U.S. Downgraded - BBC Reporting Fails

U.S. Downgraded - BBC Reporting Fails

>> SATURDAY, AUGUST 06, 2011

It's happened. Standard & Poor's has downgraded the United States' credit rating to AA+ for the first time in history. Worse still, they have a negative outlook on the country fixing things in the near future enough to restore AAA confidence. Earlier this week, Moody's re-affirmed its AAA rating for the US, but also placed a negative outlook on maintaining that status. Fitch takes the same unhappy view. Let's be very, very clear here, clear enough to counter all BBC propaganda and ideological commentary (I hesitate to call it "reporting" at this point) on the debt agreement, and the entire process leading up to where we are now. As I've been saying for some time now, both S&P and Moody's have stated explicitly that the debt agreement does not do anywhere near enough to lower spending enough to maintain their confidence in the country's ability to right the ship. Moody's:

In assigning a negative outlook to the rating, Moody's indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year; (2) further fiscal consolidation measures are not adopted in 2013; (3) the economic outlook deteriorates significantly; or (4) there is an appreciable rise in the US government's funding costs over and above what is currently expected. First, while the combination of the congressional committee process and automatic triggers provides a mechanism to induce fiscal discipline, this framework is untested. Attempts at fiscal rules in the past have not always stood the test of time. Therefore, should the new mechanism put in place by the Budget Control Act prove ineffective, this could affect the rating negatively. Moody's baseline scenario assumes that fiscal discipline is maintained in 2012, despite pressures for fiscal relaxation that often precede general elections and the difficult negotiations that are likely to arise due to the scheduled expiration of the so-called "Bush tax cuts" at the end of that year.

"Fiscal discipline". "Fiscal consolidation". No mention of tax rises, no demand for increased "revenues". Fitch:

While the agreement is clearly a step in the right direction, the United States, as in much of Europe, must also confront tough choices on tax and spending against a weak economic back drop if the budget deficit and government debt is to be cut to safer levels over the medium term. The increase in the debt ceiling and agreement on the broad parameters of a deficit-reduction plan support Fitch’s judgment that, despite the intensity and theatre of political discourse in the United States, there is the political will and capacity to ultimately do the right thing. In Fitch’s opinion, the agreement is an important first step but not the end of the process towards putting in place a credible plan to reduce the budget deficit to a level that would secure the United States’ ‘AAA’ status over the medium-term.

"A step in the right direction". Does this sound like what the BBC told you on Tuesday? No, it does not. To them, this was forced on the President by the extremist Tea Party movement, out of a desire for "purity". Notice they don't say "raise taxes", only that we must face "tough choices on taxing and spending".

The review will focus on the U.S. sovereign credit fundamentals relative to ‘AAA’ peers and medium-term economic and fiscal prospects in light of Sunday’s agreement on cuts of nearly USD1 trillion over 10 years on discretionary spending and the establishment of a bipartisan, bicameral Congressional committee that will identify an additional USD1.5 trillion of additional deficit reduction by year-end.

Cuts in "discretionary spending". Not bleed the rich. And finally, Standard & Poor's (Actual statement is in a PDF file)

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

"Containing the growth in public spending". "Fiscal consolidation". Yes, they alone talk about raising revenues, but don't say how or how much. In fact:

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.

Read more »