The public sector shrank by 71,500 jobs."
That's the real good news here....that's 71,500 less sucking at the public teat.....
The public sector shrank by 71,500 jobs."
GAP said:That's the real good news here....that's 71,500 less sucking at the public teat.....
S&P downgrades United States credit rating
WALTER BRANDIMARTE
NEW YORK— Reuters
Published Friday, Aug. 05, 2011
The United States lost its top-notch AAA credit rating from Standard & Poor’s Friday, in a dramatic reversal of fortune for the world’s largest economy.
S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.
U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.
The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.
Nemo888 said:You do know those numbers include the military right?
U.S. loses its triple-A credit rating
KONRAD YAKABUSKI
WASHINGTON— From Saturday's Globe and Mail
Published Friday, Aug. 05, 2011
Weeks of political gamesmanship that fell far short of the Obama administration’s early promises of deficit reduction have cost the U.S. government the top-notch credit rating it has held for almost a century.
Standard & Poor’s announced Friday night that it was cutting the AAA credit rating to AA-plus, saying it was “pessimistic about the capacity of Congress and the administration to leverage their agreement this week into a broader [deficit cutting] plan that stabilizes the government’s debt dynamics any time soon.”
The credit rating agency, which suggested another downgrade was possible within two years, was scathing in its rebuke of the U.S. political class after Sunday’s $2.4-trillion (U.S.) deficit reduction deal. It stated that that the “brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective and less predictable.”
The humbling downgrade, which leaves the United States with a lower rating than Canada, capped a tumultuous week on global stock markets. The dive reflected a loss of investor faith in the ability of politicians and central banks in the developed countries to fix the underlying structural problems in their economies.
The two other leading credit rating agencies, Moody’s Investor Services and Fitch Ratings, have already confirmed they intend to, for now, maintain the U.S. top-tier rating.
It is unclear what impact S&P’s move will have on U.S. interest rates, which are currently at rock bottom levels. A lower credit rating typically requires borrowers to pay a higher rate. But yields on U.S. Treasury bonds are at historic lows; investors consider them among the world’s safest investments.
S&P’s move, which came after the close of stock market trading, followed the Obama administration’s reported attempts to challenge the agency’s math. President Barack Obama was not likely aware of the agency's intentions when he addressed an audience of U.S. veterans on Friday morning - he was briefed by officials later in the day - but his deameanour betrayed the gloomy economic mood.
“What I want the American people and our partners around the world to know is this: We are going to get through this,” a subdued President offered, suddenly looking every bit his 50 years and a day.
But S&P’s report underscores a harsher truth. The U.S. President is hobbled by a political system that saps what little power he and Congress have to restore economic confidence.
European leaders are similarly hamstrung by dysfunctional political systems. Their attempts to contain the euro-zone debt crisis have repeatedly come up short because the measures needed to comfort financial markets exceed the tolerance of voters.
On both sides of the Atlantic, “you’re caught between the politicians feeling as if they are making a heroic effort, pushing the boundaries of what they regard as politically possible, and [the fact] that it doesn’t come near to what is economically necessary,” explained Sebastian Mallaby, a Washington-based senior fellow at the Council on Foreign Relations.
On Friday, Italian Prime Minister Silvio Berlusconi, whose country could be the next overleveraged European nation to seek a bailout, sought an emergency meeting of G7 finance ministers. But it is unlikely they can fix in one gathering what countless previous summits have been unable to repair.
Global stock markets have cratered because, after weeks of debating, dissecting and diagnosing what ails their respective economies, U.S. and European policy makers have not been able to bring themselves to administer the bitter medicine they have all acknowledged is needed.
So, what’s the cancer? In a word, debt.
The developed countries have too much of it. The most overleveraged nations – Greece, Ireland and Portugal – have already become wards of their wealthier European neighbours.
Italy and Spain could be next. When European leaders unveiled their latest Greek bailout package two weeks ago, conceding that holders of Greek government bonds would need to take a haircut on their debt, they failed to insulate Italy and Spain from the contagion of a potential debt restructuring.
European leaders, Mr. Mallaby says, “had loudly, openly and repeatedly declared what it would take” to protect Italy and Spain, notably a massive expansion of the €440-billion European Financial Stability Facility, or bailout fund. But the politics of expanding the EFSF is difficult; voters in richer nations resent having to pay the tab for rescuing weaker cousins.
The internal politics of the most indebted nations are tougher still. The austerity measures demanded in exchange for a bailout have sent Greek citizens into the streets.
Mr. Berlusconi promised on Friday to move faster to eliminate the country’s budget deficit. But whether he will be able to, given the country’s fractured political system and certain voter resistance to spending cuts and tax increases, is anyone’s guess.
The resolution, for now, of the U.S. debt-ceiling stand-off has not provided any comfort to investors, either.
For weeks, Mr. Obama suggested the debt-ceiling negotiations would spur the U.S. political class into finally addressing the elephant in the room – unsustainable public pension and health insurance programs that are set to send the country’s debt above $20-trillion (U.S.) within a decade.
But the relief investors felt at seeing the stand-off end was soon displaced by their realization that the deal’s $2.4-trillion in cuts – all subject to repeal by a future Congress – came up short. Financial markets had been conditioned by Mr. Obama’s own advisers to look for a debt-ceiling deal that would slash the U.S. by deficit by $4-trillion over 10 years.
S&P’s verdict was swift and brutal. But it will not make tackling the problem any easier.
Despite the purported Tea Party zeal for deficit-slashing, few Americans are willing (or indeed able) to absorb cuts to their Medicare or Social Security benefits. The disconnect is encapsulated in the oxymoronic Tea Party mantra: “Keep your government hands off my Medicare.”
In short, the credit rating agencies have an easier job than the politicians.
The Upside of the Downgrade
Posted By Claudia Rosett On August 6, 2011 @ 1:21 am In Uncategorized | 29 Comments
The good news — and yes, this part really is good news — is that Standard & Poor’s has finally reduced the spending bacchanal of the U.S. government to a sound bite that anyone can understand: S&P has downgraded America’s sovereign credit rating.
There are plenty of nuances, to be sure. Not everyone agrees with S&P. The U.S. Treasury is attacking S&P’s arithmetic, and haggling over the impact of two trillion dollars, here or there, give or take. Analysts are explaining that S&P did not downgrade America’s short-term credit rating. It’s just long-term U.S. credit, which, after 70 years on its AAA pedestal, has now been knocked down to AA+. There’s lots of debate over just how much difference S&P’s rating downgrade will make to the markets, because mighty though S&P may be, its influence is a function of its ability to accurately assess things already going on. In other words, shooting the messenger, as the White House apparently hoped to do, does not change the reality the messenger was trying to convey.
Nor has S&P stumbled upon extraordinary information of which the world was unaware. The problem is not S&P. The problem is U.S. government spending and borrowing so profligate that American debt now tops annual GDP. The deeper problem, driving all this, is that American politics has become a realm in which the response to every difficulty of the human condition is for government to amass more power and dole out more money. The presumption of the U.S. government by now is that Americans cannot be trusted to arrange for their own medical care, pay for their own tuition, save for their old age, or “create or save” their own jobs. Big Brother will do that for them, even if the resulting rise of the dole and erosion of the private sector means 9.1% unemployment, almost 50 million Americans using food stamps, a stalled economy, soaring public debt, and now, a long-term credit rating lower than that of Australia, Hong Kong or France.
All the debate and Tea-Partying to date has made some difference. But it has not yet prevailed to change the profligate and power-hungry dynamic in Washington.There have been plenty of wake-up calls these past few years, but too often they have been smothered by Washington’s vast political fog. Among ordinary Americans, who has time to keep track of the trillions spent, the endless expanding government programs, or the to-and-fro over deficits variously projected over the next decade?
The virtue of the S&P downgrade is that it serves as a simple bottom line. For a long, long time, the U.S. government earned itself a triple-A credit rating. It’s gone. Downgraded. Maybe, just maybe, that’s exactly the sound bite Americans need to hear, to concentrate voters’ minds on how to get that AAA rating back.
Article printed from The Rosett Report: http://pajamasmedia.com/claudiarosett
URL to article: http://pajamasmedia.com/claudiarosett/the-upside-of-the-downgrade/
Nemo888 said:Keep cuts to less than half of GDP growth and open up trade to make up for shrinking American imports. We did sell more lumber last year to China than the US. Time to pretend we don't care about human rights and do the "trade opens China to the world more than protest" dance. Hope like hell we can find those markets and drum up business. Secondly hope that growth is strong enough that we don't pile on too much debt till this depression turns around. Maybe a short term payroll employee side tax cut, but nothing stupid like slashing the GST. Stay the course. Cutting public spending too quickly will send us into a tailspin like the US. Alberta would hate it but that big pile of black gold up there could be taxed a little more in the short term to keep us from going down the toilet if things get worse.
Downgrade to hit U.S. where it counts: the pocketbook
By Jacqueline Thorpe, Financial Post August 6, 2011
They warned the United States clearly enough: anything short of a US$4-trillion cut to its debt mountain likely would cost the country its AAA credit rating.
When the downgrade from Standard & Poor’s finally came, after a week of turmoil on financial markets and months of the farce in Washington over the debt ceiling, it was shocking nonetheless.
It is not clear what the cut will mean when markets open in Asia — though analysts expect stocks to dive again — but it is still a stinging indictment of the U.S.’s political class.
S&P made clear the downgrade was as much about the inability of squabbling U.S. politicians and the American people themselves to grasp the seriousness of their debt problem as the debt problem itself.
“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,” the S&P statement said. “More broadly, the downgrade reflects our view that the effectiveness, stability and predictability of American policy-making and political institutions have weakened at a time of ongoing fiscal and economic challenges.”
Now its unwillingness to tackle its debt problems head on (the deal finally reached will only cut US$2.4-trillion from the deficit over 10 years) is finally going to hurt the United States where it counts — in the pocketbook.
Of course, in the wacky world of financial markets, investors might initially flee to U.S. government debt, the very instrument that has been downgraded. That may help put a floor under the debt market for a bit, keeping yields and borrowing costs down.
The mighty U.S. government debt market, which serves as benchmark for all other markets around the world, has perversely thrived during the recent U.S. debt negotiations. It is a huge and bottomless pool of liquidity, where instruments can be easily traded. And it is seen as the lesser of other evils in this screwed-up global economy — particularly when eurozone debt is wrapped up in a drama of its own.
“A double A-rated Treasury bond still stands head and shoulders above the rest in the global universe of the most liquid and safest securities,” notes Dr. Nicholas Spiro, managing director of Spiro Sovereign Strategy in London.
The fact that Moody’s Investors Service and Fitch Ratings did not downgrade the United States may also soften the blow for a bit.
But the S&P downgrade eventually will cost the U.S. Investors will begin to demand higher interest rates for Treasuries in order to compensate them for the higher risk and this will raise U.S. borrowing costs.
“Over time, Washington’s borrowing costs will rise materially and further aggravate the need for additional austerity,” said Derek Holt, vice president of economics at Scotia Capital.
A vicious cycle may develop, as it has in Greece, where further spending cuts, needed to right the fiscal ship, drag down the ability of the economy to grow.
“It’s an indication clearly that the United States is on a downward path to growth destruction via the debt structure,” said Andy Busch, chief foreign exchange strategist at BMO Capital Markets in Chicago.
The downgrade undoubtedly will hit global confidence and equity markets just as they are already despairing over the possibility of another U.S. recession. It could also disrupt the inner workings of financial markets as the higher cost of owning U.S. government debt ripples through the system. Analysts expect an ugly start to Asian trading on Sunday night.
“The immediate market reaction on Monday is likely to be pronounced and overwhelmingly negative as investors scramble for ways to assess the knock-on impact of the downgrade on other U.S. and international corporate and public securities,” Spiro said. “There is likely to be further volatility, downward pressure on the dollar and even steeper fall in equities and increased fears of a double-dip recession.”
But will the downgrade be enough to spur the massive effort to return some fiscal sanity to the United States? Busch said that is the United States’ only hope.
“I firmly believe this is a seminal moment for the United States,” he said. “It can go down two paths. The past of least resistance is to raise taxes and cut spending a little bit and the country will limp on and become Japan. Or it could be like 1986, where we had serious tax reform that led to a boom at the end of the eighties.”
Serious fiscal reform would require dropping a bomb on the current U.S. tax system and replacing it with one that eliminates most exemptions, subsidies and credits, widens the base to include corporations and the rich and lowers the rate for all. Most importantly, it must allow the U.S. economy to grow.
That is the job ahead.
Postmedia News
© The Financial Post
Nemo888 said:Keep cuts to less than half of GDP growth and open up trade to make up for shrinking American imports. We did sell more lumber last year to China than the US. Time to pretend we don't care about human rights and do the "trade opens China to the world more than protest" dance. Hope like hell we can find those markets and drum up business. Secondly hope that growth is strong enough that we don't pile on too much debt till this depression turns around. Maybe a short term payroll employee side tax cut, but nothing stupid like slashing the GST. Stay the course. Cutting public spending too quickly will send us into a tailspin like the US. Alberta would hate it but that big pile of black gold up there could be taxed a little more in the short term to keep us from going down the toilet if things get worse.
Northalbertan said:Like it or not the oil industry is driving the economy of Canada right now with billions of dollars flowing to provincial economies outside of the west, Ontario being a big one to benefit from the activity out here.
PPCLI Guy said:Sigh - this old saw again. What exactly is the mechanism whereby Alberta money gets given to Ontario?
KJK said:NorthAlbertan is absolutely correct if you reread his statement. Money is not given to Ontario, contracts are given to Ontario companies thereby sending money from Alberta to Ontario.
As for taxing oil on a federal level the CPC would never try because that would kill their chances of reelection. The liberals might try it as they have already written off the west in terms of votes. Just remember people out here remember the NEP and aren't likely to stand for a second go at it. Also it wouldn't hit only Alberta this time but BC and SK too. That's a lot of annoyed voters.
My $.02
KJK
Northalbertan said:The other mechanism is called transfer payments which Quebec wisely uses for daycare instead of infrastructure. :
E.R. Campbell said:I was listening to 'Meet the Nation' or 'Face the Press' (or whatever the Sunday morning talk shows are called) and Alan Greenspan made two points that I think matter:
1. Whatever the 'solution' is it will include some (much? most?) of Bowles-Simpson ~ which is a little depressing because it means that all this 2011 angst was avoidable; and
2. Whatever the 'solution' is it will involve pain - both tax increases and programme spending cuts hurt the economy in the short term (the former more than the latter according to Greenspan) and, of course, programme spending cuts are hard (painful) for politicians because Americans, like Canadians, feel very much "entitled to their entitlements," as David Dingwall might say.
The question is: how long will it take the American political classes to realize that Greenspan is right ... assuming he is, of course.