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Henry Blodget links to a disturbing story about S&P, the credit rating agency, threatening to downgrade US debt if it doesn’t deal with the budget deficit:
The United States government needs to take steps to preserve its top AAA-rating, a Standard & Poor’s Ratings (S&P) official told Dow Jones newswire in an interview published on Thursday.
The measures taken in response to recommendations President Barack Obama’s commission on fiscal responsibility would be crucial in the view S&P takes on the U.S. credit rating, he said.
“It is very important for the credit standing of the United States that the Congress considers very carefully what the fiscal commission proposes,” John Chambers, chairman of S&P’s sovereign rating committee, was quoted as saying.
“It is very important for Congress to take the required steps.”
S&P, like the other rating agencies, basically gets paid by the banks, and in the run-up to the crisis wrote their projections to favor the banks moving around risky securities that destroyed the economy. Not one thing they can say is credible.
In Dodd-Frank, the rating agencies were partially reformed, with an additional SEC study to remove the conflict of interest set to come. So you’re welcome to read this as a reaction to that.
It’s literally impossible for the US to default on debt, especially when the debt is denominated in its own currency. This threat looks more like a signal to the markets. Rising debt is supposed to eventually lead to inflation, but during this crisis that hasn’t transpired; in fact, deflation is more likely. The bond markets have beaten down long-term debt yields, now sitting at 2.53%. Rather than reacting to the state of the markets, S&P seeks to influence them.
It’s ridiculous and without credibility. But I fully expect some VIPs in Washington to take it seriously.
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This is all the biggest joke.
Anyone over the age of 40 should remember how, in the early 1980′s, bond interest on U.S. government securities were over 10% easily. I remember a bank branch manager pointing out 16% annual CD’s, with interest of over 1% per month.
Now, the government can borrow for over 10 years at less than 3% a year. So the interest is nothing. They should be minting U.S. government bonds by the stack. Yet, suddenly, everyone is concerned about the deficit. It really seems like a PR manipulation.
Tax wealthy people more if you want to trim the deficit. Otherwise, borrow as much as the investing community is willing to accept at 2.53%.
I cross posted a comment on this on another diary on FDL, but the point is that this in line with the push to cut benefits on Social Security as well to short the US economy in general. In this post-American century, we are now expendable to the Financial Wizards. With Alan Simpson’s gaffe, the Privatization of Social Security folks and the budget deficit hawks need a new lever to pull. They need the S&P to downgrade US debt obligations in general. That way, they can justify the possibility of a US default on treasury-backed obligations in the Social Security Trust Fund.
What I wonder is how Chinese investors will respond to this kind of threat. When they realize that their T-Bills might be worthless too. Will we see a sudden market run on shorting the US? Like we saw with Iceland and Greece (and others in the past 200 years) when Market Movers and Makers like Goldman, et al start this kind of scenario?
Instead of creating jobs and investing in a GREEN energy economy (like Denmark or Sweden or Scotland, where the potential to EXPORT the fruits of such would guarantee economic stabilit for decades) we are slashing our throats to end it quickly.
I think the fix is in. There will be a lot of money to be made shorting the United STates. Think about it – we have a lot of homeless people with a lot of homes being foreclosed upon. Just like the Depression. Where people starved while banks’ armed security guarded the seized grain silos filled with grain. What happens in those cases? While people are divested of their assets, those assets become dirt cheap, and banks and Financial Wizards swipe them up. When the dust settles, ownership has transferred in massive bulk quantities from the lesser folk to the elites. This consolidates power furthe. And concentrates wealth. And because they could manage and cajole the downslide in the first place, they can profit from it at the same time. They make money in the downturn, and they make money in the upswing. Because they can control the market forces, the political checks and balances, and the currency.
There never was a free market. Only an illusion of one. And now the time has come to smash the illusion and cash out. The rest of us will now get to understand why so many people have been leaving the “Third World” for the past 50 years. We now get to see what one looks like. Just look out your window.
Here’s the other article that dovetails with this issue well:
http://firedoglake.com/2010/08/26/nyt-and-matt-bai-falsely-call-social-security-trust-fund-a-lottery
I also agree that this is ridiculous, but I wouldn’t dismiss it completely. While I agree that the US will not “Default” on anything, I think your point that this is a signal to the markets is spot on. This is a signal to engage in anti-recovery antics. Like I say above, the point here is to make some short-term gain at the expense of the US economy, and if it can be the political steam engine to slash social security at the same time, then all the merrier for these banksters. Oh, of course the US won’t default. At least – NOT TO FOREIGN CREDITORS AND WEALTHY INVESTORS. It just wants to default to the US Citizens in terms of Social Security trust funds. That’s all. But in the meantime, and shorts against the US economy will find a way to benefit from this.
It also serves as a useful way to remind all of us that the United States has its place. We are the lapdogs of the Financial Wizards, and we better not forget it. IF they want wars, we better give them wars. They can make a lot of money with those wars. And we have lots of young men and women to sacrifice for those wars. And we have lots of assets left to seize from ordinary folks to pay for those wars (because one day, there will be nobody left to tax, so they will need assets to fund themselves).
Good post.
The rating agencies commited fraud on a massive scale and the admin did nothing to hold them accountable (sounds familiar, doesn’t it). Now they are trying to box the admin in RE deficit spending.
At first I thought, “Hah, that’s what you get you morons!”.
Then I realized that this is exactly what the admin wants. They’ll conflate the “debt downgrade” into a crisis, and then use the “crisis” to cut entitlements. In the end, the story will be that they heroically prevented another collapse and we can’t let “perfect be the enemy of the good”. Another charade with a convenient and willing “villain”.
And the Obamatons will say it is Bushco’s fault.
The ratings agencies should be dissolved and their management convicted and imprisoned for the massive frauds which they facilitated and participated in. S&P is just an example of the enormous hubris of the financial industry (It feels odd to call it an industry when it is more like a criminal enterprise.) Two years ago they were holding on by their fingernails. Their corrupt system of crony casino capitalism was tittering on the edge and was only saved by gargantuan interventions by their sugar daddies at the Fed and Treasury. Now that crisis past and having learned nothing from it these greed addicted idiots are back to their old tricks.
You know what the real joke is here? If S&P did downgrade the US, it would precipitate another financial crisis (yes, I know there is another crisis coming anyway) that would wipe these smarmy sanctimonious bastards out.
IIRC, Carville conveyed Clinton’s statement about having to make the “fucking bond traders” happy. Since the Obama administration has basically been Clinton redux, it appears we can look forward to more austerity instead of the needed stimulus.
Downgrading US debt should have been done some time ago but it’s tough politically for the rating agencies. If you people think treasuries are so great then why aren’t there buyers lining up to buy them? What we are doing now is selling treasuries to…..the Federal Reserve. Does that sound like a good way to run an economy?
In short the Fed prints money and the Treasury sends them over some T bills in exchange for this newly printed money. Eventually some of this newly printed money will have Art Linkletter’s picture on it.
The more money our government floods us with the less each individual dollar is worth. That’s probably not much of a concern for a group that has spent every dime they’ve ever touched.
The rating agencies (finally) are getting it right. US debt deserves to be downgraded. Interst rates should not be held down artificially.
We need many years of austerity. “Austerity.” Gosh, I love the sound of that word.
The way the goverment will get out of their fix (Obama is spending us into the poor house) will be to push the value of the dollar down…way down. That way they can pay back the debt with much cheaper dollars.
I wouldn’t want to be sitting in dollars right now.
I’ve got to go now. Time to count my gold and silver.
Aargh. Get a grip on the basics before making such stupid remarks. The fact that the return on Treasuries is so low shows that the Treasury has no problem in selling them. If T-bill rates went up that would be an indication that the Treasury was having to pay a premium in order to sell them.
David, this is how they got Cameron in as PM when it looked like the LibDemos were going to back Labour: BNP Paribas threatened to downgrade the UK’s debt if the LibDemos formed a government with Labour.
Hugh –
You of all people should know by know that Tinman is a troll. Join the boycott and don’t feed him/her/it.
Well, the US didn’t pay S&P for ratings, so there you are. I wonder how much they would charge to retract this statement?
Thanks for the tip. I personally did not know, and was about to whip out a case of edumacation for him/her/it. Thanks for the tip.
But I will say this. China and other nations are eating up the T-Bills and sharpening the knives for the feast that is to come.
Austerity sounds nice when we are talking about moral temperance, or when we wish we hadn’t gone to that party the night before. Austerity, when applied to FINANCE and POLICY is a loaded term of art – it has a lot more meaning than it does in other contexts. It means the strangling of a nation state, the subjugation of that state to an International Banking Elite – where natural resources are plundered and restrictions are put on a nation state to prevent it from creating higher order goods out of those natural resources, where prohibitions are placed on the nation state to prevent it from hiring too many of its indigenous workforce, where requirements are imposed upon that nation state to “open it up”to financial rapine by international investors, to force the nation state to “hire foreign workers” at discount rates. Sound familiar???
The United States is halfway into the bear trap and here we have some bozos running around dictating a policy to take us the rest of the way.
AUSTERITY is what the World Bank and the IMF do to emerging nations that might become independent of the Banking Elite. Austerity is what happens when the Financial Elite are able to hijack and blackmail influential politicians of that nation state (or assassinate the holdouts and replace them with puppets). Austerity is what happens once those puppets and blackmailed politicians receive their marching orders. Austerity is the act of using covenants, restrictions, and usurious lending practices, it is the act of hijacking a currency, establishing a Central Bank that is beholden to the IMF or other Financial global player, ensuring that whatever is left of a middle class is eliminated.
That is Austerity. Its like being the host/victim of a massive vampire squid. Its the act of destroying a nation-state for the sake of profit.
Anybody who likes the sound of that is either an uneducated prude who thinks that Austere and Austerit are words we still use for how our children should behave, or that person is a Financial Wizard who has quite a bit to gain from the rationing of catfood.
How many divisions does Standard & Poor’s have?