And note that Harry Reid is still harassing corporate jet owners!
From the Politico: U.S. credit rating downgraded
By JOSH BOAK & CARRIE BUDOFF BROWN
Standard and Poor’s on Friday downgraded the nation’s top-notch triple-A credit rating, the first downgrade in U.S. history and a dramatic vote of no-confidence in the world’s largest economy and its political leadership.
“We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA,’” S&P said in a statement.
“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.”
The ratings agency put forth a blistering view of Washington partisanship, adding that “we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy.”
One lawmaker offered an equally biting retort.
Rep. Barney Frank (D-Mass.) angrily denounced the ratings downgrade, saying S&P was “trying to justify their reputation” after failing to spot problems in the nation’s financial system before the economic crisis of 2008.
“These are some of the people who have the worst records of incompetence and irresponsibility around,” Frank, the top Democrat on the House Financial Services Committee, said on MSNBC’s “Rachel Maddow Show.”
S&P had notified the Treasury Department earlier Friday that it planned the downgrade. The administration immediately challenged the agency’s analysis, saying S&P had underestimated the amount of deficit reduction over the next decade by $2 trillion. S&P agreed to withhold a final decision and take another look.
Within hours, S&P revised its analysis of the deficit, but the bottom line remained the same: S&P issued its historic downgrade.
The initial mistake was crucial, said a source familiar with the matter, because it underpinned claims by S&P that the U.S. needed to achieve $4 trillion in deficit savings to avoid a downgrade. If the proper baseline were used, the government with its $2.1 trillion in cuts met the S&P standard.
“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokesman told reporters in a conference call after S&P’s downgrade.
President Barack Obama and congressional leaders had hoped this week’s deal to raise the debt ceiling would stave off any downgrading of the U.S. credit rating.
S&P managing director John Chambers defended his firm’s work. “It’s going to take awhile to get back to AAA because once you lose your AAA it doesn’t usually back bounce in that way,” Chambers said on CNN.
S&P officials had spent time at the Treasury Department this week, and administration officials were prepared for an announcement to be made after the market close on Friday.
Despite S&P’s scolding about Washington partisanship, members of Congress from both parties used its action to press their views on the best way to achieve deficit reduction.
“This decision by S&P is the latest consequence of the out-of-control spending that has taken place in Washington for decades,” House Speaker John Boehner (R-Ohio) said. “The spending binge has resulted in job-destroying economic uncertainty and now threatens to send destructive ripple effects across our credit markets.”
Tea Party favorite Sen. Jim DeMint (R-S.C.) said Obama should replace Treasury Secretary Tim Geithner. “For months, he opposed all efforts to reduce the debt in return for a debt ceiling increase,” DeMint said. “His opposition to serious spending and debt reforms has been reckless and now the American people will pay the price.”
Senate Majority Leader Harry Reid (D-Nev.) issued a plea for a new congressional super committee to consider revenue increases. “The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners. This makes the work of the joint committee all the more important, and shows why leaders should appoint members who will approach the committee’s work with an open mind — instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding.”
The S&P analysis noted that “for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements.”
S&P grounded its projections in the current partisan dynamics, saying that debt levels would continue to rise even if the planned cuts worked. Its model assumes that Republicans will successfully push to renew the Bush-era 2001 and 2003 tax cuts, depriving the government of $950 billion in tax revenue if the cuts remained only for the middle class, as the administration has advocated. The ratings agency said the inability to forge a bipartisan consensus prevents Washington from focusing on economic growth.
The timing of the downgrade, late on a Friday night, means markets will have two days to digest the news, meaning any reaction Monday should be limited.
Government officials were more worried about initial negative headlines surrounding the downgrade than the content of the report or its long-term impact.
In the end, S&P’s views on Treasuries, the most well understood securities, are not expected to have a major impact on investor sentiment toward the U.S. The yield on the 10-year Treasury bond was at a very low 2.56 percent on Friday night, suggesting investors have no more concern about U.S. solvency than they did before the debt ceiling crisis began.
Rumors of a downgrade filtered through a volatile stock market, causing the Dow Jones Industrial Average to swing by 416 points as it teetered between losses and gains to close slightly higher by 0.54 percent for the day.
The possibility of a downgrade overwhelmed the initial surge caused by a government report showing the economy had added 117,000 jobs in July, exceeding analysts’ expectations.
With U.S. household net worth totaling about $58 trillion and the national debt slightly more than $14 trillion, the country has the resources to honor its debt, which is another indication that a downgrade would be a commentary on the sharp political divisions splitting Washington. [In other words, S&P is trying to do some blackmail. Who the hell are they to slash our rating when we do have enough money to pay our debt? Should they have that much power?]
S&P had previously warned that failure to reach a sufficient compromise on slashing the deficit would risk a downgrade. It indicated that the country needed to trim deficits over the next decade by roughly $4 trillion.
On July 14, the firm placed the country on “CreditWatch Negative,” stating there was a 50 percent chance it would cut the long-term rating in the next 90 days.
After weeks of tense bargaining between the White House and Republican lawmakers, an agreement was finalized Tuesday that increased the U.S. debt ceiling as part of a package to cut more than $2.1 trillion from future budget deficits.
As part of the deal, a bipartisan congressional super committee would try to carve at least $1.2 trillion in deficit savings by Thanksgiving. If Congress rejects the committee’s plan, automatic spending cuts would be triggered.
On Tuesday, Moody’s and Fitch credit agencies affirmed the government’s platinum rating, though both firms cautioned that a downgrade could occur if the next rounds in deficit cuts prove unsatisfactory.
A single downgrade could have little bearing on the market. But a move by all three main ratings agencies would likely force huge investment funds that must hold only the safest of bonds to sell en masse.
The consequences of a downgrade by all three agencies could spread through the economy over several months, with Wall Street analysts predicting that it would add $100 billion a year in interest payments on the national debt. By way of comparison, the annual cost of funding the war in Afghanistan is $120 billion.
Borrowing costs could also shoot up for homeowners with mortgages and students paying for college with loans, two crucial components of the economy that have relied on government support. Cities, states and businesses tied to the government could also face higher interest rates on their debt.
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