S & P Lowers U.S. Credit Rating

That could easily cause other ratings firms to follow suit, and the increase in the cost of credit will more than absorb any spending cuts all the haggling may have resulted in. Well, I hope they all got the "political points" they were wanting, because they ended up saving zilch in real money.

What spending cuts? The cuts taken were primarily projected budgetary increases, not REAL cuts, which has made it apparent that the US government is incapable of managing its debt, and thus the credit rating has been adjusted accordingly. The Republicans did not have the backbone or at least true interest in opposing Obama and producing meaningful spending cuts. It would have taken significant cuts with a clear strategy towards repayment on a fair timeline to avoid that and allay concerns over the unbelievable amount of and ineffectual spending of the current administration.

The root of the matter IMO boils down to the effects of globalization, illegal labor, widespread automation, and the predatory practices of a few major unions in driving businesses overseas, resulting in greatly devalued unskilled labor in an increasingly small domestic market. The response to this has not been reasoned, but rather capitalizing on the fact that votes can still be purchased by redistribution of wealth and dependency on government programs ensuring more money and thus power is funneled through government entities. The housing bubble is a prime example of this type of harmful government manipulation of banks and the economy through such social-engineering programs to buy votes.

And yes, the previous administration is far from blameless, but that doesn't mean that we can turn a blind eye to policies of this administration and the overwhelming contribution it has been to getting us into the present situation from the knee-jerk permitorium effectively haulting oil/gas operations in the Gulf (we had to close two offices because of it), the Delta Smelt drought, buying favor with the corrupt UAW by protecting them from bankruptcy and shafting GM and Chrysler bondholders, Obamacare's impact on business, Frank-Dodds, TARP, tax breaks for economically unsound green products, NLRB filing (and entirely baseless) suit against Boeing for building their new plant in the Carolinas (in order to avoid hiring more union workers), EPA's ruling on Texas despite continuously improving air quality, and more.

And what is Obama's solution to all this expenditure? To sell the story that the government should continue business as usual with unprecedented levels of spending, as we can just tax domestic businesses and the "wealthy" more as there is plenty of money to go around. While this may seem like a great plan to some of the uneducated lower class, let faceless corporations and rich people pay for everything as that doesn't affect me, with both the wealthy and businesses being upwardly mobile you simply end up with a situation similar to "white flight" in Detroit but on a national scale. Nearly half of the nation paid no income tax whatsoever, there aren't enough wealthy to cover the gap, and the top 1% as an example have already experienced a 60% increase in percentage of taxes paid between 1990 and 2006, and businesses in the US currently incur the highest tax rates of any major nation on the globe. American businesses, large and small and across all industries pay from 35% to 41.6% of their income in combined state and federal taxes. Compare that to socialist France where companies pay only 34.4% in taxes, to China where the rate is 25%, or Russia which levies a mere 24%. Yet people act confused as to why more and more businesses are moving overseas and contributing to the high unemployment rate and declining wages in the United States.

The answer is quite simple, the status quo has failed us.

As Obama once campaigned on, what we need now is CHANGE. As of 8/3 with a Presidential Approval Index of negative 19, at the very least I'm hopeful that we'll at least see that happen.

That's where the words "any" and "may" come in. Until we learn a little more than what politicians and the media are spoon feeding us about the "deal" (always accompanied by their insufferable views on the matter), we actually don't know very much of what was done, or promised, or planned, or wished.

My guess is that this is a power play by S&P. Since they're associated with the stock market, which has taken a real beating over the last few weeks, this is their shot across the bow that they can make life very difficult for the politicians if they don't start acting like adults (fat chance).

I don't think Moody's, et al, will follow, but I could be wrong. Moody's is largely on the hook for the sub-prime meltdown, and many politicians can make their life difficult if they get too fractious.

It was lowered because our politicians acted recklessly and irresponsibly. The one thing the business community wants is stability and we are far from it. There is too much debt to be remedied by spending cuts alone and it has to be a combination of spending cuts and revenue increasing. There is going to be an effect on the economy no matter what the ratio is. Both spending cuts and revenue increases will be pulling the money out of the economy.

Also, the cost of healthcare needs to be addressed. This one factor is costing the government and the private sector greatly. The only ideas I've heard is how to shift the burden of paying to someone else.

It's going to have to be a major revamping of Social Security and Medicare. If the tax rate was changed to 100% of everything over $250,000 of income, the IRS would collect enough to cut the $1,600,000,000,000 deficit in half for one year. And it would only work for one year, since those who make that kind of money would make sure they didn't have to pay it a second time.

The tax tables are going to have to changed so that the bottom 50% of income earners in the U.S. pay some income taxes. Many people forget that the reviled "Bush tax cuts" are what took those people off the tax rolls.

My guess is that something like a VAT tax is coming. Set high enough (about 20%, most experts think), it would solve the entire income tax boondoggle.

And President Obama will go down in history as the President who actually had the chance to fix the medical insurance problem and instead made it worse, if what I've seen so far is any indication. I think he had the political capital to get through a single-payer program, and didn't even try. In fact, the White House never even proposed it.

And the Senate is going to have to stop being a debating society and actually get something done. Many people don't know that while the House has passed budgets every year, the Senate has not passed one since President Obama became President. The U.S. has operated under a Continuing Resolution this entire time.

Moody's and Fitch already affirmed the AAA rating (though Moody's attached a negative outlook to it) before S&P came out with the downgrade. The markets traded so wildly yesterday on rumors of the downgrade.

S&P warned they may have to cut the rating again in two years if the politicians don't get it together. They're projecting 85% debt/GDP.

Power play by S&P perhaps... but personally I think the failure of Moody's and Fitch to downgrade the rating just goes to indicate what a sham the ratings agencies are.

Govt getting us to focus on the debt issue ceiling was a brilliant PR move. "Crisis averted! Debt ceiling deal reached!" Meanwhile, we're writing that we believe they're going to have to raise the ceiling again, and likely before Obama leaves office.

All the stimulus packages did was delay the inevitable. The government stimulus went to the wrong people. Instead of giving it to banks and big corporations (who are investing much of it overseas), it should have gone to consumers and small businesses, who would have spent it right here.

Six states have already cut jobless benefits to less than 26 weeks. The Muni market is a disaster waiting to happen as our cities go bankrupt.

This is the best line yet:

A Rush to Assess S.& P. Downgrade of Credit Rating

Well, I've never paid much attention to the Agency bond rating process. But when we analyze companies from an equity perspective, management and its effectiveness is one of the first things we consider. I don't see why countries should be any different.

An important point: China and Japan, who are complaining about this, both have lower credit ratings than the U.S.

And the DOW dropped today in response to the lowered rating. All those millionaires whose taxes were being protected just lost far more money than they would had their taxes been raised. And as a middle aged grunt, I'll just have to work a few more years before I can fully retire. Yippee skippee

When I heard the rationale behind the lowered rating, I admit to agreeing to it. Our government isn't stable right now with the extreme partisan positioning going on in Washington. I don't remember it being so bad when I was younger, but went to an extreme when Bush was in office and it hasn't let up since then.

And the media only adds fuel to the fire.

If you have a 401K or IRA, you just took a hit, too. In fact, probably more than those millionaires.

If you think it's partisan now, you don't remember when Reagan was President. He NEVER had a majority in the House, and only had a majority in the Senate for two years. Every budget he sent them was pronounced "DOA," and yet they DID get passed...but without the future cuts the legislature promised.

One analyst has put it very succinctly:

"If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year, & are $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget & debt, reduced to a level that we can understand."

The national debt has almost doubled in the 3 years since Obama was elected, and has gone from 40% of the GDP to almost 80% of the GDP.

You have to realize that it isn't all an increase in spending that caused this. Tax revenues declined from $2.5 trillion in 2008 to $2.1 trillion in 2009, and remained at that level in 2010. Revenues have been dropping because more people are out of work. To use your analogy, your family also got a 16% pay cut.

I saw a chart the other day that showed the contributors to the national debt. One of the largest contributing factors was the wars. When Obama actually put those wars into the budget, it appeared that he increased the deficit, when he only made the accounting for those wars legit. So yeah, blame Obama for trying to make our spending transparent.

And if the U.S. Government was a family, they would also try to raise their income, as any normal person in this country tries to do on a daily basis. I've never heard anyone say: "Hey, I didn't get a raise again this year - yippee!!". No, they do what they can to earn more income.

The S&P analysis did talk about the need to raise the revenue side of the equation. What I don't get is why the general public supports candidates who push for the rich to get richer.

My thoughts exactly. I'd be willing to pay a little more in taxes if very serious cuts in spending would take place but the people in the government cannot be trusted with our money. How about closing the loopholes that have helped us to lose our manufactruring capacity by allowing corporations to move overseas? Wouldn't that help? I don't want to see a so-called spending decrease of a couple trillion over ten years. Make it a trillion a year every year for ten years then I would be more open to paying a little more in taxes. Until then the lip service and finger pointing from the politicians needs to stop because all of the parties are equally responsible for the mess we are in.

Is it too late to bring back tarring-and-feathering?

Well, yes and no. While the spending for the wars was always "off budget," it was also always included in the annual debt numbers from the CBO. In other words, if you took out the war spending, most years of the Bush administration would have had no deficit. And yeah, I found the accounting tricks stupid, too.

If you added up the deficits for the entire Bush administration, they equal less than the first two years of the Obama administration. A lot less. It would be even less if you subtracted what has been paid back on TARP already.

Had Bush had the guts to veto a few spending bills, and had he run the Iraq War a lot better, his numbers would look a lot better, but no one has figured out how to dial back the Wayback Machine, yet. (And Chinese scientists a couple of weeks ago announced that they had proven time travel is impossible.)

So...are we all ready for our tax reform?

My guess among them are going to be an increase in SS withholding up to $1,000,000 income, or some such thing, a slow increase in retirement age to 70, some sort of sales/vat tax, and some other tweaks. Which ones do you prefer?

Edit: The White House is going to have to get its people to either shut their mouths or say something positive. The Fed's statement (and yes, I know the President doesn't technically control the Federal Reserve Board) killed an almost 400-point rally on Wall Street today. The President's speech yesterday is credited for over 300 points of the 600-point drop yesterday. If it was S&P's goal to undermine this administration, they're doing a great job of it.

Another edit: The market went from 200 points down to 400 points up in the last few minutes of trading. I wonder what happened? To quote from "Les Carnets du Major Thompson," "Les experts sont partages, celui qui est leur metier."

I'm not a financial analyst. I'll leave that to Laurie (LDG). I fully admit that I don't "get" macro-economics on the level that I should to really make an informed comment on this. But you know, this is America so I'm gonna do it anyway!

S&P had every reason and right to downgrade our rating. Seriously - has the US shown ANY reason to keep a "perfect" credit rating? We spend too much, have made no concessions to that spending knowing that the income will be lower, and now refuse to even consider real budget cuts. And the politicians are bickering like 2 year olds over the ball they both want to play with. (Which is an insult to most 2 year olds. They behave better than our "leaders" have!)

Does anyone actually think that "spending our way out of a recession" makes any sense at all? If you're behind on your bills, should you rack up more credit card debt to pay for it? Um...NO! DUH! This does not make sense! When you had other countries like Greece (a very socialist economic model) telling Obama that it was nuts, in a manner of speaking, then you should perhaps take a look at the repercussions. It was stupid before the "stimulus" and it makes no sense now either.

The thing that actually made me angry in the past couple days was when I heard that some in Washington/government were upset with S&P because they didn't bend to the government pressure to keep the rating at AAA+ or whatever it was. That's why they are pointing the finger at everyone else besides the people who actually caused it. S&P isn't reliable. The Tea Party caused the downgrade. Blah blah blah blah blah.

After the "deal" to raise the debt ceiling was reached (another great idea...oh crap, we've got too much debt & can't make the interest payment, so we better just borrow more!) there wasn't any real spending cuts. There were promises that there would be $$XX trillion in spending cuts. Then they couldn't find anyone who wanted to serve on this bipartisan committee because they know the cuts are gonna hurt and it will be "political suicide" to do what really needs to get done. Well too flippin' bad! Don't they know they'll get a huge pension anyway?

But their credit ratings vs our credit rating has nothing to do with it. China and Japan are the largest foreign owners of our debt. China owns $1.2 trillion at the end of May, and Japan owns over $900 billion.

And the markets decided they liked the Fed statement. Dow closed up 4% (430 points), S&P up 4.7% (53 points), and Nasdaq up 5.3% (125 points). Dow closed well over 11,000 at 11,239.77. (Don't get me wrong, we're heavily weighted in cash and owned the VIX for about a month through yesterday in the margin accounts LOL).

I have to head out in a few minutes, but I have to say that "gutting it up" and buying in a market like this is what makes people money. As my old boss said, "Mike, the secret to getting rich is to buy when nobody wants to buy, and sell when nobody wants to sell."

Ultimately, S&P really didn't have an impact on the matter except for making people nervous. All of the money leaving the stock market went straight to those downgraded US treasury bonds. Currently, there isn't anything deemed safer.

The US will always be able to pay its bills. If we don't borrow, the US treasury ultimately could print more money to cover everything. I don't think the resulting inflation would benefit anyone but debt holders, but the US won't default.

Except the Swiss Franc.

But you're right. The S&P downgrade just pointed up the problem: lack of confidence in the political process to resolve the mounting debt problem.

Of course... I pointed out last August that since Reagan we've grown our GDP with debt financing... as has the rest of the developed world. In fact, to continue the trend in place since 1980, we actually need to increase our debt to $104 trillion - adding $5 trillion a year. Wonder what S&P, Fitch & Moody's would have to say about that.

What's the Swiss franc trading at now? When we were there in 1972, it was 4 to the dollar. Looks like it's now one Swiss franc will buy $1.40. Should have kept the francs I had when I came home from college in France, just across the border from Geneva.

At that time, the French franc was 5 to the dollar. Since France uses the Euro, it's hard to know what that situation would be now.

Well Switzerland isn't a member of the EU, and the Swiss Franc still trades independently. There has been talk of pegging it temporarily to the Euro to stem the flow of investors "piling into the franc, a haven in times of crisis." http://www.bloomberg.com/news/2011-0...-be-legal.html

Here's a chart of the Franc/Dollar since 2008