Saturday, August 6, 2011


Someone finally did it.  Thank God. 

(CNN) -- The Standard & Poor's rating agency announced Friday that it has downgraded the U.S. credit rating to AA+ from its top rank of AAA.

Our national debt is now 100% of GDP.  Think of your yearly household income.  Go in debt by that amount.  Can you pay it off?  Didn't think so. 
Think of the yearly household income of your supermarket shelf-stocker.  Put him in debt by that amount.  Can he pay it off?  Didn't think so. 
Ditto for Bill Gates and the guy who mows your yard and everyone else you know.
(Yeah, I know there's a difference between yearly income and yearly production.  The analogy works the same way, though.) 

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," the agency said about the move, which was announced after the markets had closed.

Rating agencies -- S&P, Moody's and Fitch -- analyze risk and give debt a grade that is supposed to reflect the borrower's ability to repay its loans.

Hey China !  Russia !  Latin America !  Silly people who buy government bonds !  All of you !  Stop lending us money !  We are not going to pay you back in any way, shape, form or fashion, with the possible exception of Ben Bernanke Gift Certificates from the Federal Reserve printing presses !  We are not going to pay you back !  We are not going to pay you back !  We are not going to pay you back !  We are not going to pay you back ! We are not going to pay you back ! We are not going to pay you back ! We are not going to pay you back ! We are not going to pay you back !  So, for the love of God, please stop giving those idiots money.  They spend it on harmful things, and it takes the money away from productive, useful projects.  Please, please, please, please !!! 
Just because you've gotten money from us before doesn't mean things can't change.  You've been warned ! 

The safest bets are stamped AAA. That's where U.S. debt has stood for years. Moody's first assigned the United States a AAA rating in 1917.
Fitch and Moody's, the other two main credit ratings agencies, maintained the AAA rating for the United States after this week's debt deal, though Moody's lowered its outlook on U.S. debt to "negative."
What the hell are they waiting on?  This is like a fleet of submarines going deep into the Atlantic to consider putting some more lifeboats and safety equipment on the Titanic.  The disaster has already happened.  We're on the hook for the money.  The Republicrats recently joined hands with the Demoblicans to increase the debt goal by another 2 trillion dollars that we'll never ever pay back. 
Don't say I didn't warn you.  I'm looking out for your best interests, even if Fitch and Moody's aren't. 
End of rant. 


Hot Sam said...

Better late to the party than never.

The trouble is that the two parties will interpret this in their own way.

Democrats will say the Republicans did this with the debt limit scare and unwillingness to raise taxes on the wealthiest Americans. Republicans will say the Democrats did this by their unwillingness to restrain spending.

Downgrade, schmowngrade...back to business as usual, and shake me another martini.

Dr Ralph said...

Nick, make mine a double.

The Whited Sepulchre said...

Here's the only thing that matters about the budget deal: The government will spend more in 2011 than it did in 2010. They'll spend more in 2012 than 2011. 2013 will have a greater price tag than 2012. And on and on.

All the rest is noise.

Hot Sam said...

Like you, I'd like to see actual cuts, but if spending grows at less than the rate of inflation and revenues grow faster, the deficit will fall.

But as you point out, we can't begin to reduce the debt until the deficit is negative.

There's nothing inherently wrong with maintaining perpetual debt. Successful corporations are always going to have some debt on their balance sheet. The trouble is when debt to GDP is high. Corporations have liquidity and solvency ratios to mind, and when those are too high they violate debt covenants. Corporations have limits to debt, while the country does not.

I'd love to have a Balanced Budget Amendment, but there's nothing wrong with having temporary deficits during business cycles. Debt should be small, limited and/or temporary.

as long as we have free trade with countries like China and India, we're going to have a capital account surplus. So they will either buy US debt or corporate debt.

There's a lot more fat in that budget to cut.