April 18, 2011

The S&P’s Downgraded Outlook: Hopefully a Pre-Tipping Point Tipping Point

Filed under: Economy,Taxes & Government — Tom @ 2:55 pm

6433A-downgradeFrom CNN:

Standard & Poor’s lowered its outlook for the nation’s long-term debt Monday, based on the uncertain political debate around the nation’s fiscal problems.

The outlook means that there is a one-in-three likelihood that it could lower the long-term rating on the United States within two years, S&P said.

Larry Kotlikoff’s 6-1/2 years of breathing space referenced last week seems optimistic now, doesn’t it?

Here’s Treasury’s reax in the CNN item:

“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,” said Mary Miller, the Treasury’s assistant secretary for financial markets.

Miller argued that dealing with the current fiscal challenges is “well within our capacity as a country.” She noted that Obama has called on Congress to begin developing a deficit plan next month, with the aim of reaching a legislative framework by June.

We have done nothing in the past two-plus years to demonstrate the existence of that capacity.

James Pethokoukis:

Washington types keep telling me that Americans really don’t care about the debt issue. But I think this warning — not to mention an actual loss of the AAA rating — is yet another data point that will sink into our collective head — right along with a trillion-dollar deficit, the EU debt crisis and our financial meltdown which shows too much debt can cause wealth to disappear in a flash.

It’s already sunk in — almost everywhere but Washington.

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3 Comments

  1. Here’s an interesting attempt to claim inflation of 5 to 6% is NOT going to occur. In the six reasons given, there are some lofty assumptions (last 4) and more importantly they describe the groundwork for Stagflation which is worse than inflation.

    6 reasons the inflationistas are wrong

    http://business.financialpost.com/2011/04/19/5-reasons-the-inflationistas-are-wrong/

    So what does this have to do with S&P downgrading it’s outlook on our debt? The very reasons cited will be those working against a real solution to the debt crisis because few of those in Congress much less the poseur in chief understand they can’t continue much longer and would rather play at their childish sloganeering. They are literally stuck in a false paradigm that says we must keep the social safety net at current levels even though the social safety net is bringing down the house. It is not until Congress is FORCED to give a 25% cut in all social services due to untenable circumstances that spending within ones means is going to be seen as being better in the long run than pandering to people’s fear of hitting rock bottom with no cushion.

    At this point my guess is since S&P’s track record has been of speaking up late in the game, that we really have less than 2 years to get the debt crisis on a sustainable path. I mean a real plan implemented in the 2012 & 2013 budgets, not talked about. Given Obama’s delusional state, 2012 budget already a loss making 2013 budget needlessly draconian. Every month they wait, the more draconian the required solution becomes.

    Comment by dscott — April 19, 2011 @ 4:39 pm

  2. I don’t think the case at the link is convincing, esp #3 and #4 about how reflationary govt. policies are over and Big Ben’s QE2 won’t lead to inflation. We’ll be very lucky if they don’t cause inflation, but they surely aren’t reasons that inflation won’t happen.

    Comment by TBlumer — April 19, 2011 @ 6:01 pm

  3. [...] of alleged experts in its Room For Debate section. Each weighed in on Monday’s ratings agency outlook downgrade by Standard and Poor’s in an item entitled “Is Anyone Listening to the [...]

    Pingback by BizzyBlog — April 20, 2011 @ 1:03 am

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