Another of the major credit agencies is threatening to downgrade America from its top-tier AAA rating. Moody's announced that it would make the call in the New Year, depending on how Congress handles the fiscal cliff.
The ratings agency said they'll base their decision on whether Congress implements policies that lower the debt-to-GDP ratio by reining in the debt. That means Moody's may be looking for the US government to increase tax revenue by letting the Bush tax cuts expire, and decrease spending on defense and social programs – decisions that will be tough calls for Congress and horribly unpopular with voters.
Worryingly, House Speaker John Boehner said this morning he has "no confidence" that a deal will be reached.
America lost its top-notch rating from another ratings' agency, Standard and Poor, after the debt ceiling standoff in 2011.
So in order to avoid a downgrade, we will need to do something about the debt. It is easily argued that our federal spending (the highest since WW2) needs to be reduced. So what gets cut? Our military (19% of budget) is taking it on the chin thanks to a botched deal between Obama and congress. What else should get cut? Social security, 20% of the budget, can't and shouldn't be touched for current seniors even though it will become insolvent in 2036 (tomorrow's problem). But consider that even Obama recognized that Medicare and Medicaid spending (another 20% of the Budget) is currently unsustainable. You say "Lets raise taxes and ignore the spending problems." But that's what we've been doing for years. Also, even with a fluctuating tax rate, tax revenues have remained fairly constant (ie raise them all you want, you won't get any more money). Clearly, we are stuck and some very unpopular decisions will need to be made soon, or they'll be made for us. You've lost your job, you cut out cable and reduced your cell phone bill but you're still not making it. You need to downsize your house but you don't want to. Fix the financial problems now or they'll be fixed for us.
Nope sorry, both sides are to blame. First off, the Obama admin. had the first two years with an iron-clad majority in Congress. Dems ruled the House and had a filibuster-proof majority in the Senate, yet NOTHING was done. The GOP took over the House and gained in the Senate in 2010. The House sent up 4 different Budgets, yet none were looked at. 4 Budgets under Speaker Boehner, 0 under Pelosi and still 0 today under Reid (well over 1200 days btw). Like I said, the blame is both ways, but more so with the liberals. Proof is in the pudding my friend...
"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics. More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011. Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon."
You'll recall, of course, that during this time period elected officials, Michele Bachmann in particular, were publicly advocating for the USA to default on its debt. S&P assigns credit ratings based on ability and willingness of a country to pay its debt. They did not question the ability.
I fail to see how the marginalization of the only people who are calling for reigning in spending instead of prolonging the status quo of borrow and spend with no end in sight is to blame...
I blame the reaction of both parties to the Tea Party's victories in the 2010 and the ensuing refusal of the powers that be to do anything but kick the debt issue down the road that eroded S&P's confidence. Maybe if an entire political party and half of the other party weren't hell-bent on demagoguing the Tea Party as racist religious nuts then maybe Standard and Poor's outlook would have been more optimistic
To blame one party or one person is laughable. To blame the tea party is more absurd. The downgrade is a direct result of the fiscal irresponsibility of both parties in Washington. No business or household can stay in business if they finance over 40% of their costs and government is learning that they are no different.
If the downgrade takes place, Obama and Reid get the blame (some of it will go to Pelosi). The GOP House sent up Four different budgets to the Senate and none were looked at. Reid sat on them all and 0bama simply looked the other way on it.
@mynameisaric Social Spending and Social Justice is what is putting us in a deep hole. Yes it hurts, but yes it needs to be cut. Or perhaps those 51% of leeches can get off their own duffs and start earning their pay like the rest of us.
@MarkJM I straddle the fence on this issue. However, the super wealthy only paying 13% is an issue when the middle class is paying closer to 30%. That alone will help close the deficit gap in the budget.
@mynameisaric I understand your case for those who were born with a silver spoon in their mouths and never did anything to earn it. But many other wealthy Americans built it from the ground up with little or nothing to start with. Why should they be punished for their hard work and success. As a small business owner, it ticks me off that I have to give more of my hard earned money (that I could use to further build my business and hire more people) simply so some lazy scumbags can stay at home and collect a welfare check. Yes some rich should pay more, but I believe in rewarding success, not punishing it.
@MarkJM I'm with you, and I think success should be rewarded. Problem is that the large corporations are ruining these tax breaks and incentives for people like you with the small businesses. And beyond that, I'm talking about personal income, not corporate taxes. The middle class is what drives this country and if anyone should be provided tax breaks and incentives to get their effective rate down to 13%, it should be the people making less than $250k. The wealthy have had their chance to prove the trickle down theory for the last 25 years, and it has failed this economy. I'm not suggesting fdr 90% rates, but a tax increase is necessary.
Yes, America will lose its credit rating and no one will care. The die has already been cast we are just 18 mos behind Europe. Not that we couldn't divert course but we are mire concerned that Sandra Fluke gets s hand out if govt condoms or who can legally sleep with whom. Why? Because its easier to focus on social issues than deal with our broken economy and admit that the Great Divider has a plan to change nothing. GOP gets distracted with stupid social issues that need not be addressed except by the states and forget to set out a clear set of steps to show how they can lead us out of this economic mess. It's not enough to say Obama is wrong. We know his policues haven't corrected the unemployment rate of over 8% for the past 42 months. If Romney needs to step up with specifics of he wants fill the vacuum of leadership by this president. And he better do it soon!
That is one of the things that really bothers me in all this. Companies who should rightfully have been disolved are still doing business because they were bailed out. Can we get another ratings agency that wasn't part of this collapse?
@DerivePI I really doubt that we will get different ratings companies. No one really speaks about the role the rating agencies played in the economic collapse. So now everything that they do after they stood by and passed off worthless investments as value worthy,could easily taken with a grain of salt.
My take: POLITICALLY -- The S&P is trying to push the US Congress into some sort of action. The recent performance of Congress is almost non-existent. Nobody seems to like the automatic cuts and tax increase, but both sides think there base will blame the other side for going 'over the cliff'. Worse things could happen. Don't count on any help after the Nov. election. Neither Obama nor Romney will be able to 'lead' the Congress where it needs to go. S&P is sending an sos. PRACTICALLY -- Congress is bought and paid for and will do nothing of consequence without a real shock. A vote against every incumbent would supply the shock, but that won't happen. If you want some reasoned policy proposals that aren't based on 'principals'(translated mean take care of my people, and it is NOT us) look at : http://www.enacttheplan.org/ google (CoChair_Draft.pdf) for actual options. It has something to piss off everybody, so it must be good.
@cnw95 S&P doesn't likely act because of patriotism. They are a business, a financial services business. That is their concern. They may have rated the bonds because they actually believed they were a good investment or perhaps to cash in on some of the short term profit, I don't have a inside source to inform me of their decision deliberations. The reason they are trying to move Congress is because it is in their financial interest and and the financial interest of their clients. Many people don't trust government, but you can't trust business either. So who can you trust ... the Fed ... can you trust yourself ...
@questioner Patriotism isn't at question here. What is at question is the S&P's competency and credibility. To assume that they rated those bonds AAA because they truly believed they were a sound investment makes the case that the S&P is a company that cannot be trusted. They either did not know(which would make them IGNORANT,not good) or they knew but did not care about the possible negative economic impact.(which would make them crooks because they were paid big money to rate those bonds) Those collateralized debt obligations were VERY complex money instruments. Even allen greenspan admitted that he did not FULLY understand them and yet we have the S&P placing AAA ratings on them not knowing the dire ramifications of such an uneducated decision??? The bond rating agencies should be held under close scrutiny and accountable for their decisions. Their reckless decision caused the entire planet to become infected with those worthless bonds. And now we should trust their judgement again????