Posted by: Debby Durkee | April 19, 2011

S&P: Wake-up call on financial Armageddon.

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S&P: Wake up call on financial Armageddon.

Maybe those at Standard and Poor’s saw the movie Atlas Shrugged Part I this past weekend. The movie gives a glimpse of our future if we don’t stop spending our country into unclimbable mountains of debt and make serious cuts before the avalanche smothers us all, producers and moochers alike. Something woke up the sleeping ratings agency enough to put some pressure on the Obama Administration and the clueless Democrats. S&P downgraded its outlook for the United States from “stable” to “negative.”

It looks to me like a shot over the bow telling Obama to get serious about the economic problems our country faces. Some say it was an answer to Obama’s speech outlining what he plans to do to fix the economy. That speech was a political lecture and dressing down, not an attempt to lay out a serious plan. It was an attack on Paul Ryan and Republicans, who are trying their best to do what’s right. Whatever the S&P move was, it should serve as a wake up call, and Americans must stir themselves if we intend to shake the politicians. We are in the battle for the solvency of the nation, the battle of financial Armageddon. Republicans are attempting to fight the beastly debt while Democrats have joined the other side.

Enron writ large.

Kevin D. Williamson of National Review says that this train of financial fiasco has been running for a while (just ask the two-year old Tea Partiers, who’ve been chastised for attempting to get this into Americans’ heads), and what S&P is doing is watching the caboose. The ratings agencies are kind of like the last person at the party, they have a lot of catching up to do. Williamson says, “Washington’s finances are Enron writ large.”

… All of the credit-rating agencies had Enron rated like stacks of solid gold until a few weeks before Jeff Skillings’s financial underpants finally hit his ankles. But long before the CRAs woke up, the markets had driven Enron’s stock price down to almost nothing…

A little over a year ago, the markets already were telling us that the government’s story about how it is finally going to fix its finances is pure fiction. Yields on U.S. Treasury bonds went higher than those on a number of blue-chip corporate bonds…Snip –

As in the case of Enron, the smart money gets gone long before credit downgrades start hitting the headlines… PIMCO, the world’s largest bond fund, got clear of U.S. Treasuries some time ago, following the lead of a number of hedge funds. The oil-exporting countries are dumping U.S. debt, too…

… In the phrase adopted by Rep. Paul Ryan, what is coming is the most predictable economic crisis in our history: a nominal national debt of more than $14 trillion, a real national debt ten times that, and Barack Obama standing between the reformers and the needed reforms with a veto pen…This isn’t sophisticated macroeconomic analysis; this is that anvil falling out of the sky onto the head of Wyle E. Coyote, and you don’t have to be a super-genius to figure out that it’s going to hurt like hell when it hits him. Even S&P gets that.

And that’s probably the reason this announcement hasn’t really sent big-time shock waves through the markets: It’s just confirming what everybody already knows: Washington’s finances are Enron writ large. Snip –

As the Obama Administration deals with this existential problem for the country by lashing out at S&P, here are a few things to watch out for according to Williamson.

… “quantitative easing” is scheduled to end this summer, at which point Washington will find out what it is really going to cost to finance its debt. In FY2010, we spent $164 billion just on interest payments on the debt — up 18 percent from the year before. And that’s at historically low interest rates. If rates should go back up to their 1970s or 1980s levels, we could easily end up spending more on debt service than we spend today on big-ticket items like Medicare or national defense… We already know that we cannot afford the new debt that Obama would have us endure, but the real crisis will come when we find out that we cannot afford the debt we already have.

For years the phrase “fiddling while Rome burns” referred to the insane Nero playing his violin while watching his city burn, and has been used to describe unserious people doing unproductive things instead of doing something to help. I believe that phrase will have to be updated. Obama will go down in history as America’s Nero. Perhaps the phrase will be something like, “Obama babbling while America collapses.” Make up your own. Read all of Williamson here:  http://www.nationalreview.com/exchequer/265018/enron-writ-large

Obama speech downgrade.

Speaking of Obama babbling, the Wall Street Journal also thinks S&P came out with their downgrading as a rebuke to Obama’s babbling political speech to Paul Ryan in front of George Washington University.

There is only one reason (Standard and Poor’s) could suddenly have turned this dark on politics in Washington: President Obama’s speech at George Washington University last Wednesday. Mr. Obama’s “fiscal policy” speech may have sent progressive pundits cart-wheeling, but its political effect was to poison the prospect for budget negotiations.

The harshness of Mr. Obama’s anti-Republican rhetoric and the universal conclusion that this was a Presidential campaign speech make it very difficult for GOP Congressional leaders to believe they can enter into a budget negotiation in which the White House will deal in good faith. Snip —

S&P said as much:

… “We believe there is a significant risk that Congressional negotiations could result in no agreement.” And this stalemate will continue “over the next two years.” Snip —

S&P’s analysis also discussed fiscal conditions, most notably the scale of the deficit problem before and after 2008: “[I]n 2003-2008, the U.S.’s general (total) government deficit fluctuated between 2% and 5% of GDP. Already larger than that of most ‘AAA’ rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover.” This surely is one Bush comparison that the Obama team wishes to bury.

The S&P outlook also says its baseline scenario for the U.S. economy is “near 3% annual real growth.” But “near” 3% growth will not revive tax revenue enough to shrink the growing U.S. debt burden, which is heading toward 80% of GDP.

… Greece, pressed to cut spending while raising taxes, descend(ed) into an endless downward growth spiral…

The Obama fiscal policy since 2009 has been to explode the U.S. balance sheet with ever-greater spending financed by monetary reflation—which the President in his speech euphemized as “emergency steps.” The result after more than two years is what scares S&P and more than a few Americans: a historically subpar recovery, unprecedented deficits, persistently high unemployment, commodity inflation and now growing anxiety over U.S. creditworthiness.

Paul Ryan’s budget proposal is being attacked by the left as mean to women, children and the elderly. This is hardly the case.  It is an attempt to rein in spending without tanking the economy in the process.

… the S&P outlook is a warning to the White House that financial markets have noticed that this President seems to have decided that his path to re-election lies in demonizing his opponents rather than seeing to the nation’s fiscal well-being.

I guess the ball’s in Obama’s court. Will he smack the ball down the Republicans’ throats? Will he call foul and run the clock out? Or will he let the Republicans win one for the good of the nation? Which seems more like the petulant ditherer-in-chief? I mean, what’s in it for him? That’s all he cares about. Read it all here:

http://online.wsj.com/article/SB10001424052748704004004576270970186305348.html?mod=WSJ_newsreel_opinion

Clueless Obama.

S&P says there is a one in three chance that America will lose its AAA rating in the next couple of years, but Obama’s response is to pat us on the back and say it will be okay while he rails against the rich and the Republicans. This is from Abe Greenwald at Commentary Magazine.

…Barack Obama can cook up entitlement schemes as much as he likes, but if America loses its ability to borrow money on favorable terms there will be no safety net big enough to catch us all.  Snip –

The U.S. may lose its triple-A rating and the best Obama can do is peddle feel-good pop slogans in defense of suicidal entitlements…While the president preaches togetherness in service of class warfare, America nears an unprecedented downgrading.  He may think he’s being his brother’s keeper, but he shouldn’t be surprised if his brothers and sisters don’t see it that way in 2012.

Ignore. Deny. Avoid. Denigrate. Lie. Everything is on the table it would seem in order to (not) fix this problem. Now, aren’t you encouraged by the adult in the White House? Read it all here:  http://www.commentarymagazine.com/2011/04/18/the-sp-outlook-and-obama/

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Responses

  1. As they infer above, ” the train wreck ” is due shortly. I believe our Kenyaian president has played his hand to quickly. His political demise will follow OUR finianical demise.To bad for him, to bad for us.


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