Tag Archives: S&P

Cities Respond to S&P Statement on Local Government Ratings

WASHINGTON, Aug. 9, 2011 /PRNewswire-USNewswire/ — The National League of Cities issued the following statement in response to Standard & Poor’s statement on municipal credit ratings:

Standard & Poor’s announcement that cities and states may keep their AAA bond ratings despite the recent downgrade of the U.S. federal government demonstrates the difference between U.S. federal debt and the municipal bond market.

Unlike the federal government, municipal debt is typically not used to finance day-to-day operations.  Local and state governments use municipal bonds to finance infrastructure projects. Nearly all local and state borrowing is longer-term (20 or 30 years) and debt service payments are predictable (usually the same amount each year).  Additionally, local and state debt levels are low, about 16 percent of GDP, and usually representing a relatively small portion of local and state budgets, about 5 percent on average.

Standard & Poor’s announcement that it was downgrading some municipal bonds – those primarily related to conduit bonds (typically issued, for example, for housing agencies, hospitals, and school construction) – while unfortunate, was not a surprise given the recent decision to downgrade the federal government’s credit rating.  But, the overwhelming majority of municipal debt issued by general-purpose local and state governments remains highly rated and secure, as confirmed by S&P’s and Moody’s recent announcements.

Municipal bonds are an important tool for regional economic development and major infrastructure projects. Potential downgrades could add higher costs for infrastructure projects, further constraining local and state budgets. Local and state governments comprise three quarters of U.S. infrastructure spending and debt financing has been the primary mechanism for funding the nation’s system of public works – nearly four million miles of roadways, 500,000 bridges, 1,000 mass transit systems, 16,000 airports, 25,000 miles of intercoastal waterways, 70,000 dams, 900,000 miles of pipe in water systems, and 15,000 waste water treatment plants.

Despite the statements and the downgrades, residents should still be assured that cities will continue to provide the critical services residents demand. The fundamentals of cities haven’t changed. Cities still operate under debt cap limits and must go through exhausting processes prior to any borrowing to ensure their ability to repay.  Virtually all state and local governments have balanced budget requirements. Many state and local governments also have provisions that require steps to be taken to address problems before defaults can occur, or prioritize debt payments over spending for other government services.

Concern about the municipal market is now being driven by lack of confidence in the economy and the rating agencies’ assessments that federal policy responses have been inadequate — not local leaders failing to pay their debts or balance their budgets.

To be sure, local and state governments continue to confront declining or slow growth in revenues as a result of the Great Recession and 2011-2012 will present many general purpose governments with difficult choices.  But, the overwhelming majority of local and state governments are continuing to balance their budgets and meet their debt obligations.

August 11th 10pm EST on CDNews Radio: Mitchell & Ray – Downgraded, But Not Out

CDNews-Radio-LogoShow Time: Thursday August 4th, 7pm pacific, 8pm Mountain, 9pm Central, 10pm Eastern

Tune In: CDNews Radio: Mitchell & Ray

Call in: Be part of the program – call in to the show: (424) 220-1807

Guests: Nicole Pearce from Truth About Bills.

Show Topics: Join Michelle and Rich as they take your calls on the debate, Iowa GOP debate, the credit downgrade, the spin, market and the aftermath.

Show Archive:

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Links from the Show:

Spinning the Downgrade

Downgrade Without a Plan

Hear recordings of past shows: CDN On-Air Archives


U.S. Takes it on the Chin; Administration Delivers No Plan .. Again

Obama DownThe news that America’s sovereign debt has taken a hit has been the top news story since Friday. But, the nation’s true crisis is that her leaders have decided to fight the downgrade rather than create a strategy to fix the underlying issue: we’re spending more than we make.

Pundits and politicians are arguing about whether S&P made the right decision while the bond markets are largely ignoring the rating change – yields are actually dropping. What the electorate wants to hear from the President is how we fix our fiscal mess, not whether or not S&P got it right.

Treasury Secretary Timothy Geihtner had said that there was absolutely no risk of a downgrade. His basis seems to be the same as former Federal Reserve chief Alan Greenspan when he said, “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default”. Perhaps Mr. Geihtner should have thought about that when he was raising the default specter before the debt ceiling deal.

Almost in direct response to Geihtner and Greenspan’s terrible idea of printing our way out of the debt mess, today while downgrading Fannie Mae, Freddie Mac and indicating  that it would be downgrading the country’s six largest insurers, S&P said, “printing money doesn’t deliver a triple-A rating.”

Despite Tim Geihtner’s missed guess on the downgrade and absolute failure on monetary policy, he is staying in place. Not because he’s the right guy for the job, but because the White House is not about to go through the nomination process for someone new. It would be nearly impossible to get another Keynesian spend-monger through the Senate confirmation process considering the failures of the current administration’s supply-side approach. That’s politics, one of the key factors to S&P’s downgrade. Leadership from Obama would have been to replace the flailing Treasury head and get a new plan implemented.

The White House won’t seek a fresh perspective in Treasury. The administration isn’t serious about lowering the country’s debt-to-GDP ratio. After the downgrade, the only action from the White House seems to have been to ..  go after the rating agency and the Conservatives in Congress. On Sunday, Geihtner appeared on NBC and said that, “”S&P decision to cut U.S. credit rating shows stunning lack of knowledge about basic U.S. fiscal budget math.”. No mention of his miscalculation or the necessity of the federal government to curtail spending.

The only call-to-action has so far come from the very segment of Congress that Senate Majority Leader Harry Reid and other democrats are blaming – Republicans. Senator Mark Kirk (R), called for the president to bring Congress back from its August recess to address the issues raised in the S&P report. Congress could then implement the debt-ceiling law and start to craft a real plan – no word from the White House yet.

Where is the leader of the greatest nation on Earth? Where is America’s captain after the nation was shaken by a credit downgrade? Where is the strong-chinned leader of the free world, offering a way forward – a positive plan – to get our nation back on its feet?

During remarks this afternoon the President did point out the good news. Obama said, “Our problems are solvable.” His speech offered no plans, no solutions, only blame and calls for more stimulus spending and to continue the too-small-to-be-effective payroll tax break that he has championed for years.

Obama’s only genuine attempt at fiscal leadership, his budget, went down in flames when it was unanimously defeated in the heavily Democrat Senate 97-0 earlier this year.

S&P was concerned that America may not be able to get its deficits under control and that our leaders would be focused on politics rather than policy. Will the President lead us out of the spending troubles that he helped lead us into or is it too close to his re-election for him to be concerned about policy instead of politics?

Spinning the Downgrade

On Friday, S&P downgraded the U.S. credit rating to AA+ from AAA. The downgrade report complained that the debt ceiling deal did not do enough to stem the tide of future deficits and debt.

While the report blamed no political parties, politicians, groups, or approaches as the reason for the shortfall, Democrats have been falling over themselves to blame Conservatives for the negative credit rating.

John Kerry came out and applied bias where there was none on Meet the Press Sunday.

Justin Ruben, executive director at MoveOn.org, an extreme left-wing organization, expressed outrage at the President for not taking a more aggressive stance against fiscal Conservatives.

“It’s a terrible deal that will destroy jobs and big part of reason is because president accepted the premise that it was okay to hold economy hostage,” Ruben said. “Instead of saying, ‘this is outrageous’ and ‘You will not threaten the full faith and credit of the U.S.,’ and telling America what the Republicans are doing, he sat down and said, ‘let’s bargain’ and tried to show he was more reasonable.”

Ruben’s demand for less compromise is in direct opposition to the President’s attempts to bring both sides together. Mr. Ruben’s spun the whole outcome by saying that the deal itself is what threatens the “full faith and credit of the U.S.”. Incorrect. Had Obama toed the line with Ruben’s idea of raising the debt limit without curtailing spending or raising revenue, two more ratings agencies would likely have joined in the downgrade. Only because some slowdown in spending was present in the bill at all did Fitch and Moody’s leave the nation’s AAA rating in-place.

On the Sunday circuit, progressive talking points were prevalent. “We can’t cut our way out of this recession” was heard loud and clear. This a variation on Obama’s, “we can’t cut our way to prosperity” theme. While we haven’t even tried spending cuts as a method to save the economy, we have empirical evidence that taxing and spending our way to recovery does not work.

The rising-star, progressive commentator and writer Ezra Klein tweeted, “This didn’t happen because an earthquake wrecked our factories or a plague hit our workers. It was Congress. Particularly GOP in Congress.” in reference to the S&P downgrade.

The more honest perspective is that Speaker Boehner had accepted an Obama administration deal that included over $800 Billion in revenue enhancement (lefty-speak for increased taxation). Obama then came back to the table with an additional $400 Billion in demanded taxes while still keeping Medicare, food stamps and Social Security off the table – turning compromise into arm twisting.

The spin is working. Liberal forums are full of comments where the democrat-faithful are extremely upset at the lack of reporting that the S&P report specifically calls out Republicans for having obstructed the debt deal. They will have to remain upset for quite some time as the report contains no such admonition. In fact, the report is careful to make no comments for or against either party nor does it recommend either cutting nor taxation as the chosen remedy.

S&P had needed to see $4 trillion in deficit reduction – the deal only delivered $2.7 trillion. If the democrats had gotten what they originally demanded, there would be $0.

If not for the Conservatives, this downgrade would have come faster, may have been worse (AA-) and could have included Fitch and Moody’s lowering the nation’s ratings as well. If the politicians in Washington fail to cut the deficit by much more than Conservatives already have, we will see further downgrades in the coming months and all the scary stuff that Democrats threatened the country with before the debt deal. Perhaps even that “Satan Sandwich”.

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

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.

S&P Deems America a Credit Risk, Hoyer Pushes Pelosi to the Side

  From Standard and Poor’s official website:

  • Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be
    very large budget deficits and rising government indebtedness and the
    path to addressing these is not clear to us, we have revised our outlook
    on the long-term rating to negative from stable. (emphasis mine)
  •      Of note there, is the recognition of our huge debt problem, and the failure of our Congress and President to seriously address this issue.  The path to addressing our dangerous debt problem is not clear to the analysts at Standard and Poor’s, simply because the irresponsible spending that is responsible for trillion dollar deficits continues unabated. It doesn’t take a rocket scientist to see that President Obama and the Liberal Democratic party in charge of the U.S. Senate refuse to cut back on a government so bloated that we will no longer be able  to pay our bills on time in the very near future. The United States credit card is maxed out, and now the mathematically challenged tyrants in the Democratic party, along with Barack Obama want to raise the debt limit on the credit card drawn on the taxpayer’s account. The end result in this game will be more taxes slapped onto the backs of an already hurting working class in America.

      Pictured at the left is former Speaker of the House Nancy Pelosi. I provide the picture lest we forget just who she is, as she has been prettymuch missing in action during the recent massive budget battles in Congress. Gone are the times of her daily idiotic TV statements such as the infamous, ” We have to pass the Health-care bill to see what’s in it ” statements.  So what is going on with the self-appointed San Fran Queen of the far left Liberals ? This woman is largely responsible for the last four years of crushing debt that got pushed onto the American people while she was ramrodding the leftist agenda through Congress unabated. With the debt ceiling fight looming in Congress that will prove to be a serious expose’ of  just what Pelosi’s maniacal actions as Speaker have done to America, it now appears that Obama and company are shunning her and pushing her into irrelevance. Enter Pelosi’s long time House Democratic nemesis, one Steny Hoyer.

      It now appears that when it comes to the budget/debt ceiling battles in Congress Steny Hoyer ( D-MD) is the person who is now leading the Democratic house minority, not Nancy Pelosi.  With Obama in perpetual campaign mode today for the 2012 elections, this move appears to be an attempt to distance himself from the radical leftist Liberal agenda that he demanded from Congress the past two years. This is an obvious attempt to fool the voters into thinking Obama has moved to the center, and all we have to do is look at the trillion  dollar deficits he continues to pile onto our children’s backs to see how disingenuoushe truly is there. Hoyer is playing the part of a Blue Dog, bipartisan-worshipping moderate perfectly today. This has to be just what the Obama handlers are demanding in keeping in line with his fake move to the center propaganda for reelection. Over at The Hill.com we see the following headline:

         Obama-Hoyer bond forms as Pelosi rejects budget deal.

    The informal alliance has propelled the minority whip into the spotlight of the spending debate, bolstered his reputation as a centrist deal-maker and even led some Democrats to suggest he should lead the caucus in the looming talks over raising the nation’s debt limit.

      I find it quiet interesting that when, for four straight years, we watched as Steny Hoyer promoted the far left agenda that is largely responsible for our massive debt problem of today, yet all of a sudden he is being painted as some sort of centrist politician concerned with our debt problems. I find this similar to Charlie Sheen being made the CEO of the Betty Ford drug addiction enter. Hoyer has had a huge hand in America’s massive deficits for four straight years, and we are supposed to believe that he is some kind of savior?  He voted in lockstep with Pelosi’s far left Liberal big government expansion agenda at every turn, yet we are being led to believe that he is all of a sudden some type of  Blue-Dog Democrat who wants to cut back on big government and install some fiscal sanity into our government today? Get real folks, this is all a nasty game of trying to make Obama appear as a born again centrist while he destroys what’s left of America if he is reelected in 2012. I,m not buying it and apparently neither is the much-respected Standard and Poor’s rating index. Scroll back up there to the first paragraph, and then you decide if you believe this nonsense that Hoyer and Obama are actually working to cut spending and get our debt down to  a manageable level.