Some early thoughts in anticipation of Monday’s NY Stock Exchange reaction to last Friday’s news about the United States’ AAA credit rating devaluation.

How do credit ratings come about? Go here for an interesting article about S&P, Fitch and Moody’s.

An important quote:

Losing your rating or being downgraded can have a fatal effect on your country’s ability to borrow money on the markets.

The Good:
The two other remaining credit rating agencies, Fitch and Moody’s, weren’t motivated to downgrade the United States. Yet. (Though S&P is considering another downgrade.)

The Bad:
Stock exchanges are ruled by emotions — that is, how they tend to feel about the security, worthiness, consistency, strength and reliability of a given stock, country or situation.

Literally, if the exchange doesn’t “feel” right about the downgrading of the US, there could be a massive sell-off and a divestment of anything US-branded.

From S&P’s recent report (in PDF), I quote:

· The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Less reduction in spending? You even remotely believe that Demorats will agree to less spending than reflected in the current “debt ceiling” bill? You’re out of your mind; that won’t occur because that conflicts with the core, foundational philosophy of the Demorats and Leftists.

S&P writes:

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

“Containing the growth in public spending.” Meaning that S&P has little confidence that the US government can contain said growth. Clearly, entitlements are an issue and cannot continue. Remember when President Bush attempted to reform Social Security? That was verboten! So now we’re paying that price. And how do you raise revenues? With the Demorats it’s TAX TAX TAX. With Conservatives, it’s “get government the hell out of the way of a free market economy.” And that the plan “falls short of the amount we believe is necessary to stabilize the federal government debt burden”? Of course!

Because the Demorats and Leftists and RINOs refuse to CUT.

Again:

We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

That’s correct, and proud of them. “Raising revenues” = MORE TAXES. Raising taxes isn’t the point and, in a recession, is a death knell for any economy. One could raise all the taxes on the “wealthy” and, further, even confiscate all their wealth and the debt/deficit problems wouldn’t even remotely be solved. All the US “billionaires” combined don’t have the earning power to take a small bite out of our debt. That is a specious argument, and one made politically in order to demonize capitalists. Any taxation, trust me ladies and gentlemen, will have to be borne by the MIDDLE CLASS, where the resiliency, consistency and true cash reside. That’s YOU and ME. In addition, you and I are already going to be taxed via ObakaKare and the expiration of the “Bush Tax Cuts.” But of course, conveniently, people forget that and the media won’t cover it.

The US government does NOT have a revenue problem; it has a SPENDING problem. Simple logic and common sense tells us this, not convoluted economic theorems and formulas.

One can raise revenues by relaxing taxes and regulations on businesses. By making businesses feel like they are WELCOME in the national, state and local economies and not simply sources of governmental oppression. Perfect example: Fornicalia. Let THAT be your current lesson, Leftists. Businesses are FLEEING the FLEECING state of Fornicalia.

And “green jobs,” Mr Obama? Where in the hell are those promised thousands of “green jobs”? Arnold promised “green jobs” as well. Where are they, I ask? I don’t see them.

Infrastructure? You dare to go there, sir? Your first Porkulus was predicated upon the entire RESURRECTION of our national infrastructure. So where did that get you? Oh yes, that’s right, concerned about the upgrading of airports under FAA because you didn’t have sufficient cash.

Hello? Is ANYONE paying attention?

Further:

Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. From our perspective, the effect of these revisions underscores two related points when evaluating the likely debt trajectory of the U.S. government. First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher. Second, the revised data highlight the sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions. We believe the sluggish pace of the current economic recovery could be consistent with the experiences of countries that have had financial crises in which the slow process of debt deleveraging in the private sector leads to a persistent drag on demand. As a result, our downside case scenario assumes relatively modest real trend GDP growth of 2.5% and inflation of near 1.5% annually going forward.

Meaning: Mr Obama has been LYING to the nation, indicating that things are getting better when, in fact, they are not and, additionally, Mr Obama refuses to do what logic demands:

1. STOP further spending, and 2. Begin massive CUTTING

With that in mind, next up on Mr Obama’s plate?

The Ugly:

That’s right; another STIMULUS PACKAGE consisting of MORE SPENDING.

Just waiting for the conclusion of today.

It shall be, as the Chinese say, “interesting times.”

BZ

P.S.
As Treasury Ignoramus Timmy (Incompetent) Geithner just said on April 19th of this year:

Treasury Secretary Tim Geithner said Tuesday there is “no risk” the U.S. will lose its top credit rating amid a new analysis that revised its outlook on American debt to “negative.”

Geithner took to the airwaves of financial news networks to push back against a report Monday by Standard & Poor’s that lowered its outlook on U.S. debt to “negative,” reflecting political uncertainty over whether lawmakers will reach an agreement to address long-term debt.