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.

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(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

Debt Limit Alone Won't Save AAA Credit Rating

Earlier this month, Standard and Poors (S & P, for those of you not familiar with the full name) stated that even if the United States increased it's debt limit there was still a strong chance that our credit would be downgraded.  The Drive-By Media isn't reporting it, but simply raising the debt limit will not save the nation from seeing our credit rating cut from AAA to AA.  It's up to the Conservative media on talk radio and we in the blogosphere to pass the word.

According to the liberal favorite Huffington Post,

Standard & Poor's warned earlier this month that there was a 50-50 chance of a downgrade, if Congress and President Obama failed to find a "credible solution to the rising U.S. government debt burden." S&P said it may cut the U.S. rating to AA within 90 days. Passing a $4 trillion agreement could prevent a downgrade, S&P said. (1)

Let me repeat:  a $4 Trillion spending cut COULD prevent the downgrade.  Inherent in that statement is the fact that cutting less than $4 Trillion over the next 10 years will mean we have a very good chance of losing our AAA rating, regardless of a debt limit increase.  If we simply STAY at our current spending levels as of 2011 which translates into $3.729 Trillion in spending, a $4 Trillion cut would mean cutting spending by a mere 11%.  It's not a bad start, but keep in mind we are already spending just under 30% more than we take in in revenue.

The bottom line here is our nation is continuing to spend about 19% more money than we have, as of the 2011 budget.  This is why our nation is in such trouble. No family could continue on that pace for years upon years without bankruptcy coming upon them within a few years.  Furthermore, how many people do you think would be granted a further credit cards if they had a current debt of about seven times their annual income?  What do you think that person's credit score would be?  Do you think that person will be in the 800s?  (For those of you from Palm Beach County, FL, a person's credit score is between 300-850.  The higher the score, the better your credit.  A person is considered to have good credit if their score is above 700, and your credit is increasingly higher as you get closer to 800.)

The reason we are facing this credit score crisis, if I may interpret the S & P statement, is not because we haven't obtained another credit card to be able to pay our bills with money we don't have.  It's because we have too much debt already, and now we're asking to borrow more money to pay for it.

That's why the S & P is predicting an excellent chance of a credit rating downgrade.  No American family with a debt to income ratio of 7:1 (for those of you from Palm Beach County, that means seven times more debt than annual income) would be given a loan or further credit.  We need to take real steps to get ourselves back within our means.  No accounting tricks, no games.  Just real spending cuts to get us to a balanced budget. 
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(1) U.S. Credit Rating Downgrade Looking Likely Even If Debt Ceiling Deal Is Reached