Here is the bad news: the U.S. lost its triple A credit rating. For the first time S&P downgraded America's credit to double AA. There isn't any good news. I don't know what this means in terms of immediate financial consequences. It is easy enough to say what it means in larger terms.
- Paul Krugman is an idiot. I have demonstrated this well enough in the past. It has been verified again. Krugman isn't stupid nor is he crazy (though to be fair a case can be made for that). He is just living in another world. Krugman thinks that the U.S. government has not spent nearly enough. Much more spending is necessary to generate job growth. The trouble with that is that we have already been spending at WWII levels. If that doesn't work, what would? And from whom do we borrow the trillions more that Krugman thinks we need? Greece?
- A lot of people on the American left are Paul Krugman. They say we need to focus on jobs, not on the deficit, but that is just another way of saying we need to keep spending more borrowed money. John Kerry thinks the Tea Party is the problem and that the press should "stop giving them equal time". That's like blaming your fever on the thermometer.
- The Republicans are the problem. Yes, in so far as they are rigidly opposed to raising taxes. Federal taxes at present are at present taking a historically small cut of the GDP. We are going to have to let them rise to the norm and maybe a bit higher than that.
- Taxes won't solve the problem. Beyond a certain point, taxes have diminishing returns. They will begin to retard economic growth and encourage tax avoidance. No realistic or even unrealistic level of taxation can restore the budget to solvency.
- Congressional Democrats are the problem. Yes, in so far as they are acting like an opposition party. They obviously think they were put on this earth to sustain and increase spending. No progress can be made on the real problem so long as they insist and are able to continue doing that.
- The President is the problem. To be sure, in so far as he is incapable of leadership. The presidency was designed to provide leadership for Congress in setting a national agenda and in dealing with a national crisis. The President submitted a budget earlier this year that ignored the fiscal crisis. After the Ryan plan forced Democrats to abandon that budget, the President proposed…nothing.
- The gridlock in Washington is not the problem. S&P didn't downgrade our credit rating because Congress didn't increase taxes on the rich.
- The national debt is the problem. That would be it. As in Brussels, so on the Potomac. Financial institutions worldwide are losing confidence that the U.S. government can address the solvency crisis. If that continues, it will lead to catastrophe.
This crisis has been coming for more than a half century. Conservatives have been warning about this for all that time. We now have the cold comfort of being right.
And now for a bit of cold discomfort! Fox News has published an article that lists countries that still have AAA ratings, and further breaks that list down into those countries at risk of downgrade and those countries we might call "safe."
http://www.foxbusiness.com/markets/2011/08/05/last-countries-with-triple-ratings-and-those-at-risk-losing-them/
Six of the nine "safe" countries are in the zone that some of us would call "Euro-socialist."
Please correct me if I'm wrong, but that great emerging powerhouse, China, and its fraternal economic twin, India, both lag the United States in terms of creditworthiness.
I would conclude by asking the same question I posed in another comment at the SDWC: What cosmic connection, what supernatural authority, what omniscience, gives Standard and Poor's the power to hand down a decision of the sort they just did, and have us all take them as seriously as if they were gods?
Posted by: Stan Gibilisco | Sunday, August 07, 2011 at 02:11 AM
"This crisis has been coming for more than a half century. Conservatives have been warning about this for all that time. We now have the cold comfort of being right."
Pfffff. Conservatives have caused the problem. I just shake my head at the stupidity here. Not one word about the hollowing out of the middle class through Republican policies. Not one word about jobs being outsourced because of Republican supported trade policies.
Posted by: Donald Pay | Sunday, August 07, 2011 at 10:08 AM
It is unfortunate that conservatives are these kind of people who live in fantasy land not reality (facts).
Lets debunk all his points with facts.
1. And from whom do we borrow the trillions more that Krugman thinks we need? Greece?
Fact is people would like to borrow US bonds. How? Because US bonds interest rates are historic low (currently 1.25%, fact). This translates into simple language that people out side have lined up to land us money.
2. They say we need to focus on jobs, not on the deficit
Fact, USA is consumer economy. This translates into either consumer (people) needs to spend money for the economy to prosper, for which they need jobs or government needs to compensate by spending more to grow or stabilize economy, for which we need to spend (in current situation increase deficit). I can go on more on this point, however to keep this concise let me point another fact, in all the recessions (including great depression and around the world) government has spent more money to stabilize or grow economy.
3. Republicans are the problem,
Yes, not for just one thing (tax)but for all including current problems. Facts, it was republican congress who repealed glass steagal act that directly resulted in housing crises. Republicans gave biggest tax cuts in history to rich people that created this deficit problem. Republicans are showing historic amount of obstructionism (i.e filibusters, blocking appointees, blocking projects in republican ruling states, blocking all legislations, etc, etc, etc...)
Got to go now.... I will come back and debunk all remaining points.....
Posted by: Jhon | Sunday, August 07, 2011 at 11:49 AM
Had it not been for point "3", your post would get an "F". As it is, I'll say A minus equals D minus.
1. You say Paul Krugman is an idiot for expressing a basic tenet of economics 101: when consumers and businesses are not spending money, government should prop up the economy through counter-cyclical spending and/or tax cuts. That of course was the idea behind the stimulus and low and behold, the economy grew as those dollars flowed. Now that the stimulus is spent, the economy is slowing. And that is pretty much what Krugman predicted when what he considered to be a too-small stimulus was enacted.
I won't bother to question whether or not we are "spending at WWII levels--or did you mean borrowing? What's important is plenty of people, institutions and other countries have been willing to buy our debt at historically low rates of return--hardly the makings of a "debt crisis".
Bottom line: When is comes to taking advice on the economy, I'll put a whole lot more stock in advice from a Nobel laureate in economics than from political science professors and "tea partiers". And by the way, just how can one be both an idiot and not stupid?
2. In what universe is over 9% unemployment not a crisis while under-3% borrowing costs for issuing U.S. treasury notes is a crisis? In "Teapartyland", that's where--a place where less money being spent causes the economy to grow and blistering heat freezes mercury.
3. You are correct about both tax policy and today's Republicans. Of course that makes you a heretic in the eyes of tea partiers.
4. Taxes will solve the deficit problem if accompanied by economic growth and job creation. That does not necessarily mean a balanced budget or surpluses. Rather, it means debt growth would drop to a sustainable level.
5. I haven't seen any grand, new spending proposals from Democrats lately. The health care law aims to reduce spending and the stimulus is history. The "real problem" isn't too much spending as it is too little revenue--revenue lost in large part to high unemployment which will go higher if our tea party friends continue to have their way--which amounts to little more than trying to balance the budget on the backs of the sick and elderly.
6. Obama has offered a great deal of leadership. What he has failed to do is call out Republicans for being the self-serving, power-hungry obstructionists they are. Their one and only goal has been regaining control of congress and the White House. To that end, they have fought virtually every administration initiative even if it was something they had once proposed--the individual mandate, for example.
7. The gridlock in Washington certainly is at least part of the problem. Read the S&P statement of why they lowered our credit rating: http://www.zerohedge.com/news/sp-downgrades-us-aa-outlook-negative-full-text
8. Personal debt and unemployment/underemployment are bigger problems and cutting federal spending will do nothing to solve any of them. Putting people back to work is the only way these problems will be solved.
The same sorts of economic crises we are experiencing now were repeated over and over again pre-social security, pre-medicare and pre-medicaid, to name a few programs conservatives decry as the root cause of all economic evil. In fact, none of these programs existed prior to the "Great Depression". But, for the past 50-plus years, conservatives have blamed every economic hiccup on some social program or the other.
Today's conservatives are far from prophets for having predicted economic problems. Nor are they even astute enough to recognize the real problem isn't spending or deficits, it is a lack of jobs.
A final note: After the mortgage-backed securities debacle, credit rating agencies have about as much credibility as would O.J. Simpson the marriage counselor.
Posted by: A.I. | Sunday, August 07, 2011 at 12:30 PM
KB, you forgot to mention that S&P are true idiots. They made their call based on a $2 trillion math error. Plus, they are the guys who gave AIG, Fanny Mae and Freddy Mac all AAA ratings and cause the whole recession in the first place.
What do YOU thin the chances are that the US will default on its debts. I think it is 0%. If that doesn't warrant an AAA rating, what in the world does. Let's five the boys at S&P the Jackasses of the Year Award, whaddya say?
http://www.treasury.gov/connect/blog/Pages/Just-the-Facts-SPs-2-Trillion-Mistake.aspx
Posted by: Bill Fleming | Sunday, August 07, 2011 at 03:26 PM
sorry about the sloppy typing, I'm so pissed I can hardly see straight. LOL
Posted by: Bill Fleming | Sunday, August 07, 2011 at 03:27 PM
Dick Cheney: "You know, Paul [O'Neil, Secretary of the Treasury under GW Bush], Reagan proved deficits don't matter." There's your half century of conservative concern about deficits and the debt rolled into on sentence.
Posted by: Donald Pay | Sunday, August 07, 2011 at 04:16 PM
Bill, about that error...... That error was an assumption. S & P does not trust Congress to do what they say they will do. http://blogs.forbes.com/timworstall/2011/08/08/us-aaa-downgrade-sps-not-2-trillion-math-error/. Perhaps they have learned their lesson about accepting assumptions of the government after that last fiasco with Fanny & Freddy, and AIG.
Posted by: duggersd | Monday, August 08, 2011 at 08:04 AM
Funny thing. Based on S & P's downgrade of the Fed's credit worthyness, everybody went and sold off their stocks today,
and bought... wait for it... Treasury Bills. So it goes with Americans. God bless 'em.
Posted by: Bill Fleming | Monday, August 08, 2011 at 11:14 PM
Bill,
The issue isn't whether the U.S. default's. It is impossible for the U.S to default on it's debt because we can print our own money.
The issue is the value of the dollar, and whether or not the U.S. can hold on as the world reserve currency.
Posted by: Jimi | Tuesday, August 09, 2011 at 12:14 PM
A.I.: You say that the President has offered plenty of leadership. Earlier this year he offered a budget that completely ignored the solvency crisis. After the Ryan plan forced his hand he offered a speech acknowledging the problem, as if he had suddenly become aware of it. Maybe he had! But the speech was followed by nothing substantial enough for the CBO to score it. He has offered nothing of substance since. I am sorry, my friend, but you are in complete denial. The President is missing in action.
Posted by: Ken Blanchard | Tuesday, August 09, 2011 at 09:46 PM
The following link contains some information about the fair tax:
http://www.fairtax.org/site/PageServer?pagename=about_main
Evidently it's meant to function as a retail sales tax.
I cannot imagine that it will ever happen. Abolish the IRS? We'd have an easier time trying to abolish the common cold.
Posted by: Stan Gibilisco | Wednesday, August 10, 2011 at 11:40 PM
Ken, I believe that I'll take my family back to Norway, apart from a few crazy anti-Islamic conservatives they have it right. Perhaps you can legislate some more credit card debt for Americans in South Dakota, at least Sioux Falls can continue to grow.
Posted by: Mark Anderson | Saturday, August 13, 2011 at 11:08 PM