The Debt Downgrade Blame Game

Politicians and pundits upset that tax increases were not part of the recent debt-ceiling deal in Congress are now blaming the Tea Party for August 5th’s unprecedented downgrading of U.S. sovereign debt by Standard & Poor’s.

Some are even calling Tea Party congressmen and activists “terrorists” for daring to stand up and demand that the American government live within its means. In this case, its means are the taxes that hard-working individuals and companies are able to afford in the face of runaway government spending and debt.

Blaming the Tea Party for pointing out that our national government is well on its way toward a financial cliff is like blaming someone who sees a house on fire for calling 911.

“No new taxes” is a perfectly acceptable political position. It bears no resemblance to any tactics that can remotely be described as terrorism. Letting people keep their own money, the money they’ve legitimately earned, doesn’t inflict violence on anyone else.

Terrorists do just the opposite; they take others’ property and lives for their own political, religious or other causes.

The Tea Party is more like the little boy in Hans Christian Andersen’s tale who stood up and pointed out that the Emperor is not wearing any clothes. Such honesty then, and now, is cause for praise, not name-calling.


Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Posted by at 05:00 | Posted in Economy, Federal Budget, Government Regulation, Individual Responsiblity, Taxes, Tea Party, Terrorism | Tagged , , , | 74 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Rupert in Springfield

    The terrorist comments were amazing to me as well. I remember when this same group of chuckle heads insisted roiled at any implication that opposition to the Iraq war represented anything but the highest of patriotism. I remember when this bunch was apoplectic Sarah Palin had put targets on a map.

    I think the bottom line here is the real anger is for the first time no one was buying the tax increase now, spending cuts later strategy.

    We have been down this exact same road so many times before.

    Spending cuts are promised years out, tax increases are scheduled to automatically go into effect. The tax increases happen and the spending cuts never do.

    What the Tea Party, and many others, was saying is no more. There simply is no faith that no matter what the tax increase, no matter what the deal, no spending cuts will really happen.

    Its a perfectly logical position. There is no mathmatecal proposition that says that a pro growth strategy coupled with spending cuts would not be enough to grow revenue and cut down or eliminate the deficit.

    After all, this is largely the strategy the last time we were successful in bringing down the deficit.

    Frankly the boobs making the terrorist claim start making themselves look crazier than even their wildest portrayals of Republican woman.

    • Rupert in Springfield

      Yep, need to wait for that second cup of coffee on the proof reading tip.

    • 3H

      “After all, this is largely the strategy the last time we were successful in bringing down the deficit.”

      Exactly when were you thinking?  The last two times, that I can see, that the deficit was actually was reduced was during, and isn’t this just ironic, under Democrats: Carter and Clinton.  And in neither case were there spending cuts.   

      http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms

    • the real valley person

      “We have been down this exact same road so many times before.

      Spending
      cuts are promised years out, tax increases are scheduled to
      automatically go into effect. The tax increases happen and the spending
      cuts never do. ”

      We have been down this road exactly once over the past 50 years. It was 1993, and we had a new Democratic president with a democratic congress. They passed a tax increase and put a set of future spending constraints in place. Within 3 years the runaway budget deficits created by Reagan and Bush were gone, and the budget was balanced until the next Bush took office.

      The tea party is a joke that between the lot of them do not have a working calculator. Our budget will balance once again if and only if we do what we did the last time. Modest future spending restraint, modest tax increases, and a sustained period of 3% GDP growth.  That is the magic formula. It works on every functional calculator.

      A pro growth strategy with spending cuts only will not work because you can’t cut enough fast enough or grow the economy long enough to make that work. It didn’t work for Reagan, and it won’t work now with an aging population that is not going to allow deep enough cuts.
       

      • Devin

        It did work for Reagan, and it would work again today, if the democats would stop being obstructionists and let us fix the actual problems, and actually balance our budget.  The Tea party pushed for a balanced budget amendment as one of the things they most wanted, it was the democrats who fought us tooth and nail, to stop us from spending only the money we have.

        • 3H

          Well, not exactly.  He did cut taxes, but he didn’t cut spending.   The deficit increased significantly over his 8 years as President.  He simply reduced taxes and continued the spending.  So, no, it didn’t work for Reagan.

          • Devin

            He did cut spending compared to GDP: http://www.youtube.com/watch?v=hJneSSGLnSI

            Yes he didnt cut spending, but he did hold spending at about the same inflation adjusted level, while the economy improved.

          • the real valley person

            And the budget deficit exploded. 

          • 3H

            Well, we have a problem of sources here.   The one that I’m looking at, taken from the CBO, shows that the debt/GDP was 32.5% when Reagan took office and over 50% when he left.   I have not found any figure that claims that the debt/GDP was 20% in that time period. 

            http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms

          • 3H

            Originally taken from the CBO..   I’m not citing the CBO

          • the real valley person

            So who are you citing then? Youtube? Come on Devin. You can do better than that. If you erred, admit it.  If the chart 3H cited is correct, and if I’m reading it right, Obama’s debt is less as a percent of gdp than both Bush’s and Reagan. Amazing if true.

          • Devin

            (All numbers are inflation adjusted to FY2000 dollars)
            During Carters term (right before Reagan), he spend $1.219T, Reagan was spending $1.396T at the end of first term and $1.499T in his second term for a total of 22.97% growth in spending.  The GDP in inflation adjusted dollars at the end of Carters term was $5.492T at the end of Reagans second term it was $7.077T, for a total of a 28.86% increase in GDP.  The GDP grew by more than the spending did during Reagans term.
             
            Feel free to look it up yourself from the Budget of the United States Government historical tables:
            http://www.whitehouse.gov/sites/default/files/omb/budget/fy2009/pdf/hist.pdf
            (that would be on page 26 for the spending and 194 for the GDP).

          • the real valley person

            So Reagan beat Carter on deficit to GDP? That was the entirety of your point?  OK. I’ll concede that at the end of Reagan’s 2nd term his deficit to gdp ratio was lower than at the end of Carter’s first term. I’m not sure what that has to do with proving that Reagan’s budget constraints and tax cutting “worked” to solve the deficit, which was clearly not solved by the end of his 2nd term, and got worse during Bush 1’s term.

            The only presidency to run surpluses over the past 40 years was Clinton’s 2nd term. These followed a tax increase the no Republicans voted for, and all said would destroy the economy.

            You are probably too young to recall all of this, but the math is pretty simple. The federal budget has been around 21% of GDP since before Reagan. Our current tax rates collect around 16% of GDP. Economic growth can’t close that gap in less than 5 decades, and that assumes constant economic growth which isn’t going to happen.  Cutting spending substantially below 21% of GDP is not possible with an aging population, a giant military, and the normal functions of the rest of government. 

            All of the increase in spending under Obama to date has been either temporary emergency costs from dealing with the recession he was handed, or is related to an aging population. Tax collections are also way down due to the recession and the many temporary tax cuts he put in pace, again for emergency reasons. The sturm un drang over the deficit is pretty much all a bunch of garbage. Once the economy recovers, and it will no matter who is in the White House, some small adjustments to tax rates (or breaks) and a bit of restraint on future spending will close the gap. That is, unless we keep shooting ourselves in the collective foot with tea party nonsense.

          • Devin

            Don’t worry about my age, I have studied my history quite well.
             
            We are actually been much closer to 18% of GDP in terms of revenue.  We are in a bit of a slump right now (down a few % of gdp), because of the recession, but that will correct itself in time.  The key is that we almost NEVER no matter what the tax rate has been (even a 90+% tax rate) under any president or tax scheme to date, been above 20% of GDP of revenue for more than a short period of time.  We are currently spending is about 26% of GDP.  That is just not sustainable.  Cutting down to around a 18% of GDP is possible, and needed if we are to have a balanced budget again.  It would only take 6 years of cutting spending by 1 penny for every dollar in spending.
             
            All the increases in spending are “temporary emergency costs from dealing with the recession he was handed, or is related to an aging population.”  Really?? You don’t remember this thing called Obamacare?  Or is that “needed for an aging population” lol.

          • the real valley person

            Obamacare did not add a cent to the deficit, and probably will reduce it according to the CBO. That AND it will get most Americans insurance coverage. 

            Obamacare was not needed for our aging population. they already have Medicare. It was needed for our working population that isn’t covered by their private employers.Eliminate Obamacare and you go right back to the problem we had before, escalating costs and larger numbers of uninsured people. Again, you want to go forward by going backward.

            We have been collecting 18% in revenues and spending about 21% since Reagan. That is why we have a deficit. We caught up under Clinton, who raised taxes a modest amount, and then Bush blew it in multiple ways. You may have studied history. I’m not so sure about the “quite well” part.

            Answer this Devin. Rather than repealing Obamacare, which is covered by other budget cuts and some taxes, why not repeal Medicare Part D, which is 100% deficit financed?

            I think I know the answer.

          • Devin

            Look the CBO takes the assumptions made in a bill and adds them up and says if those assumptions are correct then it will cost this much.  I don’t dispute the calculations, but the politicians mess with the assumptions all the time.  For instance it was found that the CBO calculations for Obamacare were incorrect by $500 billion, because the assumptions on who would get subsidies defined in Obamacare (http://thehill.com/blogs/healthwatch/health-reform-implementation/172765-healthcare-law-may-leave-families-with-high-insurance-costs).  It will not reduce the deficit, and it will reduce the number of people insured (by making it cost so much more that people don’t buy it despite the $95 penalty).  And no I don’t want to go backwards, I want to stop our country from going backwards with Obamacare.
             
            You are right we have been spending at about 21%, which is too high.  If you want to advocate for repealing medicare part D as well as Obamacare, I say sounds good to me.

        • the real valley person

          The deficit exploded under Reagan after Congress gave him exactly what he asked for. The Democrats are “obstructionists?” Lets do some math here. We have a Democratic president, and a majority Democratic Senate, and a majority Republican House. So 2 out of 3 are “obstructing” the desired policies of the remaining one?   Interesting way to think about it. In a divided government the parties should sit down and negotiate. The “tea party” does not get whatever they want, including a constitutional amendment. Grow up.

          Spending “only the money we have” right now means we have to cut federal spending by 40% right now. That means paying 60% of interest due on bonds already sold,  sending 60% of the check amount to retirees, 60% of the bill to doctors and hospitals for health care delivered to people over 65 and veterans,  and so forth, and buying 60% of the ammunition needed by soldiers overseas. I haven’t hear the tea party call for this, but if they want to propose and run on that platform, fine, be my guest.

          FYI, the Republican/tea party in the House passed a budget that is not in balance and is not projected to be for something like 40 years.   So your own people plan to spend money “we don’t have.” Go figure.

          • Devin

            Look the republicans are trying to stop the out of control spending far beyond the money we take in, and the democrats are preventing them from cutting spending.  Whatever you want to call that.  The tea party can and should continue to fight every day for eventually getting a balanced budget, I would expect nothing less than that.  A balanced budget amendment would be ideal (but not the only way) as then no party would be able to spend beyond their means in times of peace without a national disaster.
             
            No that doesn’t mean paying 60% of everything we currently spend on.  It means rethinking what our priorities are.  Eliminating programs that the states can do instead of the federal government.  And reforming our entitlements so that people are still financially secure without massive deficits.  For instance slowly increasing the retirement age for Social Security a few years (fixing it from a financial standpoint or even better with an opt-in personal retirement account like Chile).
             
            The president’s plan does not balance at all ever (although it was so bad not even a single democrat voted for it).  Paul Ryan’s Budget passed by the house takes 26 years to reach a balanced budget.  My preference would be the penny plan (HR 1848) which cuts 1 penny of every dollar in spending for 6 years and then holds at 3 years and balances within 8 years.  I am not aware of any plan by the democrats in any chamber that balances the budget ever (nor even any budget other than the presidents that every single democrat voted against).

          • the real valley person

            BS. The Republicans want to stop spending they don’t agree with or have control over. When they had control they spent like crazy. The whole game is to weaken Obama and win power back, nothing more.  

            Obama offered a larger deal than the Republicans had asked for, including entitlement cutbacks, and the Republicans refused the deal. If they really cared about the deficit they would have taken that deal, or at the least counter offered at the same level. Didn’t happen. They never wanted a deal. What they wanted was a lot of noise, and they achieved their goal. Then they voted for a deal that was way smaller than had been offered, and cuts nothing until way down the road. They are not serious people and they were never engaged in a serious negotiation. I only hope Obama has finally learned this lesson.

            The states can’t do a darn thing. they are cutting back much faster than the feds. They are in no position to take on any additional responsibilities of governing because they lack a printing press and can’t tax out of line with other states.

            Slowly increasing the retirement age is fine for those of us with white collar careers. Its not fine for those who toil away making beds or dumping bed pans or fixing high voltage power lines. Bodies wear out. Just because people live longer does not mean they are capable of the same work output they once had.  Your day will come.

            We already have an “opt in” for personal retirement. Its called a 401K or IRA. If you have not opted in, then you should. What you are really asking is that people be able to opt out of SSI. Not gonna happen, and Chileans regret they fell for that one. And we would regret it too every time the market gets the yips.

            Well you said it. Ryans plan takes 26 years, and a lot of creative accounting, to ever balance. That is serious? That is the party that is so freaked out over the future? The same party that cut taxes, started 2 wars and passed an unfunded health care program when they had power? The same party that turned a $400B surplus and 10 years of projected surpluses into these huge deficits overnight? How naive can you be?

            Obama and the democrats aren’t proposing a balanced budget because they are afraid to call for a serious tax increase on their rich donors. But meanwhile their donors are practically begging them to raise their taxes.

            Look Devin, anyone with a calculator can balance a budget. Try getting 218 House votes, 60 Senate votes, and a presidential signature on the plan. That is the problem.

          • Devin

            Are there big government republicans, absolutely and I will do everything I can to promote those that are working against them in the republican party.  That is the point of the Tea Party.  Yes when republicans had control they did spend like crazy.  And if Huntsman or McCain was president they probably would increase spending.  But can anyone point at Bachmann or Ron Paul, or Herman Cain, or one of the other tea party people and say with a straight face that they would increase spending?  It has nothing directly to do with weakening Obama, it has everything to do with runaway spending.
             
            Obama’s deals so far have been all smoke and mirrors.  No actual deal on paper that I could read has ever been produced.  Had he ever came out and said “this is my deal”, I am quite sure that Harry Reid would have put it to a vote in the senate in a heartbeat.  But if you want to deal in smoke and mirrors behind closed door “leaks” then fine, Boehner had a deal with Obama which included 800 billion in revenue increases and Obama walked away from that pushing for even more taxes.
             
            If the states all have higher taxes supporting more services (in different ways for their unique population), then why cant they?  Sure they cant inflate the money supply to pay for their services, but a lower federal tax means states can have a slightly higher tax and pick up the services that the federal government isn’t doing.  I say let the states opt-out of these things (both taxes and spending) and let them do their own system how they want to do it, if that is what their residents want.
             
            Look when social security was implemented the average life expediency was 67, today its 77.  I think we can add a few years to social security without any huge problems.  Well its opt-out of the current SSI, and into a forced personal retirement account with restricted choices of conservative mutual funds.  The Chile system has been working out fine so far (after their social security like system ran out of money entirely).  The government does have some guarantees for people that don’t have enough in their retirement account at the end (or if the mutual funds do badly), but mostly its all privately done.
             
            Are you suggesting we should take longer than 26 years to balance the budget?  Because if not please tell me which budget you would rather have (I would love to pick that one!)?  I don’t believe any budget that never balances is a real plan, we cant keep kicking the can down the road without even a plan on how to fix our problems eventually.
             
            Somehow I don’t believe that Obama is afraid to raise the taxes on his rich donors, while they are asking him to do it.  Sure a few people like Warren Buffet will be asking for higher taxes, but he has been doing that for a long time.  Just because you made a lot of money doesn’t mean you should be telling other people how they should have their money taken.
             
            I don’t think we will ever have a real balanced budget until we get a balanced budget amendment that forces the situation.

          • Devin

            Are there big government republicans, absolutely and I will do everything I can to promote those that are working against them in the republican party.  That is the point of the Tea Party.  Yes when republicans had control they did spend like crazy.  And if Huntsman or McCain was president they probably would increase spending.  But can anyone point at Bachmann or Ron Paul, or Herman Cain, or one of the other tea party people and say with a straight face that they would increase spending?  It has nothing directly to do with weakening Obama, it has everything to do with runaway spending.
             
            Obama’s deals so far have been all smoke and mirrors.  No actual deal on paper that I could read has ever been produced.  Had he ever came out and said “this is my deal”, I am quite sure that Harry Reid would have put it to a vote in the senate in a heartbeat.  But if you want to deal in smoke and mirrors behind closed door “leaks” then fine, Boehner had a deal with Obama which included 800 billion in revenue increases and Obama walked away from that pushing for even more taxes.
             
            If the states all have higher taxes supporting more services (in different ways for their unique population), then why cant they?  Sure they cant inflate the money supply to pay for their services, but a lower federal tax means states can have a slightly higher tax and pick up the services that the federal government isn’t doing.  I say let the states opt-out of these things (both taxes and spending) and let them do their own system how they want to do it, if that is what their residents want.
             
            Look when social security was implemented the average life expediency was 67, today its 77.  I think we can add a few years to social security without any huge problems.  Well its opt-out of the current SSI, and into a forced personal retirement account with restricted choices of conservative mutual funds.  The Chile system has been working out fine so far (after their social security like system ran out of money entirely).  The government does have some guarantees for people that don’t have enough in their retirement account at the end (or if the mutual funds do badly), but mostly its all privately done.
             
            Are you suggesting we should take longer than 26 years to balance the budget?  Because if not please tell me which budget you would rather have (I would love to pick that one!)?  I don’t believe any budget that never balances is a real plan, we cant keep kicking the can down the road without even a plan on how to fix our problems eventually.
             
            Somehow I don’t believe that Obama is afraid to raise the taxes on his rich donors, while they are asking him to do it.  Sure a few people like Warren Buffet will be asking for higher taxes, but he has been doing that for a long time.  Just because you made a lot of money doesn’t mean you should be telling other people how they should have their money taken.
             
            I don’t think we will ever have a real balanced budget until we get a balanced budget amendment that forces the situation.

        • Ardbeg

          In what universe did it ‘work’ for RR?

          • the real valley person

            You know…the alternative universe inhabited by the tea party. You just need one of those fun house mirrors to see things in.

      • LC

        Actually the budget wasn’t “balanced”, all you have to do is go look at the US Treasury website where you can locate a history of the national debt since 1993.

        What’s curious is that every year, the national debt rose. Now how can this be if Clinton was running surpluses? The answer is he wasn’t. What was paid down in debt was public held debt, not intragovernmental holdings. While public debt went down, intragovernmental debt went up. That’s why at no point during the Clinton years did the national debt go down, because the talk of the supposed “surplus” was all political smoke and mirrors.  

        • the real valley person

          Nonsense.

           http://www.factcheck.org/2008/02/the-budget-and-deficit-under-clinton/

          • Devin

            Actually you are wrong the real valley person.  The website you are looking at links to “debt held by the public”, which did go down.  What it fails to take into account is intergovernmental debt.  Most of that is debt to the “social security trust fund”.  Including that the debt (and the debt subject to the debt limit) continued to increase every year throughout Clintons term.

          • the real valley person

            That may be the case. We may owe the money to ourselves. That doesn’t mean there was not a surplus. It just means some of the surplus was used to buy some future obligations.

            The irony here is the denial that Clinton ran a surplus. You have to call up accounting gimmicks to prove he could not have done what he did, because if you admit he did it your whole premise is suspect (can’t raise taxes and grow the economy).

            So lets drop the accounting games. He ran a surplus, and some of that bought future obligations (bonds) for social security.  Does this mean Bush did not really run a deficit? I mean, where do the rationalizations end with you people?     

          • the real valley person

            That may be the case. We may owe the money to ourselves. That doesn’t mean there was not a surplus. It just means some of the surplus was used to buy some future obligations.

            The irony here is the denial that Clinton ran a surplus. You have to call up accounting gimmicks to prove he could not have done what he did, because if you admit he did it your whole premise is suspect (can’t raise taxes and grow the economy).

            So lets drop the accounting games. He ran a surplus, and some of that bought future obligations (bonds) for social security.  Does this mean Bush did not really run a deficit? I mean, where do the rationalizations end with you people?     

          • Devin

            My only point was to support LC which was 100% correct in his analysis and you said was nonsense.  That was the only thing I was trying to say.

          • the real valley person

            He should send you a thank you note, but he certainly wasn’t 100% correct. He said Clinton did not run surpluses. This is factually wrong. The all funds budget was in surplus for 4 straight years.   LC took a single data point and tried to construct a different reality around it.

            And isn’t it ironic that the one program of the US government that has consistently run surplus, Social Security, is the one that the tea party most wants to wreck? Its like you can’t stand success.

          • the real valley person

            That may be the case. We may owe the money to ourselves. That doesn’t mean there was not a surplus. It just means some of the surplus was used to buy some future obligations.

            The irony here is the denial that Clinton ran a surplus. You have to call up accounting gimmicks to prove he could not have done what he did, because if you admit he did it your whole premise is suspect (can’t raise taxes and grow the economy).

            So lets drop the accounting games. He ran a surplus, and some of that bought future obligations (bonds) for social security.  Does this mean Bush did not really run a deficit? I mean, where do the rationalizations end with you people?     

  • the real valley person

    “Some”? And who are “some”?

    The Tea Party, as self described conservatives, should take responsibility for their actions. They chose to initiates a game of chicken with the credit of the US government, and we just experienced the first bond downgrade in our history, even though we ran far larger debts in the past. When government officials make statements that they don’t see a problem with default, that is itself a problem.

    A mere “pointing out” of debt problems would not have triggered the downgrade. It was the threat of not issuing bonds to pay already passed spending plans that did the trick. The taxes part is not as relevant. If the Tea Party doesn’t want to raise taxes, fine, just don’t  threaten to derail the economy over that stand.  

    • Devin

      As for who that “some” is lets start with Bloomberg Margaret Carlson on Inside Washington, July 29 “There’s a nihilist caucus which is, ‘Listen, we want to burn the place down.’ I mean, they’re not, they’ve strapped explosives to the Capitol and they think they are immune from it.”
      Or on MSNBC Steven Rattner “You know, the problem with this is it’s like a form of economic terrorism. I imagine these Tea Party guys are, like, strapped with dynamite, standing in the middle of Times Square at rush hour and saying, ‘Either you do it my way, or we’re going to blow you up, ourselves up, and the whole country up with us.’ So you tell me how those kinds of stand-offs end.”
      New York Times Thomas Friedman “If sane Republicans do not stand up to this Hezbollah faction in their midst, the Tea Party will take the GOP on a suicide mission”.
      New York Times Joe Nocera: “You know what they say: Never negotiate with terrorists. It only encourages them. These last few months, much of the country has watched in horror as the Tea Party Republicans have waged jihad on the American people….For now, the Tea Party Republicans can put aside their suicide vests. But rest assured: They’ll have them on again soon enough”Is that enough for you?  I got plenty more where that came from of the vile despicable hateful rhetoric of the left.
      Is that enough for you?  I got plenty more where that came from of the vile despicable hateful rhetoric of the left.

      • Erik

        oh puleeze

        • Devin

          He asked who the “some” referenced, I gave examples.  What more do you want?

          • the real valley person

            Fair enough, but as it turned out the “some” you listed are media figures, not opposition party members. If we get our knickers in a twist over the rhetoric of media figures then every day would be upset day over Rush Limbaugh. 

    • Devin

      It was not “pointing out the debt problems” that triggered the downgrade.  It was not DEALING with the debt problems in a meaningful way.  Had we actually passed Cut, Cap, and Balance S&P said they would not have downgraded us.

      • the real valley person

        No Devin, it was threatening to stop Obama from selling bonds to finance the deficit that Congress already authorized.  That is the entirely new wrinkle here. There was no “economic” scenario under which the US would default on the debt because bond buyers are perfectly happy to continue doing so. There was only a political scenario, entirely brought to us by the Republican/tea party. You played a risky game, you were warned about that, and now there is a cost. A mature person and party would be humbled by that experience. Not defiant about it.

        • Devin

          Sorry I got to beleive S&Ps words over yours on why they downgraded the US: “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”

          • the real valley person

            S&P cited the inability of political leaders to agree on a plan to reduce the deficit. They also cited the threat of not paying. Obama offered a larger deal than the Republicans would agree to. It all still adds up to the Tea Party being primarily responsible for the meaningless S&P downgrade. (By the way, bond buyers have bid DOWN the price of US bods since the debt agreement. Go figure.)

          • Devin

            Lets just say we disagree on the tea party being primarily responsible.  Regardless, I think it is clear that although we might not have a perfect credit rating anymore, that investors felt that Europe was having even more problems with debt right now, and the government bonds are a lot more safe in the short run at least then stocks are (especially after the deal through the next election was reached).  I think that is the primary reason why the price of the US bonds went down.

          • the real valley person

            I think your economic analysis is superior to your political analysis. But ask yourself, why do bond buyers still think the US debt is a safe investment? What do they know about financial management that you don’t know?

            The US never experienced a bond rating downgrade before a few weeks ago right? yet we ran far higher deficits to gdp in the past, and for long periods of time. What is the single new variable here? The threat by the Republican/tea party to refuse Obama the means to honor the debt.  Had there been an ordinary debate over spending and taxation as part of the annual appropriations process, in which the House has the first  crack by the way, there would have been no ratings downgrade.  If and when a mature debate takes place, the logical outcome will be a combination of future tax hikes and future spending cuts. And if there is any sense left, over then next 2 years there will be MORE tax cuts and MORE spending until growth kicks in. That is macro economics. Even the tea party can’t repeal it. 

          • Devin

            Have you seen all the worry about Europe?  The question is not how safe the US debt is, it is how safe is it compared to other choices.  And right now Europe is looking very unsafe (far more then the US), so people are moving to the US as a result.

          • the real valley person

            You still skip over my point. The entire premise of the tea party is that the us debt is not sustainable. Yet once the dust settled over raising the debt limit, and despite a minor ratings downgrade, actual investors who presumably know something about risk decided to park even more money in us treasuries. Investors apparently know something the tea party does not, which is that the only feasible way the us defaults on its debts is if we do that politically. Economically we are still sound.

            As for Europe, they are not the only other choice out there. And yes, they have their own problems right now, largely but not entirely brought on by us. 

          • Erik
          • Devin

            Sure they were selling short on US Treasury bonds, but they were also holding a lot more US Treasury Bonds directly, so the short is just a hedge of their overall portfolio.

          • Erik

            Super, what’s the tax rate they pay on those hedges? How much loss do they write off? I love this idea of socialism for the wealthy and capitalism for the poor. If it worked in South America in the 70s, Eastern Europe in the 80s and 90s, and Iraq and post-Katrina N.O. in the 00s, then it’s got to work in Oregon in this decade, right? Finally we’re going to prove Milton Friedman correct here in the U.S.

  • Devin

    In during the election of 1988 George H. W. Bush said “Read my lips: No new taxes”, and yet somehow that same pledge during the election this year means your a terrorist?  Have the left really become that extreme?

    • the real valley person

      Its a red herring. Who said “terrorist?” Who are the “some” Steve refers to?

      As I recall, it was Obama who was charged with “paling around with terrorists.” Were you upset about that one? 

      Deal with the real issue. Did the “tea party” threaten the full faith and credit of the US government? The answer is clearly yes. Did this lead to a downgrade? According to S&P, the answer is yes. Take responsibility for your actions.

      • Devin

        Oh come on you and I both know that the tea party was called terrorists multiple times.  Saying they are “strapped with dynamite” or that the tea party is a “Hezbollah faction” or that they are Cannibals or Vampires, or Zombies, or Muggers, or Kidnappers or Secessionists.  It was Obama himself that said we had a “gun to the head of the “American People”.  If you need exact quotes for any of these things go here:  http://www.mrc.org/notablequotables/nq/2011/20110807011140.aspx
         
        When the fact of the matter is, the only thing they are saying is that we “will not raise taxes!”, and we need to at least have a plan to fix our long term debt problems.  The final deal only decreased $21 billion of 3,600+ billion spending in the first year, that that is a decrease in “expected growth of government” (ie the baseline), not that the spending of government will actually go down.  And nowhere does the budget in the final deal actually balance, there is no plan to balance the budget at all.
         
        The Tea Party has never threatened the full faith and credit of the US government.  In fact it was the tea party that proposed and pushed for the legislation to prevent that from occurring even if we hit the debt ceiling (http://www.govtrack.us/congress/bill.xpd?bill=s112-163).  All we said is no more blank check to keep spending our children’s money until we have a plan to get back to balance.
         
        As to S&P they agreed with the tea party that the debt deal wasn’t enough cuts.  They wanted 4Trillion over 10 years but Obama would only give them 2 Trillion over 10 years.  Here is what S&P said in their report: “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”
         

  • Brodhead

    Silly Buckstein,

    Quantitaive easing and monetizing 10% of the GDP is here to stay. How do you think they will pay the yearly $1.7 trillion deficits? America is leveraging across the China labor pool.  China’s currency is tied to the dollar. Most retail products come from China. So, China counterbalances the inflation induced by America’s  printing money out of thin air.

    The Iraq war and Libya were no accident. It is all about “Petro dollars” . If we did not control 1/3 of the worlds oil supply, the Euro would have replaced the “Petro dollar”! This in turn would have deflated American currency and drove rampant inflation…

    China wont revalue its currency, so America is leveraging that fact with “Quantitative easing”

    Oh and screw Oregon!!

  • Frank

    Who to blame? Anyone who spends more than he or she takes in. Anyone.
    They are morons.

    • the real valley person

      So Ronald Reagan was a moron?

      • Frank

        Yes, regarding spending.
        Yes.
        And so is EVERYONE else who does it.
        Everyone.

  • Hobojoe

    One thing is clear. Obama has really tried to be a good president. He has worked harder on this than on anything else he has ever done.
    Wait, I forgot, he hasn’t done anything else.
    Sorry.
    Nevermind.

  • Erik

    Hi Steve, you do have some good points. We should all be out on the streets protesting an end to all these endless wars: Iraq, Afghanistan, Libya, the war on drugs, and the war on the poor. As you said, we must learn to live within our means, or at least until there is another Republican in office and then all bets are off as we go full steam ahead in a war with Iran! Let’s try out domestic shock economics until then. BTW, do you get any money from Rove?

  • Erik

    I enjoyed the picture of you with Milton Friedman. Have you read Naomi Klein’s The Shock Doctrine: The Rise of Disaster Capitalism? Friedman told Pinochet “the major error, in my opinion, was … to believe that it is possible to do good with other people’s money.” (p. 573) Clearly, it’s far better to use other people’s money to create products that blow up in their faces.

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