to promote their liberal agenda.

Speakup on July 26, 2011 at 9:56 AM

One way to ask this question- how much entitlement reform must the Dems accept in order to get the GOP to accept an end to Bush’s tax cuts for the upper class?

This seems to the basic sticking point. Everyone can agree to spending cuts but unless the GOP is willing to trade tax cuts for entitlement reform from Dems, you end up with the Reid plan- it has no tax cuts and no entitlement reform but is completely inadequate.

bayam on July 26, 2011 at 9:52 AM

Bsck in the day, when Reagan was running up some deficits and Bush continued to propose unbalanced budgets, the Democrats used to rail about all the money going to pay interest on the debt. They said this is a huge transfer of wealth from middle-class Amaerican taxpayers to wealthy investors and retirees who own Treasury bonds.

Well, the annual interest payments we are making now are about five times as high as they were then, in fact this year alone we will pay almost as much in interest as the entire last federal budget under Reagan. Yet liberals have been utterly silent about this continuing and massive transfer of wealth from middle class taxpayers to wealthy bondholders, and especially to the Chinese.

Why?

rockmom on July 26, 2011 at 9:57 AM

So the question is, which plan (or even theoretical plan -just to be fair and make sure we’re letting the Democrats play too) so far discussed would avoid this downgrade?

BKeyser on July 26, 2011 at 9:47 AM

One way to ask this question- how much entitlement reform must the Dems accept in order to get the GOP to accept an end to Bush’s tax cuts for the upper class?

This seems to the basic sticking point. Everyone can agree to spending cuts but unless the GOP is willing to trade tax cuts for entitlement reform from Dems, you end up with the Reid plan- it has no tax cuts and no entitlement reform but is completely inadequate.

bayam on July 26, 2011 at 9:52 AM

What ever happened to the Gang of 6 with Tom Coburn or whatever? If both parties committed to passing a Gang measure within the next 30 days could that avert a downgrade this week?

bayam on July 26, 2011 at 9:58 AM

One way to ask this question- how much entitlement reform must the Dems accept in order to get the GOP to accept an end to Bush’s tax cuts for the upper class?

This seems to the basic sticking point. Everyone can agree to spending cuts but unless the GOP is willing to trade tax cuts for entitlement reform from Dems, you end up with the Reid plan- it has no tax cuts and no entitlement reform but is completely inadequate.

bayam on July 26, 2011 at 9:52 AM

Ending the Bush tax cuts for the top 2% of income earners would net the federal government at best around $700 billion over the next decade, and that’s if you view it statically which is almost never the case with tax hikes. On the other hand, the entitlement programs have tens of trillions in unfunded liabilities over the coming decades. So any tax increases agreed to by Republicans would be dwarfed by the amount in cuts that will be necessary to salvage(if that’s even possible at this point) the likes of Medicare, Medicaid, and Social Security. Oh, and Obamacare would have to be repealed since we can’t afford that either.

Doughboy on July 26, 2011 at 9:59 AM

Debt Ceiling debate is about future spending. Downgrade debate is about past spending.

txmomof6 on July 26, 2011 at 9:59 AM

bayam on July 26, 2011 at 9:52 AM

Raising taxes will not fix this problem.

fossten on July 26, 2011 at 10:01 AM

What ever happened to the Gang of 6 with Tom Coburn or whatever? If both parties committed to passing a Gang measure within the next 30 days could that avert a downgrade this week?

bayam on July 26, 2011 at 9:58 AM

You don’t pay attention do you. The downgrade is because we have TOO MUCH DEBT, not because we haven’t raised the ceiling.

fossten on July 26, 2011 at 10:02 AM

…the bill will come due for decades of overspending and averting our eyes from the easily-calculated entitlement catastrophe that we built. …

As was planned. FDR is quoted as saying about the ponzi scheme Social Security BEFORE it was enacted -

“…This is the same old dole under another name. It is almost dishonest to build up an accumulated deficit for the Congress of the United States to meet in 1980″

FDR – the biggest hero to the left-progressive movement, almost their founding father, knew what the effects of these entitlements would do -and here we are a few years later than he predicted but only because the can has been kicked down the road by his progressive successors.

batterup on July 26, 2011 at 10:02 AM

in fact this year alone we will pay almost as much in interest as the entire last federal budget under Reagan. Yet liberals have been utterly silent about this continuing and massive transfer of wealth from middle class taxpayers to wealthy bondholders, and especially to the Chinese.
Why?

Because interest rates have been so low, it hasn’t been a major cost factor as a percentage of GDP. Keep in mind that Clinton and the GOP congress worked together to solve that problem so it disappeared from everyone’s radar for quite some time. But you’re right, how quickly the political class forgot and only by the time the near collapse of our economy occurred did we realize that no one saved up for a rainy day.

bayam on July 26, 2011 at 10:02 AM

Congress is so blind and deaf when we out here know the hundreds of billions spent on the Dept. of Energy, the care and feeding of illegals, Dept. of Education, just to name a few and we have heard not one word of doing away with these drains to the Treasury. Not one word.

mixplix on July 26, 2011 at 10:02 AM

Wasn’t it weeks ago that Obama signaled if he couldn’t borrow any more money then he WOULD default on interest payments on Treasury bonds, even though those payments should be made first? IIRC, he asked rhetorically if we would pay the Chinese their interest over paying the retired their Social Security checks. In other words, he’d fund domestic programs first before paying our creditors their interest. HE personally would institute a default. Yes, THAT would be a disaster. But it’s not necessary.

Paul-Cincy on July 26, 2011 at 10:03 AM

Ending the Bush tax cuts for the top 2% of income earners would net the federal government at best around $700 billion over the next decade, and that’s if you view it statically which is almost never the case with tax hikes. On the other hand, the entitlement programs have tens of trillions in unfunded liabilities over the coming decades. So any tax increases agreed to by Republicans would be dwarfed by the amount in cuts that will be necessary to salvage(if that’s even possible at this point) the likes of Medicare, Medicaid, and Social Security.

Ok so if you had to sacrifice $700 bil in Bush era tax cuts, that are comparably small to savings from entitlement reform, what kind of numbers on the entitlement reform side would make the deal acceptable? Or are we past that point- no room for compromise, period?

What ever happened to the Gang of 6 with Tom Coburn or whatever? If both parties committed to passing a Gang measure within the next 30 days could that avert a downgrade this week?

bayam on July 26, 2011 at 9:58 AM

You don’t pay attention do you. The downgrade is because we have TOO MUCH DEBT, not because we haven’t raised the ceiling.

fossten on July 26, 2011 at 10:02 AM

I thought the Gang plan included deep spending cuts that would satisfy the ratings agencies- at least that’s what I remember from Coburn’s statement.

bayam on July 26, 2011 at 10:06 AM

I don’t remember Obama mentioning the trashing the government’s credit rating and paying billions more in interest when he was selling Porkulus and the rest of his “initiatives”.

forest on July 26, 2011 at 10:10 AM

How long before the credit rating agencies start telling Congress how they need to restructure? We’re standing at the intersection of Greece and UK. Either we go the UK route and voluntarily slash our spending, or we go the Greece route and put off the pain, and soon the world forces us to slash.

hawksruleva on July 26, 2011 at 10:12 AM

bayam on July 26, 2011 at 10:06 AM

Perhaps an esteemed progressive Obama sycophant like yourself can explain the Presidents plan in detail to us?

NMRN123 on July 26, 2011 at 10:13 AM

I thought the Gang plan included deep spending cuts that would satisfy the ratings agencies- at least that’s what I remember from Coburn’s statement.

bayam on July 26, 2011 at 10:06 AM

Once again, you fail to understand the difference between ‘deficit’ and ‘debt.’

fossten on July 26, 2011 at 10:15 AM

When your only tool is a hammer…

Extrafishy on July 26, 2011 at 9:51 AM

True. Little Bammie is an idiot savant. His skill is not playing a piano, or counting dropped toothpicks, his one and only skill is his ability to recite a speech he could not write if his life depended on it, and sound pretty good.

slickwillie2001 on July 26, 2011 at 10:16 AM

bayam on July 26, 2011 at 10:06 AM

Perhaps an esteemed progressive Obama sycophant like yourself can explain the Presidents plan in detail to us?

NMRN123 on July 26, 2011 at 10:13 AM

I only know what everyone else reads in the papers. It’s the Reid plan or Gang of 6 plan. Neither side has admitted how far the ‘grand bargain’ forced each compromise behind closed doors before a few of the details were leaked to the press.

bayam on July 26, 2011 at 10:17 AM

I only know what everyone else reads in the papers.

bayam on July 26, 2011 at 10:17 AM

We all knew that already.

fossten on July 26, 2011 at 10:19 AM

I thought the Gang plan included deep spending cuts that would satisfy the ratings agencies- at least that’s what I remember from Coburn’s statement.

bayam on July 26, 2011 at 10:06 AM

Once again, you fail to understand the difference between ‘deficit’ and ‘debt.’

fossten on July 26, 2011 at 10:15 AM

The ratings agencies don’t expect the US to reduce its debt anytime soon, that’s obviously unrealistic. The expectation is tied directly to a reduction of US deficit spending. If the structural deficit were halved over the next decade, then the current credit rating would remain intact.

Around $4 tril in savings to be realized in order to reach that number.

bayam on July 26, 2011 at 10:20 AM

bayam on July 26, 2011 at 10:17 AM

This is truly stunning news.

Do you meant to tell me that the smartest, most intelligent president ever to inhabit the oval orifice does not have a plan?

NMRN123 on July 26, 2011 at 10:21 AM

More than anything else, the bonding agencies have got to be reacting to the Toddler-in-Chief’s demeanor on this issue; and, to a lesser degree, to the stubbornness of all parties to refuse to address true reform this close to an election.

michaelo on July 26, 2011 at 10:23 AM

Ayam you are so indoctrinated by the msm you actually believe the gang of 6 will solve the deficit. Truly sad.

angryed on July 26, 2011 at 10:23 AM

Around $4 tril in savings to be realized in order to reach that number.

bayam on July 26, 2011 at 10:20 AM

“Savings?” Are you still pushing the false ‘revenue increases’ meme?

Do you ever have an honest argument?

fossten on July 26, 2011 at 10:25 AM

Boy, the 95% of wall street that are Democrats ain’t gonna like this, eh Bayam?

Maybe Obama jacking up spending from 20 to 25% of GDP with zero plan to pay for it wasn’t such a hot idea afterall.

Chuck Schick on July 26, 2011 at 10:27 AM

We haven’t deserved to have a AAA rating for a long time. By my measure, not since the foolish stimulus package passed.

RBMN on July 26, 2011 at 9:29 AM

I’d like to blame it on that, but we didn’t get tens of trillions in debt overnight, not even over that night. This has been coming for a long, long time, and the stimulus spending only ensured that it got here faster.

Esthier on July 26, 2011 at 10:29 AM

Only peripherally related:

0bama’s version of Jim Taggart, Immelt, is moving GE’s Medical Imaging business to China.

LegendHasIt on July 26, 2011 at 10:30 AM

Ok so if you had to sacrifice $700 bil in Bush era tax cuts, that are comparably small to savings from entitlement reform, what kind of numbers on the entitlement reform side would make the deal acceptable? Or are we past

bayam on July 26, 2011 at 10:06 AM

I can only speak for myself, but my preferred scenario would be to phase out Medicare and Social Security completely. Over several decades of course, but those programs are flawed at their very core. They were created under the false premise that life expectancy was equal or less than the retirement age and that there would be a ratio way more workers than beneficiaries at any given time.

Since that’s politically toxic and all but impossible, the next best thing would be to reform these programs so they can at least remain solvent for the foreseeable future. That means raising the retirement age significantly. Honestly, I’d raise no less than 5 years below life expectancy. So if the average American is living til 78(just to throw a number out there), the retirement age must be hiked to 73 or more. We can’t have folks drawing SS checks and Medicare benefits for a decade and a half or more before keeling over.

Next is to means test the programs. Social Security should not be a retirement fund for every American. It should be there to keep elderly folks out of poverty. If someone’s well off enough that they don’t need the checks, they don’t get them. Also, we need to put these SS and Medicare taxes into a lockbox. No more access for Congress from the general fund. That’s why there are trillions in IOU’s sitting in the Treasury right now. Also, allow Americans to invest their SS payments into a private account. I trust the average taxpayer with that money much more than the federal government.

That’s just a start. I’d like to see way more than that done, but if the GOP can’t even get those concessions from the Dems, then this country is FUBAR.

Doughboy on July 26, 2011 at 10:32 AM

I kind of agree with the Senator who said “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”

Interesting how times change.

amazingmets on July 26, 2011 at 10:34 AM

It’s about time the USA stopped being economic bullies of the world and brought down so the rest of the world can rise up. /sarcasm

Exit question for Cloward-Piveners: Why would Obama want us to maintain our AAA rating?

shick on July 26, 2011 at 10:35 AM

I aint buying that Obama wants our rating to remain AAA.

shick on July 26, 2011 at 10:36 AM

The ratings of all viable U.S. institutions, including Fannie Mae and Freddie Mac, would fall as well, potentially increasing mortgage-interest rates and borrowing costs on other loans.

I like this idea. Maybe this will FINALLY let the mortgage market hit rock bottom (instead of the artificially inflated bubble that BO and co. have been keeping). Until the mortgage market hits rock bottom and the market is allowed to re- adjust on its own there won’t be a comeback in that area.

ptcamn on July 26, 2011 at 10:38 AM

That’s just a start. I’d like to see way more than that done, but if the GOP can’t even get those concessions from the Dems, then this country is FUBAR.

Doughboy on July 26, 2011 at 10:32 AM

I don’t have a problem with any of what you laid out, but very few politicians from either party would agree to a drastic increase in retirement age. It would have to happen in maybe 2 or 3 stages. The question is… what makes the deal good enough for the GOP to give up Bush era tax cuts? Otherwise, we’re back to the Reid plan- no entitlement reform, no new revenue and credit ratings hell.

bayam on July 26, 2011 at 10:46 AM

One way to ask this question- how much entitlement reform must the Dems accept in order to get the GOP to accept an end to Bush’s tax cuts for the upper class?

bayam on July 26, 2011 at 9:52 AM

If we need to share the sacrifice, why just stop at the cuts that were given to the upper class? We all know these tax increases won’t pay down even our deficit anyway.

Esthier on July 26, 2011 at 10:48 AM

there won’t be a comeback in that area.

ptcamn on July 26, 2011 at 10:38 AM

If American dollars become worthless, it’s entirely possible there still won’t be a comeback. It shouldn’t have come to this.

Esthier on July 26, 2011 at 10:51 AM

The White House had been alerted repeatedly over the past month by rating agencies that without a strong, long-term plan to restructure the country’s debt, they would lower America’s credit rating as soon as this Friday, according to two officials familiar with the process. The White House was warned that the deal would have to be significant—and not a short-term fix over the next few days to avoid a credit drop

Wouldn’t this be an impeachable offense? If Giggles swore to uphold, protect, and defend the Constitution than wilfully ignoring the downgrade should be grounds for impeachment, if not outright imprisonment.

This is what happens when a dope backed by powerful people determined to “take the US down a peg or two” gets into the White House.

crazy_legs on July 26, 2011 at 10:51 AM

It’s about time the USA stopped being economic bullies of the world and brought down so the rest of the world can rise up. /sarcasm

Exit question for Cloward-Piveners: Why would Obama want us to maintain our AAA rating?

shick on July 26, 2011 at 10:35 AM
+++++++++++++++++++++++++++++++++++++++
Circumstantial indications would rightly lead one to believe that the Genius that is supposedly Obama is not taking these actions out of stupidly, but of malice.

Parenthetically speaking, he wants to use the crisis of a serious nature as a form of AAA to shoot down our ‘High flying’ way of life.

[Those in the aviation community should be able to understand my triple A analogy]

NMRN123 on July 26, 2011 at 10:52 AM

bayam on July 26, 2011 at 9:52 AM

Others may have covered this but since you replied to me, I’m extending the same courtesy.

First- your question was not synonymous with mine. We’re days away -apparently- from the credit agencies downgrading our credit rating. The President has made it clear that this is something that could potentially devastate our economy. True or untrue is immaterial- the President is selling it and it’s his job to avert this “catastrophe”.

He has several choices though none are actually available to be signed except -with a reintroduction in the Senate- the CCB bill passed by the House. Since he doesn’t like that one, the House is putting forth another bill; maybe it’ll pass, maybe it won’t. The Senate has the Reid plan. Again, maybe it’ll pass, maybe it won’t. But assuming the new bills do pass their respective chambers, the president has the obligation -with only days remaining to avert this catastrophe that even his own communications director is saying could throw us into a depression- to get behind one of these plans and call for it to be sent to his desk.

Of these plans, which would stave off a ratings downgrade? That is the question and seemingly the goal of the administration and Congress.

Additionally, the Bush tax rate law is now the Obama tax rate law since he signed it. The Bush law was replaced with language that extended it. It does, however, have an expiration date. And on that date, a lot of people -far below that of the 2% he keeps denigrating- will be affected by tax increases from the current rates. It’s therefor not a choice to simply let the rates expire; a new law must be drafted and approved by Congress detailing the new rates for everyone for a tax increase to only affect the “rich”. Which Democrat is going to write that bill?

BKeyser on July 26, 2011 at 10:52 AM

bayam on July 26, 2011 at 10:46 AM

If you still believe that Obama is a super intellect of the highest order, then why hasn’t he provided a blueprint of sorts to sustain the nation in this time of crisis from the font of his immense wisdom?

NMRN123 on July 26, 2011 at 10:55 AM

bayam on July 26, 2011 at 10:46 AM

If you still believe that Obama is a super intellect of the highest order, then why hasn’t he provided a blueprint of sorts to sustain the nation in this time of crisis from the font of his immense wisdom?

NMRN123 on July 26, 2011 at 10:55 AM

I didn’t support Obama in the primaries because of his inadequate experience. You don’t need to tell me that his legislative style isn’t a model for future Presidents. I noticed that already.

On the other hand, Obama is willing to compromise on entitlement cuts far more than most Dems as you’ll soon realize during the next campaign cycle. If the GOP can find a way to compromise, there will be a better deal than the Reid plan.

bayam on July 26, 2011 at 11:08 AM

Of these plans, which would stave off a ratings downgrade? That is the question and seemingly the goal of the administration and Congress.

You’ll only see either completely partisan or watered down plans introduced by either party. A real, substantial deal will happen only after tough negotiations behind closed doors that involve give and take from each side. But apparently that’s not going to happen. It’s always easiest to do nothing.

bayam on July 26, 2011 at 11:10 AM

bayam

I am constantly amazed at your defense of a man, who had the House and a filibuster proof Senate and could only manage legislation that put copious amounts of money in his hands, which he, in turn, used as a slush fund to his cronies. He didn’t even have the foresight to increase the debt ceiling when no one could have stopped him. Between this battle and the continued deterioration in our economy and unemployment numbers, he has been completely unmasked. Support for his policies seem demented at this point.

Cindy Munford on July 26, 2011 at 11:12 AM

If you still believe that Obama is a super intellect of the highest order, then why hasn’t he provided a blueprint of sorts to sustain the nation in this time of crisis from the font of his immense wisdom?

NMRN123 on July 26, 2011 at 10:55 AM
*****************
bayam on July 26, 2011 at 11:08 AM
+++++++++++++++++++++++++++++++++++++++
I did not refer to experience, but to his supposed genius, if it is the case that Obama is an intellectual of the highest order why hasn’t he provide us with a plan.

Certainly a Proud Obama Supporter such as yourself should be intelligent enough to explain this discrepancy?

NMRN123 on July 26, 2011 at 11:14 AM

I see a downgrade as being inevitable.

There is no way Bams can escape political blame for this one.

PattyJ on July 26, 2011 at 11:15 AM

Bayam, how do you know Obama is willing to compromise on any sort of spending cuts? There has been absolutely nothing out of him except his joke budget that RAISES the debt by TEN TRILLION OVER THE NEXT DECADE. It was killed 97-0 in the Democrat Senate. Thats a hell of a chasm between CUTTING by 4 trillion.

Speeches and closed door meetings are not plans. No reason for anyone to take Obama seriously on cutting spending. He’s resisted it every step of the way.

Chuck Schick on July 26, 2011 at 11:17 AM

a downgrade of the nation’s stellar AAA credit rating

That’ll make for a nice bullet point under the “Unprecedented” category on Hussein’s resume.

Alden Pyle on July 26, 2011 at 11:19 AM

On the other hand, Obama is willing to compromise on entitlement cuts far more than most Dems as you’ll soon realize during the next campaign cycle. [...]

bayam on July 26, 2011 at 11:08 AM

Based upon what specifics?

BKeyser on July 26, 2011 at 11:24 AM

there won’t be a comeback in that area.

ptcamn on July 26, 2011 at 10:38 AM

If American dollars become worthless, it’s entirely possible there still won’t be a comeback. It shouldn’t have come to this.

Esthier on July 26, 2011 at 10:51 AM

Don’t get me wrong Esthier, I should have use “stabilize” rather than comeback. I am not expecting (nor wanting) to go back to the inflated mortgage market of the past decades. But regardless of the value of the dollar or the credit rating, until the system is allowed to flush on its own all the excess inventory, bad mortgages, and so forth without government intervention, that part of the market won’t stabilize.

As for the downgrade, I know most of us here understand what that would entail. Well, maybe the country needs a bucket of cold water to react.

ptcamn on July 26, 2011 at 11:42 AM

If the ratings agencies were more credible, our debt would have been down graded the day Obama was elected.

jhffmn on July 26, 2011 at 11:46 AM

We are in worse shape than Greece.

Greek credit rating stands at Ca — one step above default.

Just saying.

Rebar on July 26, 2011 at 11:54 AM

bayam on July 26, 2011 at 11:08 AM
+++++++++++++++++++++++++++++++++++++++

Can a Prepubescent Obama Sponsor such as yourself explain this discrepancy: If Obama is supposedly an intellectual of the highest order, then why hasn’t he provided us with a plan?

NMRN123 on July 26, 2011 at 11:56 AM

Now, however, analysts at Barclays Capital Research say incoming revenues to the U.S. Treasury have been a little stronger than projections …

Based on our advice to the “millionaires” who were begging to have their marginal tax rates increased, they have apparently been sending voluntary payments to the U.S. Treasury.

Which is excellent.

Jaibones on July 26, 2011 at 11:58 AM

The problem, as they see it, is not that America can’t pay its debts next month, but that America has grown its debt to such a degree that we can’t pay them in the long run without serious restructuring of the federal government — and this administration refuses to consider it.

If only we’d listen to Krugman and spent three times as much money on the stimulus! /sarc

smellthecoffee on July 26, 2011 at 11:59 AM

On the other hand, Obama is willing to compromise on entitlement cuts far more than most Dems as you’ll soon realize during the next campaign cycle. If the GOP can find a way to compromise, there will be a better deal than the Reid plan.

bayam on July 26, 2011 at 11:08 AM

ROTFLMAO….are you for real?

Reid plan?

After last nite’s nonsense….exactly who do you think is in the driver’s seat?

Have you seen this morning’s polls?

Your jug-eared-messiah can no longer vote “present”….he now owns this fiasco…..and he’s LOSING in the court of public opinion.

It’s YOUR side that better compromise in a hurry or yu’ll lose even more indies.

Have been watching your posts for a couple of days….the words “bammie-worshiping-uninformed-dope” immediately come to mind..

Tim_CA on July 26, 2011 at 12:35 PM

Be careful what you wish for …

Cue silent, bitter laughter…

disa on July 26, 2011 at 12:40 PM

I think it’s time for the Bamster to be a proper daddy to his daughters and go back to Chicago to that property he was bribed with.

disa on July 26, 2011 at 12:43 PM

This fool is in over his head.

jawkneemusic on July 26, 2011 at 1:23 PM

http://www.politico.com/blogs/glennthrush/0711/RSC_chair_Boehner_doesnt_have_the_votes_for_plan.html

BOEHNER IS LYING.

Heard him on Rush………the “cuts” are a JOKE……

PappyD61 on July 26, 2011 at 1:49 PM

As some folks have been saying for weeks…

All along, the imminent credit rating downgrade wasn’t about the debt ceiling, but about “business as usual” doing nothing to ever potentially improve either the debt or deficits. A debt-ceiling move has less than zero impact on that, it proves to the ratings agencies that the can is being kicked down the road.

Had McConnell’s “plan” been enacted, Obama would have gotten his blank check through the remainder of his term, the credit rating would still have tanked, and the Republicans would have been blamed for not recognizing the need for “serious” budget cuts.

Amazing what a little stand on principle can provide. Nobody can be blamed for what comes next except Obama. The House has tried to give him what would keep our credit rating solid, and he insists on squeezing a backhoe in front of the car to dig the ditch deeper.

John, get out of the way, there are leaders behind you trying to lead. No tax increases, no acceptance of status quo spending. Force the cuts, and quit pretending that the President is part of the budget negotiation. Send him what you believe in, and let him sign or veto it.

Now.

Freelancer on July 26, 2011 at 4:41 PM

bayam on July 26, 2011 at 10:02 AM

You meant to say that the Republican House of 1994 forced the Contract with America down Clinton’s throat, and when he couldn’t dodge it anymore, he capitulated, and then immediately took credit for a balanced budget.

Freelancer on July 26, 2011 at 4:58 PM

So what does Obama really want?

He has enough power to sit back and say let’s let Congress do its job, but then dictates the bills that he wants passed (like Obamacare, the Stimulus, and now he’s ghostwriting Reid’s debt-ceiling bill).

S&P played politics by not warning against Fannie & Freddie when they would have saved things – so they’re no light in the darkness.

Either:

Obama is naïve and arrogant and wants to be a two-term president at any cost – and is willing to let the US be downgraded to get re-elected.

Or, Obama wants the US to be less grand and more like Europe, or perhaps China or Russia or India – and wants the US to be downgraded according to a world wealth-sharing plan.

Or, Obama wants the US to be downgraded, to become poor, chaotic and riotous – and wants the US to be downgraded so that he can declare martial law and he can become dictator for life (and really make laws without having to consult Congress any more).

Or, he is in league with S&P and he knows they only raise the specter of downgrade now to momentarily enhance Obama’s bargaining position – and knows they will not downgrade.

Seriously, what is he thinking?

[Courtesy of Conspiracies-R-Us]

flicker on July 26, 2011 at 6:11 PM

Today is fine with me.

kens on July 27, 2011 at 10:29 AM