Saturday, August 06, 2011

FINALLY S&P Dropped U.S. Credit Rating from AAA to AA+

It FINALLY happened.

An outside organization has finally spoken out to tell our elected officials in Washington that their infantile battling is leading our country into poverty. Yesterday Standard and Poor's dropped the United States of America's long-term rating from AAA to AA+. (Now our rating matches that of Belgium) They were reviewing our country's administration as they would any company's leadership and they found us wanting.

Their decision and their rationale for this decision was posted in the public domain in an 8-page report. Here it is:

US Downgraded AA+

The problem is that very few people will read this short but informative document. Pundits and politicians are already spinning this into a political decision that is the result of poor administration.  It is your responsibility as an American citizen to read this report to know why this change was made.

Let's take a look at some of the reasons they have become disenchanted with how our politicians are administering our country.  All of these quotes come from S&P's document above. 

S&P says "Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria . . . Nevertheless, we view the U.S. federal government's other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged."

They were disappointed in our politicians' unwillingness to work together to effect the necessary changes that can deliver us from our fiscal servitude. "Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden."

"The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently."

John Chambers of S&P says that they evaluate countries' strengths in 5 areas: Political Setting, Fiscal Profile, Real Economy, External Situation, and Monetary Policy. The two areas where the U.S. was weak were Political Setting and Fiscal Profile. Their explanatory report identifies upside and downside scenarios. The Upside Scenario projects that the net public debt burden "would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021." The Downside Scenario projects that "the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021."  Even in the best of projections, this means that in ten years for every $10 in the US GDP (market value of all final goods and services produced in our country) we will have borrowed $8 to help that happen.

Yes, there was a $2 trillion error in S&P's calculations but that doesn't make the difference. It's about leadership. It's about the Political Setting. Please remember that U.S. leadership is not just the President. It involves the House and Senate working with the President in a bipartisan manner that is directed towards the betterment of our country. Roadblocking plans just for either party's benefit in future elections is the type of irresponsible leadership that leads to this loss of confidence.

We have spent the last decade overspending our budget and not paying attention to balancing income and expenditures. We have been in 2+ wars since 2002 and there have been no increases in revenue (taxes, closing tax loopholes, etc.). The cost of the wars weren't even included in Bush's budgets. We have a $14,000,000,000,000 debt ceiling and our leaders believe that we just need to raise the debt ceiling to take care of things? I don't think so.

While I don't look forward to the consequences of this monumental drop in the U.S. Credit rating, I hope that it will finally catch the attention of the irresponsible blockage on Capitol Hill.

What do you think?

Z



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