Obama’s Debt Compromise Costs U.S. AAA Credit Rating for First Time in History

By | August 5, 2011

The Administration and members of Congress had held the specter of a credit rating downgrade over the heads of Americans. If a debt deal is not reached, the nation’s good credit would be damaged said several government leaders. On Friday, Standard and Poor’s (S&P) downgraded the United States’ rating from AAA to AA-plus on concerns about growing budget deficits.

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.

Despite attacks by Republicans and Democrats, Congressional Conservatives held out for a deal that would actually trim the nation’s debt. President Obama pushed for the compromise deal that instead, actually increases the amount of publicly held debt every year for the next decade. S&P said that the deal did not do near enough to prove fiscal responsibility and took the downgrade action.

U.S. Treasury securities have long been sought as the safest investments in the world. Now, the government bonds of the U.K., Germany, Canada and even France are rated higher than those from the U.S.

S&P also set the outlook of the new credit rating to negative, a signal that another downgrade could be coming within the next 18 months if the government does not get serious about trimming the national debt.

The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

The S&P press release also noted a key difference between the U.S. and the remaining AAA-rated nations – while America’s debt will increase in the next 3-5 years,their debt-to-GDP ratios are going down [emphasis added].

By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.

In response to the credit rating agency’s downgrade, Democrats are using intimidation to get S&P to change the rating. Congressional Democrats are threatening investigations into S&P’s inner-workings. Some are even asking for more spending to remedy the current over-spending situation.

Congressional Conservatives are taking a different approach by pushing again for more cuts in spending, removing the regulations that are forcing American businesses overseas and getting the economy going again. Sen. Jim Demint has also requested the resignation of Treasury Secretary Timothy Geihtner stating that the secretary has failed the country.

“For months he opposed all efforts to reduce the debt in return for a debt ceiling increase. His opposition to serious spending and debt reforms has been reckless and now the American people will pay the price.”

Commentary from the Obama administration focuses blame on the process by which the compromise solution was passed. But, had the Obama administration’s first plan – a debt ceiling increase with no spending reductions at all – gone through, the S&P downgrade would have been joined by negative ratings by Fitch and Moody’s.

Indiana’s State Treasurer also said that the Administration handled the debt ceiling poorly by failing to act with any fiscal responsibility whatsoever.

This downgrade is the direct result of raising the debt limit on Tuesday, August 2, without providing for substantive cuts in spending. The White House and many in Congress failed in their jobs by settling for a political compromise rather than seeking a fiscal resolution.

Much like Obamacare, the legislation pushed by the Administgration to supposedly deal with an impending crisis is instead exacerbating the underlying problem.

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5 thoughts on “Obama’s Debt Compromise Costs U.S. AAA Credit Rating for First Time in History

  1. Wisdom

    False.

    The S & P report, in PLAIN ENGLISH, stated their downgrade was a result of the Tea Party hostage-taking approach, and Conservatives unwillingness to allow revenue increases to be on the table. Knowing Reaganomics is a historically proven failure, and revenues MUST be raised to accomplish our recovery out if the Bush Great Recession.

    Also, President Obama put a 4 trillion deal on the table and Boehner walked away. FAR more cuts than the Conservatives- unwilling to compromise, or use intellect and facts- would ever do.

    There’s no spinning this one with false headlines. The polls already show America knows the Tea loons are to blame. Even the uninformed are reading it in the S & P report blaming Republicans and the Tea Party. This will be driven home until another win for President Obama happens in ’12, because the nation wouldn’t survive a Republican presidency until ’16 for another vote. America will be dead from Conservatism.

    1. R. Mitchell Post author

      I have the full text of the actual S&P downgrade report. Not once in the report does it mention the Tea Party or Conservatives at all, much less as the group to blame as you state so emphatically. That’s your bias showing.

      Obama’s original plan was actually to raise the debt ceiling in a “clean bill” – no cuts or revenue at all. You are creating your own reality and believing the lie within it.

      If Obama had gotten the clean bill he had first demanded, Fitch and Moody’s would also be downgrading the U.S. credit rating.

      Your version of history is interesting, although a lie, and will likely be the mantra of the loony left.

      1. doctorhugo

        Way to go Max! One line taken out of the total context of the report which, beyond any reasonable doubt, says that this President has failed to address the issue of dealing with the debt in any meaningful way.

        What about Obama’s own commisssion, the so-called Simpson-Bowles Commission, that made their recommendations(1) for a REAL way to deal with this mess…
        It was actually the President Obama’s Budget and the National Commission on Fiscal Responsibility and Reform. Huh! “Fiscal Responsibility and Reform” from THIS President??? What Oba-chicanery made six Republicans desert their support for that report? Inquiring minds seeking the TRUTH want to know. Let’s go back just a wee-bit into recent history Max for it was on Wednesday, April 13th of this year. It was on that very day that The One, soon after having satisfied the base of his party with a forceful restatement of the liberal, left creed that The One was to invite the co-chairs of his fiscal commission to the White House the next day, by SYMBOLICALLY appearing to enbrace an approach to deficit reduction.One which his own demonRATic congressional base had rejected last December 2010 in a 53 to 37 shellacking in the demonRATic controlled Senate(2). Not all just Republicans voting against Max. The One, ever the hypocritical fraud, was playing to his fawning media, nothing less, who have loyally carried his water since prior to his election.

        What the rating agencies, like S&P are looking for is a COMMITMENT IN LAW by THIS President and THIS congress to invoke BY LAW a REAL PLAN, not another phoney study commission. This graphic> http://i259.photobucket.com/albums/hh283/doctorhugo/Simpson-BowlesCommGraphic_1.jpg from the Bowles Commission report would satisfy that requirement. Your Great Leader rejected it.

        To pile shame upon shame only in the last week of May, very recent history again Max which you should remember, this was one media response:
        “For President Barack Obama and the Senate Democrats, it’s a good thing liberal politics are nothing like football. Because last week, the Democrat-dominated U.S. Senate voted 97-0 to kill the $3.7 trillion budget Obama sent to Capitol Hill in February. Let that sink in for a moment. “Coach” Obama had more than three months to get his team ready to play, and it performed like a Green Bay High School junior varsity against the Green Bay Packers. Actually, that analogy is imperfect. “Coach” Obama had more than three months to get his team ready to play, and it ended up cheering for the other team.”(3) Once again…the Emperor is shown to have no clothes!

        Max, can you begin to explain why at this late date NO BUDGET has been filed by his party? HELL-LOOOooo! Could it possibly be that they are NOT at all serious about cutting spending? That they are into a far-left agenda of quite literally bringing down this government AND trying to make it look like the fault of those “mean-spirited”, “obstructionist” Republicans by promoting ridiculous budgets they know the Repubs cannot accept?!

        The Oba-turd sent his $3.8 trillion budget to Congress for review and consideration. The final budget projected a hefty $1.56 trillion deficit in 2010 that would be reduced to $1.27 trillion in 2011 (we’re already here and ???) and approximately $700 billion in 2012. The Oba-turd’s divide and conquer, class warfare strategy would have put that $29 billion of savings on the “rich”…, those making over $200,000???!!! You see Max, he had to lower te definition of “rich”, because even if he were to tax the real rich at 100% he wouldn’t have gotten his $29 billion of savings. He needed MORE rich people, because he was running out of real rich to impose taxes upon. HIS plan outlined $1.2 trillion in reductions over a ten-year period. That comes to ONLY $120. billion per year, a paltry and anemic sum way short of even having us tread-water financially as it doesn’t come close to paying the annual interest on the debt. That single instance ON IT’S OWN would justify the downgrading, minimal that it was, to our credit rating. Try making only the minimum payment monthly on YOUR credit card Max and see how it effects YOUR credit rating. Obama wasn’t even going to meet that minimum of interest ONLY payment!!! That’s what the Tea Party patriots being demonized by the left as “terrorists” and “extremists” want. Government living by the same financial standards that we have to live by.

        And so you think what? The S&P downgrading was premature! Expect Moody’s to jump in soon as they observe the demonRATic attack dogs chewing at S&P’s pants-leg. Rating agencies cannot SURVIVE by allowing politicians to demonize them as a political agenda. They will fight back. Believe it.

        Your ill-chosen quote from that report of…”“Standard & Poor’s takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.’s finances on a sustainable footing.” was included INTENTIONALLY to indicate that such (a methodology for a financial reform plan) IS NOT in their legal purview of responsibility to determine.” Make a criticism sure, it’s your right, but best to make it a VALID ONE.

        (1) http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/CoChair_Draft.pdf
        (2) http://video.nytimes.com/video/2010/12/05/us/politics/1248069404983/senate-rejects-obama-s-tax-plan.html
        (3) http://www.personalliberty.com/hot-topics/outside-the-asylum/blanked-in-the-budget-ballgame/

        and was rejected out of hand by Obama…

        What about the vote taken in the Senate of 97 to 0

  2. doctorhugo

    Let’s cut to the chase on this downgrading. Anyone that was surpised by this should be institutionalized. I just watched a encore of a shameful perormance by someone I used to have respect for neil cavuto and he acted like the biggest demonRAT in the room and suggested with little ucertaibnty that S&P went overboard in taking the action they did.
    I, on the other hand and at the time, was saying that it should have happened during Little Georgie-boy’s second term in my opinion and then be further downgraded now. It’ll cost ME as it will cost YOU TOO, but it’s likely the painful medicine we’ll have to endure to make certain we lose Obama and his demonRATic hooligans come next NOvember. I predicted here that I expected it to go down to Double ‘A’, an even bigger statement and hit. This isn’t rocket science as they say. Bush took the lead and Obama used it as his excuse to plunge us even deeper into deficit spending with Stimulus 1 & then 2. In truth BOTH parties are guilty, but the demonRATrick party has long ago taken the irresponsible lead on an assault upon “the good faith and credit of the United States government”. They’ve done it by their manner of whoring to their “target groups” for that precious endorsement of continuing power called THE VOTE. Wait until the shock of a SECOND DOWNGRADE in six months hits the old political fan as those ratings agencies see nothing but political sleight of hand and deceit at work.

    Do you not find it rather revealing that such ridiculous things like “EIC” (EarnedIncomeCredit), which is used to pay a refund to people who, in the main, pay no taxes to start with, was never cancelled to save money? Not even opened for discussion. What about the ever-popular Food Stamp program, possibly one of the largest growing and most abused of federal beneficense intended for the “poor”. And then there are the sacred cows of Social Security and Medicare that the gutless politicains are afraid to go near, but which they acknowledge are in deep doo-doo! A simple COMMITMENT such as a bill to reschedule benefit dates of full payment to defer them to age 70 and beyond would have sent a signal to the ratings agencies that congress was making a serious commitment to rein in “entitlement” spending excesses, but NOooooo! Not this bunch of rag-tag holligans we call the peoples’ representatives.This chart was compiled in 2004 and it’s worse now:
    http://i259.photobucket.com/albums/hh283/doctorhugo/SocialSecurity-MedicareDisasterChart.gif

    All the demonRATrick left was doing was calling any Tea Party related groups “extremist Tea Party zealots” for demanding that OUR federal government live by the same standards they’ve codified to law as behaviors to force us to live by in the responsibility for handling our debts and obligations. In fact, this past week, my #1 candidate for The Worst and Sorriest Excuse for a Human Being on the Planet….Chuckie-boy Schumer (demonRAT/NY), who…for whom there are not enough disparging epithets available in the lexicon, led the charge against the Tea Party. It’s better than an even money bet that he’ll now step up and lead an emotional orgy of vilification against Standard and Poors for our rating downgrade, trying to deflect responsibility to the scorekeeper and off the primary player. He’ll preach upon the need for a special Senate sub-committee to investigate. It’s how they will seek to give Obama AND THEMSELVES Election Day 2012 cover. Get ready for some mid-summer hot ‘n humid whining like you never heard before. Mammas…If you think you heard yelpin’ ‘n whinin’ when your baby’s formula was late comin’…well…, you AIN’T HEARD NUTHIN’ YET! Hell hath no fury like a high and mighty demonRATic Senate in session.

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