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TreasureKY -> RE: What the media isn't reporting about the S&P downgrade (8/6/2011 8:48:35 PM)
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quote:
ORIGINAL: MasterJaguar01
Sigh... I made this point to wilbur in the other thread when he erroneously stated that S&P would have downgraded us if there were no debt ceiling debate. It is VERY clear from S&P report that they blame the Republicans for this nonsense.
The BOTTOM LINE: No debt ceiling debate. No downgrade. S&P wouldn't have said a word.
I don't believe that is completely correct. S&P issued a statement on April 18th when affirming the US's AAA rating. Their comments related the following points:
Because the U.S. has, relative to its 'AAA' peers, what we consider to be
very large budget deficits and rising government indebtedness and the
path to addressing these is not clear to us, we have revised our outlook
on the long-term rating to negative from stable.We believe there is a material risk that U.S. policymakers might not
reach an agreement on how to address medium- and long-term budgetary
challenges by 2013; if an agreement is not reached and meaningful
implementation is not begun by then, this would in our view render the
U.S. fiscal profile meaningfully weaker than that of peer 'AAA'
sovereigns. Contrary to what has repeatedly claimed in this thread and others, I don't believe S&P has specifically blamed either party... but both. Note the following comments made, as well:
"More than two years after the beginning of the recent crisis, U.S.
policymakers have still not agreed on how to reverse recent fiscal
deterioration or address longer-term fiscal pressures," Mr. Swann added.
In 2003-2008, the U.S.'s general (total) government deficit fluctuated
between 2% and 5% of GDP. Already noticeably larger than that of most 'AAA'
rated sovereigns, it ballooned to more than 11% in 2009 and has yet to
recover.
On April 13, President Barack Obama laid out his Administration's
medium-term fiscal consolidation plan, aimed at reducing the cumulative
unified federal deficit by US$4 trillion in 12 years or less. A key component
of the Administration's strategy is to work with Congressional leaders over
the next two months to develop a commonly agreed upon program to reach this
target. The President's proposals envision reducing the deficit via both
spending cuts and revenue increases.
Key members in the U.S. House of Representatives have also advocated
fiscal tightening of a similar magnitude, US$4.4 trillion, during the coming
10 years, but via different methods. House Budget Committee Chairman Paul
Ryan's plan seeks to balance the federal budget by 2040, in part by cutting
non-defense spending. The plan also includes significantly reducing the scope
of Medicare and Medicaid, while bringing top individual and corporate tax
rates lower than those under the 2001 and 2003 tax cuts.
We view President Obama's and Congressman Ryan's proposals as the
starting point of a process aimed at broader engagement, which could result in
substantial and lasting U.S. government fiscal consolidation. That said, we
see the path to agreement as challenging because the gap between the parties
remains wide. We believe there is a significant risk that Congressional
negotiations could result in no agreement on a medium-term fiscal strategy
until after the fall 2012 Congressional and Presidential elections. If so, the
first budget proposal that could include related measures would be Budget 2014
(for the fiscal year beginning Oct. 1, 2013), and we believe a delay beyond
that time is possible.
Standard & Poor's takes no position on the mix of spending and revenue
measures the Congress and the Administration might conclude are appropriate.
But for any plan to be credible, we believe that it would need to secure
support from a cross-section of leaders in both political parties.
If U.S. policymakers do agree on a fiscal consolidation strategy, we
believe the experience of other countries highlights that implementation could
take time. It could also generate significant political controversy, not just
within Congress or between Congress and the Administration, but throughout the
country. We therefore think that, assuming an agreement between Congress and
the President, there is a reasonable chance that it would still take a number
of years before the government reaches a fiscal position that stabilizes its
debt burden. In addition, even if such measures are eventually put in place,
the initiating policymakers or subsequently elected ones could decide to at
least partially reverse fiscal consolidation.
And finally:
"Some compromise that achieves agreement on a comprehensive budgetary
consolidation program--containing deficit-reduction measures in amounts near
those recently proposed, and combined with meaningful steps toward
implementation by 2013--is our baseline assumption and could lead us to revise
the outlook back to stable. Alternatively, the lack of such an agreement or a
significant further fiscal deterioration for any reason could lead us to lower
the rating.
Please note the portions that I've highlighted in bold font. While it appears that S&P did indeed consider political division as a significant risk factor, they also clearly indicated that any proposal reached would need to reach the level proposed (around $4T), have support across political boundaries, and have "meaningful" steps taken by 2013. They also didn't appear to have much faith that a plan could be implemented in time.
Sounds to me as if S&P had a pretty good handle on what would happen. A slightly more realistic view than that of the Treasury whose response to this statement was:
“S&P assumes that the U.S. will enact ‘a comprehensive budgetary consolidation program – combined with meaningful steps toward implementation by 2013,’ but we believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation.” Personally, I'm tired of the bickering and laying blame. I suspect a lot of other Americans are, as well. [8|]
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