Wednesday, August 10, 2011

Reactions to the Debt Limit Deal - Credit Rating Reduced

All this week we've been discussing reactions to the Debt Limit deal reached last week.  Today, we're going to talk about the issue of our dropped credit rating by Standard and Poors. 

Two weeks ago, S & P stated that there was a 50/50 chance that, if the debt deal did not consist of at least $4 Trillion in cuts over 10 years, that the United States would lose it's AAA Credit Rating. After the deal, S & P dropped our rating to AA+.  It was predicted in many places, by the way, including here at Biblical Conservatism. (1) This deal fell tragically short of the $4 Trillion that S & P said would allow the United States to avoid the rating decrease (fell short by nearly half, for those of you from Palm Beach County, FL). 

As Rush Limbaugh commented Monday, Obama has spent so much time talking about what he "inherited from George W. Bush."  Well, as Limbaugh noted, Obama inherited a AAA credit rating from Bush.  He has officially squandered it by failing to make sufficient cuts to our deficits over the next 10 years.  S & P stated in it's report that included the credit rating drop,

"Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow." (2)

For those of you who haven't studied economics, that the spending cuts are not enough to offset the growing debt burden.  For those of you from Palm Beach County, FL, that means we're going to continue to owe lots and lots of money while bringing in not enough money to pay for the lots and lots of money we owe.

Further, S & P has stated:

The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. (2)

For those of you from Palm Beach County, FL, that means our rating could drop more. We are on a trajectory to eventually have our entire budget be required to service the debt, or borrow money to pay the debt, at any rate it's a path to bankruptcy, eventually. We cannot continue to add $15 Trillion or so to our debt every decade.  Ultimately, we will drown in debt.  We will dream of having an AA+ credit rating at that point. 

We needed to make much larger cuts and move toward a balanced budget to be able to return our national credit to the AAA rating and we need to get to a point where we are paying off our debt.  I've been in debt. I've paid it off by intentionally not incurring new debt and living on less money than I had coming in.  I didn't get out of debt by continuing to charge more on my credit cards. Make no mistake about it, we deserved this downgrade. 

Further, we were not downgraded because the Tea Party demanded larger cuts.  We were downgraded because we failed to cut ENOUGH.  S & P told us last week that if we didn't cut at least $4 Trillion we would quite possibly see our rating cut.  We failed to cut $4 Trillion, and our rating was cut.  We spend too much and we borrow too much.  Period.


(1) Debt Limit Alone Won't Save AAA Credit Rating

(2) United States of America Long-Term Rating Lowered To 'AA+' Due To Political Risks, Rising Debt Burden; Outlook Negative

No comments:

Post a Comment

All posts will be reviewed subject to the Rules for Commenting. Any post that does not abide by these rules will not be posted, entirely at the discretion of the blog editor.

Commenters who repeatedly violate these rules will be permanently banned from commenting, and thus none of their comments, regardless of content, will be posted.