Memo to the media: Who's to blame for the S&P downgrade?
Kari Chisholm
Over at TruthOut, Portland resident and national progressive radio host Thom Hartmann is blowing the whistle on a key omission by the national media in all the reporting about the Standard & Poors downgrade of America's credit rating.
On page 4 of the S&P report:
We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.
As Thom notes, to get the story right, "a hard-working reporter would have to read to page four of the eight-page report. It’s just too much effort for most reporters?"
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6:12 p.m.
Aug 6, '11
Why is the Tea Party now bashful about taking credit for the downgrade? That's small potatoes compared to what would have happened if they'd succeeded in causing a default.
11:43 p.m.
Aug 6, '11
S&P is not saying what you claim they are saying, which is clear if you include the line right before that: “Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this ..”, and it is clear that they only change they are making is an assumption about the Bush Tax cuts being extended.
However if you do read the S&P statement they do say: “the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability. Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating and with 'AAA' rated sovereign peers”
Or how about “Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. From our perspective, the effect of these revisions underscores two related points when evaluating the likely debt trajectory of the U.S. government. First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher.”
No it was people like Bachmann, and Rand Paul (both tea party congressmen) that voted against this deal because they didn’t think it did enough that that are the ones vindicated by this, that S&P agree’s with them, that it wasn’t enough.
9:10 a.m.
Aug 7, '11
it is clear that they only change they are making is an assumption about the Bush Tax cuts being extended.
The "only" change? What's that "only" part supposed to imply?
Aside from the impact of the Great Recession itself, those Bush tax cuts were by far the largest contributor to the deficits piled up over the last decade. Larger than the wars, way larger than TARP, the stimulus package, etc.
10:17 p.m.
Aug 7, '11
By “only” I was saying the implication given in the original article which was that republicans refusing to raise taxes is the primary reason for the downgrade is not true. Instead the one (and only) thing they were saying by that statement was that they were now expecting the bush tax cuts to be extended sometime in the future. (They are not saying anything in those statements about the bush tax cuts effects in the past positive or negative).
But if you want to argue about the bush tax cuts being the primary problem (something I wasn’t talking about in my first response was the previous effects of the bush tax cuts). That analysis you give is incorrect as it assumes static analysis, in other words that a change in tax rates does not in any way effect people’s behavior or the economy. This is the primary problem with the CBO’s numbers as they make no attempt at determining how much the tax cuts improve the economy (and therefor offset the loss in revenue). A great example of why the Bush Tax cuts are not the primary problem is that in 2007 many years after the Bush Tax Cuts were created, the deficit was 1.2% of GDP, while when Obama’s was in office it was 9.9% of GDP.
Now I think I can agree the Wars/TARP/Stimulus all added to the deficit by various measure.
12:22 p.m.
Aug 8, '11
Devin - it's pretty disingenuous to use 2007 as your Bush figure, since that was the height of the housing bubble just before the crash.
12:58 p.m.
Aug 8, '11
Look you want to claim that it is because of the crash that we are having problems, I can understand that. My only point is that it wasn’t a problem with the Bush Tax cuts, as we were doing fine for years after they were in effect.
1:24 p.m.
Aug 8, '11
That's simply not true. First, you're using incorrect figures for the deficit by included the social security surplus [sic] to lower the budget deficit. The on-budget figure in 2007 was -2.5%.
I assume you're away that we were running a budget surplus when Clinton left office? For 2000 the figure was +.9%. In the years when you have us "doing fine," we were back into deficit territory - 4.9% in 2004, for example.
And it's not that I "want to claim" that the bursting of the housing bubble and the economic collapsed caused the mushrooming deficits - that's the fact.
1:56 p.m.
Aug 8, '11
The deficit was 1.2% of GDP in 2007, and 10% of GDP in 2009. “The second-highest deficit as a share of GDP since 1945 and about four times the average deficit as a share of GDP recorded between 2005 and 2008”: http://www.cbo.gov/ftpdocs/118xx/doc11873/NovemberMBR.pdf
Mind you 1.2% is too high as well, but if we cut out the wars, and Medicare part d, and whatnot I am sure we can cut that down as well.
I am well aware that Clinton left office with a surplus, and I would go back to government spending of the Clinton era in an instant. (lets see you get government spending under $1.7 trillion a year from its current 3.6).
2:51 p.m.
Aug 8, '11
You keep returning to your 2007 pre-crash figure as if the crash itself and its consequences (including the Great Recession, massive unemployment and thus decline in revenue, and sharp rise in safety net and stimulus spending)were non-factors in the rise in deficit spending. You're making economic nonsense, and, as we shall see very, very soon, austerity regimes will likely push us back into actual recession.
3:02 p.m.
Aug 8, '11
No I know what the crash did, but I am only defending the Bush Tax Cuts, which did not cause the crash. If the bush tax cuts are the problem, we would have seen that problem by 2007 many years after they were in effect.
3:30 p.m.
Aug 8, '11
The Bush tax cuts did however massively raise the deficit and the long-term debt.
9:41 p.m.
Aug 8, '11
Depends on how much you think they increased the economy. See when you cut taxes, lets say you get 25% of the amount of money that you cut in taxes back in higher income because of the tax cut. And lets say the average tax rate of these people is 25%. That means for every dollar “spent” on tax cuts using CBO static analysis (I say spent here because I don’t think it is a good term for not collecting), there are 2 dollars in the economy because of it. One of those was a dollar they got because they didn’t have to pay as much taxes, and the second dollar was because the economy was better (giving them more income). (now its actually a dampened positive feedback loop in that you get more income which causes better economy which gets more income, but lets say it approaches 1 dollar for 1 dollar because empirically we are getting 25% more tax revenue then static analysis).
2:32 a.m.
Aug 9, '11
By “only” I was saying the implication given in the original article which was that republicans refusing to raise taxes is the primary reason for the downgrade is not true. Instead the one (and only) thing they were saying by that statement was that they were now expecting the bush tax cuts to be extended sometime in the future.
Dude, are you reading what you're writing?
Yes, they are saying that they now expect the Bush tax cuts to be extended beyond their expiration date - because Republicans in Congress won't agree to anything without that extension.
In other words, a "majority of Republicans in Congress continue to resist any measure that would raise revenues".
Same thing.
8:10 a.m.
Aug 8, '11
So if the Bush tax cuts are the largest contributor to the deficit, why does the Obama Administration only propose to repeal the 27.5% attribuable to incomes over $250,000 while leaving gthe other 72.5% of the cuts in place permanently?
The Obama partial repeal cuts the deficit by around $950 billion over ten years, while a full repeal would cut it by $2.5 trillion.
12:27 p.m.
Aug 8, '11
I don't think anyone here, Jack, was defending Obama's approach, so much as pointing to the rank hypocrisy of the Tea Party/Republican approach, which has far less to do with eliminating deficits than with rolling back the New Deal, Great Society, etc. Personally, I think Obama's elevation of the deficit over jobs as his primary concern (beginning at least with creation of the "Catfood Commission"), has been a disaster. I'm with Krugman et al. on that score.
3:43 p.m.
Aug 8, '11
To put it more sharply, the Tea Party approach wants to preserve a deficit as a way to ratchet down "spending" as an undifferentiated evil. Personally I would support sunsetting the tax cuts down to a much lower ceiling (say $100,000 rather than $250,000, or the top quarter or third of the income distribution), or sunsetting them completely and then negotiating some new smaller cuts for lower and medianish income folks, or even complete sunset phased in over a bit of time starting from the top -- though I suspect that sunset followed by new cuts probably would work better for many politicians, especially but not only Rs.
2:36 a.m.
Aug 9, '11
"...why does the Obama Administration only propose..."
Because that's what he promised during the campaign, and it was one of his most popular campaign promises with the voters.
Because $250k+ have been getting the bulk of the benefits over the last few decades, and it's time for an adjustment.
Because we're in a recession, and folks still making $250k+ can afford to pitch in without damaging consumer spending.
Because he's not an idiot, politically.
Do you ask questions because you don't know the answers? Or just to hear yourself ask them?
9:09 a.m.
Aug 7, '11
Medicare was created in 1965. It isn't new. The national debt crossed the $10trillion mark before Obama was sworn in. High debt isn't new either. What is new are people for whom default is an acceptable option- the Tea Party. Failure to raise the debt limit last week would inevitably result in default, that is what the Tea Party sought.
As for vindication, decide for yourself who understood actions and consequences and who did not.
4:31 a.m.
Aug 8, '11
How can serious thoughtful people have this conversation? FYI BJ the Tea Party does NOT think default is ever an option, these are the people in America who pay their bills and live responsible lives. What would make you say such an idiotic thing like that? Do you really think they woulkd be beating their heads against the wall and doing all of the things they are doing to force a default? Trust me if that were their intent then we would be in default by now. Look, Standard and Poor's TOLD us what was going to happen if we didn't find 4 trillion dollars in cuts, which we ignored. The person who gets to shoulder the blame for this is Obama and the left. Obama showed an absolute lack of leadership starting with his budget proposal which sent us backwards 1.6 trillion dollars a year , then by not even having a plan of his own to reduce the deficit. WTF? His comrades in the house and senate didn't have one either ...they were too busy whining about the tea party and calling everyone names like adults (not) We have arrived at the endgame of what was an untenable doctrine: to pay for the kind of entitlements that populations have been led to expect by their politicians, the wealth-creating sector has to be taxed to a degree that makes it almost impossible for it to create the wealth that is needed to pay for the entitlements that populations have been led to expect, etc, etc The Tea Party faction within the Republican party was demanding that, before any further steps were taken, there must be a debate about where all this was going. They had seen the future toward which they were being pushed, and it didn’t work. As for S and P ...those guys have some serious sack after their role in the meltdown to stand there and point fingers or give advice to anyone. This is the same S and P who blessed those 1st level tranches with a AAA rating , goes to show you how meaningful those ratings from S and P can be. I can't decide which is more ridiculous the left trying to cast the blame for the downgrade onto the tea party (the only people who were trying to do what S and P said must be done to not be downgraded?? lol) or S and P for doing it after they were part of the reason we had the meltdown to begin with. Not only that but USA debt should not have been downgraded in the first place. Look at who still has a AAA rating: France, Canada, Germany, even Japan is only AA. ZWhen a person looks at public debt as a % of GDP for each of those 3 countries and the USA you discover that the USA has the lowest % of debt to GDP of anyone else
3:46 p.m.
Aug 8, '11
Labor creates all wealth.
5:08 p.m.
Aug 8, '11
I assume you don’t mean Labor as in Labor Unions.
In that case you’re mostly right. Labor with Capital Assets producing products people want creates all wealth. If you have a lot of people, but no tools to do the work, it doesn’t really help so it’s not JUST labor. Corporations are just organization of labor and capital for creating and selling a product.
But I am still not quite sure how that applies to the thread above.
6:06 p.m.
Aug 8, '11
Which of these statements do you disagree with?
- The Tea Party sought to prevent an increase in the debt ceiling.
- Failure to raise the debt limit is tantamount to defaulting.
- Ergo, the Tea Party sought to create a default.
Or take an even simpler test. What do you prefer, default or the status quo? The Tea Party answered that question decisively during the debt limit negotiations, whether that represents your own view or not. And they were not shy about it, either.
With respect to the credibility of S&P, markets can decide that for themselves. I think this guy has a point though:
“Are you really surprised? AAA debt is supposed to be the ultimate sleep insurance. You park your money there and don’t have to ever worry about it. You don’t have to think about it. It is completely, unquestionably safe. If you didn’t feel that way last weekend, you agree with S&P.”
3:42 p.m.
Aug 20, '11
Are you suggesting that what was perceived as agreement at one time - $4.2 trillion in deficit reduction combined with a modest increase in revenues - was not scuttled by the "Teapublicons?"
4:32 a.m.
Aug 8, '11
How can serious thoughtful people have this conversation? FYI BJ the Tea Party does NOT think default is ever an option, these are the people in America who pay their bills and live responsible lives. What would make you say such an idiotic thing like that? Do you really think they woulkd be beating their heads against the wall and doing all of the things they are doing to force a default? Trust me if that were their intent then we would be in default by now. Look, Standard and Poor's TOLD us what was going to happen if we didn't find 4 trillion dollars in cuts, which we ignored. The person who gets to shoulder the blame for this is Obama and the left. Obama showed an absolute lack of leadership starting with his budget proposal which sent us backwards 1.6 trillion dollars a year , then by not even having a plan of his own to reduce the deficit. WTF? His comrades in the house and senate didn't have one either ...they were too busy whining about the tea party and calling everyone names like adults (not) We have arrived at the endgame of what was an untenable doctrine: to pay for the kind of entitlements that populations have been led to expect by their politicians, the wealth-creating sector has to be taxed to a degree that makes it almost impossible for it to create the wealth that is needed to pay for the entitlements that populations have been led to expect, etc, etc The Tea Party faction within the Republican party was demanding that, before any further steps were taken, there must be a debate about where all this was going. They had seen the future toward which they were being pushed, and it didn’t work. As for S and P ...those guys have some serious sack after their role in the meltdown to stand there and point fingers or give advice to anyone. This is the same S and P who blessed those 1st level tranches with a AAA rating , goes to show you how meaningful those ratings from S and P can be. I can't decide which is more ridiculous the left trying to cast the blame for the downgrade onto the tea party (the only people who were trying to do what S and P said must be done to not be downgraded?? lol) or S and P for doing it after they were part of the reason we had the meltdown to begin with. Not only that but USA debt should not have been downgraded in the first place. Look at who still has a AAA rating: France, Canada, Germany, even Japan is only AA. When a person looks at public debt as a % of GDP for each of those 3 countries and the USA you discover that the USA has the lowest % of debt to GDP of anyone else
8:11 a.m.
Aug 8, '11
The mainstream media, who by the way carries the Liberal's water daily, has been trying to pin the downgrade on the TEA party. Many of the "sheeple" will even buy it. But those who understand economics, and are honest, know that this downgrade is due to the "Borrow, Spend, then Tax" policies put in place the last two years by Pelosi, Obama and Reid. Don't kid yourself that any amount of tax increases would have prevented this downgrade. It might have postponed it, but your party's failure to consider reforming Government is still the primary component of this downgrade.
The media also hasn't reported the sections about how the recession was deeper and longer than the Obama administration led the world to believe. In other words, S&P is calling out the lies that your President told.
The fact that after two and a half years in office, Obama still tries to blame everything bad on President Bush and those "wascally wepuplicans".
That still works with y'all in the cheerleading section, but I can tell you, most of the country is tired of it.
The reason Obama is being compared to Jimmy Carter is that he is the first President since Carter to think that hand-wringing and blaming others for all problems is 'leadership". Our previous four Presidents got their hands dirty and solved problems. Obama likes to give lectures and play the blame game.
2012 will be interesting.
2:10 p.m.
Aug 8, '11
...funny, it worked for the Republicans who blamed the Clinton-era surpluses on the tax cuts given by Reagan...
2:40 a.m.
Aug 9, '11
I know it's totally obvious to you that President Obama raised taxes on somebody, somewhere.
But, just to humor me, would you mind identifying exactly which taxes Obama raised that are effective for this or prior years?
I'll give you a hint: There aren't any.
As conservative commentator David Frum points out:
3:51 p.m.
Aug 20, '11
There is absolutely no empirical evidence that your phrase regarding the mainstream media "who by the way carries the Liberal's water daily," is valid. What is obvious by your post is your overt anti-Obamaism. Your ability to spout the propaganda from the right wing media and conservative talking points rather than using facts, in my opinion, make your entire argument invalid.
9:48 a.m.
Aug 8, '11
Can any serious person doubt that S & P's downgrade would have happened if the Tea Partiers hadn't tied Congress in knots over the debt ceiling?
1:02 p.m.
Aug 8, '11
I think raising the debt ceiling without an attempt at solving the debt problems (such as what the president first proposed a “clean debt ceiling increase”), would have been far worse than the deal we got which helped (2T in deficit reduction over 10 years), but didn’t go far enough (S&P wanted at least 4T over 10 years).
3:00 p.m.
Aug 8, '11
Again, economic nonsense. Odd to be quoting conservatives (though anti-Tea Party conservatives) in this context, but here's David Frum:
3:08 p.m.
Aug 8, '11
Yes the market does seem to be continuing to buy US treasuries despite the downgrade. But that isn’t the question that Lonn had asked. He asked if someone could reasonably think the S&P downgrade would have happened without the tea party. And my response was that our long term debt situation is clearly better after the agreement then with the clean debt ceiling that the president wanted. Had we passed the “clean debt limit increase”, we would be in a worse long term debt situation, and as such more likely to be downgraded by S&P not less.
4:06 p.m.
Aug 8, '11
There was no discussion of downgrading the U.S. bond rating before the politics of extorting policy concessions with default threats from the Republican side began, driven especially but not exclusively by the Tea Partiers.
But even at that, although it would have been bad and destructive policy in my view, there could have been a $400 billion/yr avg over ten years "grand bargain" if the Tea Party ideologues had said yes to the massive concessions President Obama gave to John Boehner. Many of us would have opposed it, but that deal would have passed if the Tea Party hadn't deep-sixed it, even with individual liberals and conservatives who couldn't accept it voting no. The problem was organized Tea Party opposition.
Boehner perhaps deserves a share of that particular blame insofar as he put caucus unity first, but his Rs who would have supported the "Grand Bargain" if it had come to the floor were facing blackmail within the blackmail, in the form of primary threats, for not toeing the Tea Party ideological line.
So even if we accepted the legitimacy of S&P's ridiculous and illegitimate standard, the reason it didn't happen is the Tea Party.
4:57 p.m.
Aug 8, '11
Look you wanted to know if “any serious person doubt that S & P's downgrade would have happened if the Tea Partiers hadn't tied Congress in knots over the debt ceiling”. And I say that I doubt it, but maybe that isnt enough for you, here is someone else.
5:39 p.m.
Aug 8, '11
I don’t know how Obama and the left can continue to complain about bush causing the deficit. After entering office in 2009, President Obama promised to cut the deficit by half. He said “I refuse to leave our children with a debt they cannot repay. We cannot and will not sustain deficits like these without end. ... We cannot simply spend as we please." When he said this, bush was already out of office, and had no more part in the decisions made, so the continuing deficits after that point is entirely Obama. Obama who extended the bush tax cuts, he could have just let them expire (I don’t think it would have been a good thing to let them expire, but just for those that want to keep blaming bush). Obama could have pulled us out of Iraq and Afghanistan any time he wanted, as well as ended Guantanamo.
The only thing you could say is maybe the economy was just in such a bad shape when bush left it, and that’s why its bushes fault. But even that doesn’t explain 30 consecutive months, in which the unemployment rate was above the 8% Obama promised not to exceed. Had the economy really been that bad when Bush left office, Obama could have said that unemployment rate wouldn’t get above 10% or whatever would be high enough where it wouldn’t be bush’s fault anymore. Are you trying to argue that Obama is really just so naive about the economy that he didn’t know how bad it really was? Are you sure you really want someone that doesn’t understand the economy that badly to running the fiscal policy of the united states? How many times has he said that he is going to have a “laser like focus on jobs” without any change in the unemployment rate?
2:45 a.m.
Aug 9, '11
When he said this, bush was already out of office, and had no more part in the decisions made, so the continuing deficits after that point is entirely Obama.
Wrong. The federal fiscal year runs from October 1 to September 30.
Bush's final budget extended until September 30, 2009. Just over eight months after Inauguration Day.
And, of course, the policies put in place by George W. Bush are absolutely to blame for ongoing deficits -- the tax cuts, the wars, the medicare prescription benefit, and the collapse of the financial system.
I'll make you a deal: Roll back all spending and all taxes to exactly their positions on the day Bush was inaugurated, and then, we'll blame Obama for everything.
Oh wait, we'd actually have a balanced budget right now if it wasn't for all that Bush-era stuff.
2:38 p.m.
Aug 9, '11
You need to go back and look at your chart, Kari. The economic downturn by itself was sufficient to create a deficit. The Obama stimulus is on top of that--as was TARP, which was passed on Bush's watch but with Obama's vote.
Add to that the fact that Obama only wanted to repeal about a quarter of the Bush tax cuts--the part on incomes over $250,000 for a joint return and over $200,000 for a single return (bringing back the marriage penalty in the process). The rest he wanted to make permanent.
It's not that this finger-pointing does much good in either direction, but the S & P report actually got one thing right: Both parties are to blame for the impasse on dealing with the deficit.
2:46 p.m.
Aug 9, '11
Well yeah, the short- term downturn caused a deficit. They always do. But the long-term structural deficit is the direct result if Bush era policies.
10:07 p.m.
Aug 8, '11
Moody's is now saying we need to get our nation's finances in order withen the next year or they will downgrade us as well (for those yelling at S&P). And that they are "closely monitoring" us. http://thehill.com/blogs/on-the-money/801-economy/175893-moodys-says-it-could-also-downgrade-if-washington-punts-on-debt
5:03 a.m.
Aug 9, '11
With the immortal words of Walt Kelly, "We have met the enemy and he is us" the debate should be framed.
Almost 50 years of deficit spending, raising debt ceilings and voting back into office politicians that "bring home the bacon" has brought us to the downgrade in bond ratings. Truly, as long as the other person's prgrams were cut, as long as somebody else's taxes were raised, the US electorate kept up with their ways.
No one and everyone are the culprits in the current situation. It will take everyone demanding that all politicians show true leadership in getting the revenue and spending under control. Defense needs to be cut; so do entitlements. federal programs that are better handled at the state levels need to be eliminated as well as forced occupation of Japan and Germany. The list goes on.
Revenues need to be raised across the board for all. Did anyone here question why social Security employee taxes were cut by 2% last year? an already foundering program had dedicated revenues cut last year. But because it was a cut in favor of each individual right now, few noticed or cared.
1:42 p.m.
Aug 9, '11
No, I'd suggest that the long term structural deficit isn't that serious. We need to roll back tax rates to 2000, end the wars, and get the economy off it's back. With long term health reform already scheduled to bring savings to medicaid, there's no reason we can't get back the Clinton-era surpluses and near-surpluses.
If we get to that point, then managing the debt will be a chronic issue, not a critical one.
It really is the Bush deficit that we need to reverse.
2:41 p.m.
Aug 9, '11
So you really want to put couples making less than $18,000 and families of four making less than $40,000 back on the tax rolls? I'm guessing that will NOT be part of the Democratic Platform next year.
2:48 p.m.
Aug 9, '11
I suppose you're right. But I think most Americans would agree they were better off in 2000 than in 2008 or now.
3:25 p.m.
Aug 9, '11
Heck, Kari, even I'd agree with that! In fact, I've said more than once: I'd gladly go back to the Clinton era tax rates if we could get back the Clinton era economy.
Unfortunately, it's never that simple.
3:57 p.m.
Aug 20, '11
Wouldn't this scenario require the reimportation of the millions of jobs sent out of our country since Clinton left office?