Skip to main content

How Much is Too Much Debt?

By

Standard and Poor's recent decision to downgrade the US credit rating is a historic one.  The US had enjoyed a AAA rating since 1917, which not only spans the Great Depression, but the Big Recession of the 70s as well, not to mention the collapse of the S&L's in the 80s and the banking meltdown of 2008.  So why now?

S&P would like the public to believe it is non-partisan, but it seems it was first challenging the White House back in April, according to this article from Business Insider, which very clearly shows which side of the political divide S&P sits on,

The S&P was much less optimistic when they reported that  "we believe the Democratic Party, which controls the Senate, remains committed to its spending priorities and is unlikely to agree to further tax cuts, particularly for the highest-income earners, meaning Democrats are unlikely to accept the Ryan proposal without substantial modification."

Seems the $4 trillion deficit reduction plan Obama had on the table in June, which only included 17% in revenue increases, wasn't enough in their mind.  But, like the Ryan plan, S&Ps numbers just don't add up, as Tim Geithner pointed out.

Moody's thinks there should be more budget cuts as well, but it chose to retain the US's AAA rating.  Interesting that neither of these credit rating agencies feel that revenue increases are in order?
Labels:

Comments

  1. James FergusonAugust 8, 2011 at 6:00 PM

    I see stocks predictably took a nosedive on the S&P report, despite the report being largely discredited in the press. Seems traders will use any excuse to sell. Sometimes you wonder how much of this is orchestrated.

    ReplyDelete
  2. Rick DiguetteAugust 9, 2011 at 1:51 AM

    As Paul Krugman points out in Today's New York Times, "America’s large budget deficit is, after all, primarily the result of the economic slump that followed the 2008 financial crisis. And S. & P., along with its sister rating agencies, played a major role in causing that crisis, by giving AAA ratings to mortgage-backed assets that have since turned into toxic waste." I guess the S. & P. might argue that it has learned its lesson, but I'm a little skeptical.

    ReplyDelete
  3. James FergusonAugust 9, 2011 at 8:16 AM

    No, this rating "downgrade" strikes me as purely political.

    ReplyDelete

Post a Comment

Popular posts from this blog

The Triangle Shirtwaist Factory Fire

By
  Welcome to this month's reading group selection.  David Von Drehle mentions The Melting Pot , a play by Israel Zangwill, that premiered on Broadway in 1908.  At that time theater was accessible to a broad section of the public, not the exclusive domain it has become over the decades.  Zangwill carried a hopeful message that America was a place where old hatreds and prejudices were pointless, and that in this new country immigrants would find a more open society.  I suppose the reference was more an ironic one for Von Drehle, as he notes the racial and ethnic hatreds were on display everywhere, and at best Zangwill's play helped persons forget for a moment how deep these divides ran.  Nevertheless, "the melting pot" made its way into the American lexicon, even if New York could best be describing as a boiling cauldron in the early twentieth century. Triangle: The Fire That Changed America takes a broad view of events that led up the notorious fire, not...
230 comments
Read more

Team of Rivals Reading Group

By
''Team of Rivals" is also an America ''coming-of-age" saga. Lincoln, Seward, Chase et al. are sketched as being part of a ''restless generation," born when Founding Fathers occupied the White House and the Louisiana Purchase netted nearly 530 million new acres to be explored. The Western Expansion motto of this burgeoning generation, in fact, was cleverly captured in two lines of Stephen Vincent Benet's verse: ''The stream uncrossed, the promise still untried / The metal sleeping in the mountainside." None of the protagonists in ''Team of Rivals" hailed from the Deep South or Great Plains. _______________________________ From a review by Douglas Brinkley, 2005
293 comments
Read more

The Age of Roosevelt: The Crisis of the Old Order

By
A quarter of a century, however, is time enough to dispel some of the myths that have accumulated around the crisis of the early Thirties and the emergence of the New Deal. There is, for example, the myth that world conditions rather than domestic errors and extravagances were entirely responsible for the depression. There is the myth that the depression was already over, as a consequence of the ministrations of the Hoover Administration, and that it was the loss of confidence resulting from the election of Roosevelt that gave it new life. There is the myth that the roots of what was good in the New Deal were in the Hoover Administration - that Hoover had actually inaugurated the era of government responsibility for the health of the economy and the society. There is the contrasting myth (for myths do not require inner consistency) that the New Deal was alien in origins and in philosophy; that - as Mr. Hoover put it - its philosophy was "the same philosophy of government which...
170 comments
Read more