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Standard & Poor's today (Aug. 5) downgraded the rating on United States debt from the highest AAA to AA+, and said the outlook was negative. The recently announced plan to narrow the deficit fell short of S&P's threshold. Significantly, S&P said "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." In short, S&P is saying that the U.S. government is not up to the financial tasks facing the nation. There was a rumor today that the White House had challenged S&P's numbers, and it had backed off. Some think that had a lot to do with market volatility today. The irony is that, in my opinion, S&P itself deserves a rating of CCC — about the lowest you can get. It and the other rating agencies gave high ratings to junk paper — a major factor in the financial crisis of 2007-2009 that appears to be rearing its ugly head again. U.S. Treasury paper is considered a safe haven. It's difficult to say how the market will react to this downgrade.

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Visduh Aug. 5, 2011 @ 7:21 p.m.

It is worth noting that S&P is making a value judgment about the worth of this plan that was finally enacted at the last minute. When you describe that it "fell short of S&P's threshold", one can only assume that S&P wanted more fiscal discipline. So, S&P is making a political call on the US congress and presidency. That has really never happened before. It is as though someone decided that gold could no longer be the standard.

S&P has made political calls on other nations in the world, some of them were enough to topple governments, foment revolutions, and alter the course of history.

I cannot personally verify or deny your scorn for S&P other than to note that all the rating agencies had it wrong going into the 2008 meltdown. This government "of the people, by the people, and for the people" cannot just keep on the current course. It will have to balance its books and soon. If that is the message today, good. If this is just some posturing by S&P, then I suppose that we'll have to wait longer for real reform.


SurfPuppy619 Aug. 8, 2011 @ 11:44 a.m.

When you describe that it "fell short of S&P's threshold", one can only assume that S&P wanted more fiscal discipline. So, S&P is making a political call on the US congress and presidency. That has really never happened before.

I disagree, it is not a polictical call, but a simple business call.

The country is on a path to destruction and the S&P based their business decision on whether America can pay it's bills, that is pure business.


Don Bauder Aug. 5, 2011 @ 9:11 p.m.

Yes, I think these numbers are right: S&P wanted a $4 trillion deficit cut in ten years and the U.S. delivered a bit over half that. But as you state, the main reason for the downgrade appears to be S&P's correct suspicion that, given the divisive politics in the U.S., we are politically incapable of solving our problems, at least now. Republican reaction tonight, combined with Democratic intransigence and blindness, suggest that was a good cal.l Best, Don Bauder


SurfPuppy619 Aug. 6, 2011 @ 9:47 a.m.

"China demands U.S. 'live within its means" By David Pierson

The largest foreign holder of U.S. treasuries responds to the S&P downgrading by calling for decreases in U.S. military outlays and social spending.

. http://www.latimes.com/business/la-fiw-china-response-20110807,0,3901161.story .

When CHINA is telling AMERICA how to run OUR country-you KNOW we have hit rock bottom.

The sad part-China is 100% correct and we all know it.


Don Bauder Aug. 6, 2011 @ 3:25 p.m.

Note that the Chinese editorial complained of U.S. overspending on defense and social welfare. No word about corporate welfare, which dwarfs our spending on social welfare. That tells you plenty about China. Best, Don Bauder


Visduh Aug. 8, 2011 @ 8:21 p.m.

China has a huge ulterior motive for advising that the US spend less on military operations. The US has a treaty that commits us to defending Taiwan against invasion (i.e. by mainland China.) At the present time, that guarantee has some credibility in that the US has a number of aircraft carriers and other surface fleet ships that could unleash some devastating fire upon invaders from the Chinese mainland.

So, we cut back on the Navy and eventually it carries little or no threat to an armed invasion of Taiwan by the ChiCom mainland government. What better way to remove an impediment to their territorial ambitions?


SurfPuppy619 Aug. 8, 2011 @ 11:28 p.m.

America spends more on the military than the entire rest fo thr world combined.

We dont need bases on every street corner of the world.

As for Taiwan, why do WE have a treaty to defend THEM?? Same with Japan, same with Okinawa (sp??). Same with Kuwait. We do NOT need all these bases and installations at a cost we simply can no longer afford.

The stupid F-22 Raptor fighter jet, which replaced the F-14 Tomcat costs HALF A BILLION DOLLARS EACH!!!!! But they don't work and have problems up the yinyang. The F-14 Tomcat costs only $30 million, why did we replace it at that kind of cost increase?? It is simply not cost effective, and thar is the problem with our gov.


Don Bauder Aug. 9, 2011 @ 8:42 a.m.

It was extremely depressing to hear Obama say that he agreed with Panetta: we should cut entitlements such as Medicare rather than cut the military further. We haven't even made a minor dent in military spending. Best, Don Bauder


Don Bauder Aug. 9, 2011 @ 8:40 a.m.

Good point, but we could cut multi-billions out of defense spending without touching our Taiwan presence. Best, Don Bauder


Psycholizard Aug. 6, 2011 @ 6:27 p.m.

The market seems to rate Standard and Poors ZZZZZ.... by continuing to buy treasuries at nearly zero interest. So long as interest rates are low, unemployment is high, and inflation is reasonable, a big deficit is a good thing. Apparently S&P has left the sane to join the party that is fanatically certain that Adam rode dinosaurs. In a hundred years this will be funny, but I'm not laughing.


Don Bauder Aug. 7, 2011 @ 3:01 p.m.

We haven't seen interest rates on T paper so low since the 1950s. But are bonds in a bubble? Good question. Best, Don Bauder


Twister Aug. 8, 2011 @ 9:21 a.m.

From whence cometh S & P's profits? Who, then, gets the most? What is the pay structure like?


Don Bauder Aug. 9, 2011 @ 8:44 a.m.

S&P and other credit raters get paid by the institutions that they rate. It is a monstrous conflict of interest that is generally ignored. Best, Don Bauder


Don Bauder Aug. 9, 2011 @ 8:26 p.m.

In the ratings game, S&P's profits are an example of an egregious conflict of interest. S&P, along with other raters such as Moody's and Fitch, gets paid by the institution that is being rated. S&P does a lot of things outside the rating game. It has indices, puts out the Case-Shiller residential real estate figures, etc., etc. S&P is part of McGraw-Hill, which is also in the education publishing business, along with some other things. Best, Don Bauder


Psycholizard Aug. 8, 2011 @ 2:30 p.m.

We can hope that the bond bubble will burst, that would mean investors fear inflation more than deflation. The bonds rise and the stocks fall for the same reason, investors believe that there is not enough money to buy inventory, or repay loans, and wish to snap up bargains later. after the collapse. Right now the big money is on economic collapse, sticking chumps with equities and cashing up. Trillions of buying power disappear with the collapsing market, and the confused right and left seem to believe that deficits are the problem. Actually money creation is the solution, and deficits are part of that. Sadly the money creation has been mostly done by and for the banks, and federal spending is now offset by state and local cuts.


Don Bauder Aug. 9, 2011 @ 8:47 a.m.

You are correct: money creation has been for the benefit of the banks. In fact, Bernanke will say that he is not worried about inflation because average incomes are not rising. That's another way of saying that he is rooting for Main Street to starve so he can continue to feed the banks money for nothing. Best, Don Bauder


valueinvestingisdead Aug. 9, 2011 @ 10:22 a.m.

China can take their poorly made junk and keep it. I wish all Americans would stop buying anything made in China. We should have never allowed anyone to manufacture crap there. The stuff they make is so cheap and disposable. They are ruining the World.

1) They have ruined our economy by sucking jobs. 2) They have ruined the environment by polluting. (so bad that you can see smog on radar). 3) They own our debt, thus holding us hostage. 4) They don't free-float their currency, thus don't play fair.

You better have your kids learn Chinese. Sad, very sad....and all for what? So the CEO of NIKE can make tennis shoes for 20 cents an hour and he can be rich?


Don Bauder Aug. 10, 2011 @ 8:14 a.m.

Your points are very well taken. Former San Diego politician Peter Navarro has written extensively on China, making points similar to the ones you make. Best, Don Bauder


Psycholizard Aug. 9, 2011 @ 12:39 p.m.

We can't blame China for this, we are the one printing the IOUS. Our corporations are the culprits, closing up shop here and putting the labels of formerly respected brands on Chinese products. The problem is international though, the demand for the US dollar is so great overseas that we can't seem to print it fast enough. The Fed and US Government have created trillions, but little of it is finding it's way into the pockets of spending workers, instead it flows to the job destroyers, the rich who hoard US debt.


SurfPuppy619 Aug. 9, 2011 @ 3:13 p.m.

We can't blame China for this, we are the one printing the IOUS.

China is not to blame-not at all.

Our leadership is, it is our leadership-going back 30 years, they sold out the middle class and in the process destroyed the country.


Don Bauder Aug. 10, 2011 @ 8:16 a.m.

I think China has to take a lot of the blame. Best, Don Bauder


Don Bauder Aug. 10, 2011 @ 8:15 a.m.

Good point. The Fed prints money for the benefit of big banks, corporations and the rich. Best, Don Bauder


Twister Aug. 10, 2011 @ 2:48 p.m.

China may be nearing its own facile, illusory window-dressing binge, financed on the backs of U.S. consumers, themselves bingeing on the American Dream illusion consisting of plastic that ends up in the landfill before its luster is even scratched. The Chinese peasants will endure--and die--but will ultimately survive The BIG One, precisely because they already know how to merely exist on next to nothing. Not so with the Americans . . . YOU figure it out!


Don Bauder Aug. 10, 2011 @ 9:46 p.m.

If your scenario eventuates (and I for one am not sure it will), then you have an excellent point. In the Great Depression, people went back to their family farms to scratch out an existence. Not this time. Best, Don Bauder


Twister Aug. 11, 2011 @ 9:12 a.m.

Extend the trend. It would appear to be not a matter of IF but WHEN, no?

The poverty, the famine, the waste, the excess--all are here, NOW. Just not HERE here. Yet.


Psycholizard Aug. 11, 2011 @ 3:35 p.m.

We can blame China for sharing our stupidity, the belief that low wages somehow produce prosperity, that jobs should flow to the most desperate. We can't blame them for being desperate. This disaster is the result of bad ideas held world wide, that are creating a world wide disaster. These ideas are named Monetarism, the belief that strong money is key to prosperity, and that manipulation of money by the banks is the only legitimate way to control an economy.

The theory might be esoteric, but the practice is brutal. Simply ignore human suffering until the invisible hand of the market makes things right. When anger rises blame foreigners, start a war and then ignore monetarism and print money out of necessity, and hire the unemployed to be soldiers.

There is a better way, blame monetarist stupidity, HIRE THE UNEMPLOYED RIGHT NOW WITH DEFICIT MONEY. Focus on improving roads. parks, universities, hospitals, even things liberals don't like: prisons and military bases.

This collapse won't end until the unemployed are hired. HIRE THEM NOW for peaceful purposes, or very soon there will be a big war. In all cases monetarists will babble nonsense as the unemployed return to work.


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