Americas Credit Rating

[bighairyfaeleith]

Standard & Poor have reduced there credit rating to 2+

Is it just a blip or are we heading into a new financial storm?

The chinese are apparently furious as they have so much tied up in the dollar.

[Leicester Fan]

This is what happens when you don't tackle your deficit.

[lapsedhibee]

Standard & Poor have reduced there credit rating to 2+

Is it just a blip or are we heading into a new financial storm?

The chinese are apparently furious as they have so much tied up in the dollar.

Same, not new, financial storm - just now it's starting to be taken proper seriously. :boo hoo:

Before long, wheelbarrowsful of Euros for a loaf of bread in central Europe, and calls for "strong political leadership". :agree:

[Betty Boop]

Capitalism is not working. Pity there seems to be no alternative at the moment.

[hibsbollah]

I remember being in America in the late 80s and everyone being up in arms about the budget deficit (NOT the trade deficit, lot of confusion between them atm). The Americans borrowing more than they could afford all started in Reagans time and has been a problem ever since. Its easy for the dullard 'small government' neocons to paint it as being because of high spending on government programmes but it has just as much to do with the rich paying less taxes year on year relative to income since the 1980s.

Theres nothing new here.

[magpie1892]

If rich people paid more tax, everything would be fine.

[hibsbollah]

If rich people paid more tax, everything would be fine.I don't think anyones saying that.

[LiverpoolHibs]

I don't think anyones saying that.

They pretty much should do. If Obama cancelled the Bush tax breaks the deficit would be cut in half by the end of his term in office.

[hibsbollah]

They pretty much should do. If Obama cancelled the Bush tax breaks the deficit would be cut in half by the end of his term in office.If you want to climb on magpie's straw man go right ahead :-)

[steakbake]

Watch as over the next couple of weeks, the very same people who have been arguing against cuts as a means to deficit reduction are converted yet will try to convince us that this is what they have been arguing for all the time.

I'd rather have relatively slow or less than expected growth, cut the deficit and put up with that than be facing the possibilities that the US and some of the Euro countries are facing.

Osborne deserves some credit. I'd be interested (as such) to hear what Balls has to say.

[Leicester Fan]

Osborne deserves some credit.

Don't hold your breath.

[Twa Cairpets]

Same, not new, financial storm - just now it's starting to be taken proper seriously. :boo hoo:

Before long, wheelbarrowsful of Euros for a loaf of bread in central Europe, and calls for "strong political leadership". :agree:

For me this is the biggest concern.

The Tea Party rabble rousers, with access to the stupid and credulous could make massive political capital out of this. "Blame Obama - look at the state we're in now" when the problems started decades ago and were exacerbated by 8 years of Bush.

The worries brought up on the "Bachmann" thread are worth revisiting. A woman who literally believes she has been sent by God to save America is exactly the type of "strong leadership" that will lead the US into a theocracy underpinned by very right wing republican values.

[Mibbes Aye]

Watch as over the next couple of weeks, the very same people who have been arguing against cuts as a means to deficit reduction are converted yet will try to convince us that this is what they have been arguing for all the time.

I'd rather have relatively slow or less than expected growth, cut the deficit and put up with that than be facing the possibilities that the US and some of the Euro countries are facing.

Osborne deserves some credit. I'd be interested (as such) to hear what Balls has to say.

Cuts without economic growth won't deal with the deficit.

[Mibbes Aye]

Same, not new, financial storm - just now it's starting to be taken proper seriously. :boo hoo:

Before long, wheelbarrowsful of Euros for a loaf of bread in central Europe, and calls for "strong political leadership". :agree:

:agree:

There's a well-trodden path for parties and leaders of a certain ilk. In difficult economic times externalise the blame (markets/IMF/rating agencies) and play it into your dogma, whether extreme nationalism or fundamentalism. Faced with uncertainty, black and white answers are an attractive option for people.

Be interesting to see whether what amounts to taking on the US Government creates a tipping point for a backlash against the ratings agencies - in a similar kind of way to how News International lost their 'bulletproofness'. They helped the credit crunch to happen by endorsing the subprime mortgage market in the first place, with apparently little in the way of censure following.

[Green Mikey]

Osborne deserves some credit.


The Tea Party rabble rousers, with access to the stupid and credulous could make massive political capital out of this. "Blame Obama - look at the state we're in now" when the problems started decades ago and were exacerbated by 8 years of Bush.


The situations in the US and UK are different but I can see one similarity in the politics. Labour oppose the cuts and attack Osborne but the Tories were handed a legacy of a long term structural deficit by Labour. IMO this is similar to the Tea Party movement attacking Obama for problems the Republicans created or added to whilst in power.

[bighairyfaeleith]

Watch as over the next couple of weeks, the very same people who have been arguing against cuts as a means to deficit reduction are converted yet will try to convince us that this is what they have been arguing for all the time.

I'd rather have relatively slow or less than expected growth, cut the deficit and put up with that than be facing the possibilities that the US and some of the Euro countries are facing.

Osborne deserves some credit. I'd be interested (as such) to hear what Balls has to say.

Osborne does deserve some credit, but as the tories have kept telling us labour also proposed pretty severe cuts as well, just not quite as severe as the tories. So maybe not all the credit.

[Leicester Fan]

Osborne does deserve some credit, but as the tories have kept telling us labour also proposed pretty severe cuts as well, just not quite as severe as the tories. So maybe not all the credit.

So now the Tories have been proved right you'll now admit that labour proposed cuts as well?

[Leicester Fan]

Be interesting to see whether what amounts to taking on the US Government creates a tipping point for a backlash against the ratings agencies - in a similar kind of way to how News International lost their 'bulletproofness'. They helped the credit crunch to happen by endorsing the subprime mortgage market in the first place, with apparently little in the way of censure following.

The credit rating agencies determine the size of risk in lending money and therefore the interest rate. Countries can either borrow the money at that rate or lump it.

Anyway it's hardly their fault if America can't balance their books. Obama decided to increase spending and it hasn't worked. If he felt that taxes needed to go up he should have said so when he ran for office.

[bighairyfaeleith]

So now the Tories have been proved right you'll now admit that labour proposed cuts as well?

When did i deny it?

And for the record the tories have far from been proven right. I agree with cutting, but the implementation of those cuts is the important part and it is far from being clear that this is being done in the best way for the uk

[Mibbes Aye]

So now the Tories have been proved right you'll now admit that labour proposed cuts as well?

Proven right about what?

They said they needed to get rid of the whole deficit in one term.

They said that they would do this by massive cuts but it was okay, private sector growth would compensate.

Growth is non-existent, the steady improvement they inherited from Labour choked off.

Last month the deficit got worse, according to the Government's own figures.

If that's 'right' then we truly are through the looking glass.

[Mibbes Aye]

The credit rating agencies determine the size of risk in lending money and therefore the interest rate. Countries can either borrow the money at that rate or lump it.Anyway it's hardly their fault if America can't balance their books. Obama decided to increase spending and it hasn't worked. If he felt that taxes needed to go up he should have said so when he ran for office.

I agree.

There have always been those who have questioned the reach of their power however, and now we can add politicians in the largest free market economy to that number.

Their record is vulnerable and rightly or wrongly they could see a backlash.

[Betty Boop]

A day of prayer and fasting in Houston Texas, in an attempt to halt the USA's national decline. Apparently the fasting didn't go down too well. :greengrin

http://www.guardian.co.uk/world/2011/aug/07/rick-perrys-call-to-prayer

[steakbake]

Saw that about Rick Perry. Just what the world needs: another religious nutter.

[Twa Cairpets]

Saw that about Rick Perry. Just what the world needs: another religious nutter.

Rick Perry - just another lying fundamentalist buffoon (http://www.politifact.com/personalities/rick-perry/), but another deeply dangerous one.

[Betty Boop]

Rick Perry - just another lying fundamentalist buffoon (http://www.politifact.com/personalities/rick-perry/), but another deeply dangerous one.

Was Rick Perry not a Democrat at one point ? I'm sure he was Al Gore's campaign manager, before he swapped sides.

[da-robster]

This is what happens when you don't tackle your deficit.

No this is what happens when you elect right wing nutters who put ideology before avoiding a default.


Was Rick Perry not a Democrat at one point ? I'm sure he was Al Gore's campaign manager, before he swapped sides.

Yes he was a democrat, but he was a southern one. American politics is weird and basically both parties swapped bases democrats lost southern whites and republicans lost blacks and northeastern whites. He was a straggler, he continued being a southern democrat (or conservative) long after the democrats became liberal. And he was Al Gore, another conservative democrat from tennessee campaign manager in 1988 long before he became in the minds of many at least very liberal.

[Betty Boop]

No this is what happens when you elect right wing nutters who put ideology before avoiding a default.



Yes he was a democrat, but he was a southern one. American politics is weird and basically both parties swapped bases democrats lost southern whites and republicans lost blacks and northeastern whites. He was a straggler, he continued being a southern democrat (or conservative) long after the democrats became liberal. And he was Al Gore, another conservative democrat from tennessee campaign manager in 1988 long before he became in the minds of many at least very liberal.

Cheers da-robster, I thought I might have imagined that.

[RyeSloan]

Proven right about what?

They said they needed to get rid of the whole deficit in one term.

They said that they would do this by massive cuts but it was okay, private sector growth would compensate.

Growth is non-existent, the steady improvement they inherited from Labour choked off.

Last month the deficit got worse, according to the Government's own figures.

If that's 'right' then we truly are through the looking glass.


Steady improvement from what though?...I'm not quite sure how on one hand you can say the deficit got worse but on the other say the Tories have choked off GDP growth :confused:

[bighairyfaeleith]

Steady improvement from what though?...I'm not quite sure how on one hand you can say the deficit got worse but on the other say the Tories have choked off GDP growth :confused:

no growth means less taxes which means less money which means more borrowing, it could well become a big problem for a lot of countries and is why so many people have been asking for a clear plan for growth as well as cuts. To simply say the private sector will step in has to many been a lazy answer. Time will tell who is right.

[Green Mikey]

no growth means less taxes which means less money which means more borrowing, it could well become a big problem for a lot of countries and is why so many people have been asking for a clear plan for growth as well as cuts.

Become a big problem It's already the problem! There was a pressing requirement for a fiscal re-alignment prior to the credit crunch. Economic growth is always a critically important factor but I think that the current budget defict has to be tackled first.


To simply say the private sector will step in has to many been a lazy answer. Time will tell who is right.

I don't think it is a lazy answer at all. Economic growth has to come from the private sector, what other option is there?

[RyeSloan]

no growth means less taxes which means less money which means more borrowing, it could well become a big problem for a lot of countries and is why so many people have been asking for a clear plan for growth as well as cuts. To simply say the private sector will step in has to many been a lazy answer. Time will tell who is right.

I understand the implication of low or no growth.

I was merely asking how the Tories could be accused of having 'choked' growth while at the same time the deficit continues to widen....what have they choked this growth with if they are continuing to spend more than we are getting in or would that imply MA thinks we should be borrowing even more than we are?

[bighairyfaeleith]

I understand the implication of low or no growth.

I was merely asking how the Tories could be accused of having 'choked' growth while at the same time the deficit continues to widen....what have they choked this growth with if they are continuing to spend more than we are getting in or would that imply MA thinks we should be borrowing even more than we are?

if you cut back your growth will slow or go into reverse, which means income will go down. If growth slows faster than expected, or doesn't rise as quickly as expected then you will have to borrow more to cover the gap in what you forecast you would have, which I am assuming is what has happened. Now as the tories have been in power for a year now I would say the blame really does lie with them. They can't take the glory and not the blame.

In some ways it's similar to what happened during 2008, spending was at a high level because tax income was high, tax income then dropped that quick that suddenly the deficit was widening far quicker than before. That of course was labours fault so therefore?

*note - this all based upon the deficit having widened last month which i haven't actually bothered to check :wink:

[RyeSloan]

if you cut back your growth will slow or go into reverse, which means income will go down. If growth slows faster than expected, or doesn't rise as quickly as expected then you will have to borrow more to cover the gap in what you forecast you would have, which I am assuming is what has happened. Now as the tories have been in power for a year now I would say the blame really does lie with them. They can't take the glory and not the blame.

In some ways it's similar to what happened during 2008, spending was at a high level because tax income was high, tax income then dropped that quick that suddenly the deficit was widening far quicker than before. That of course was labours fault so therefore?

*note - this all based upon the deficit having widened last month which i haven't actually bothered to check :wink:

Sorry but this is simplistic in the extreme.

You don't 'cut back your growth' like it's a choice or something you can influence absolutely and directly.
You can't continue to over borrow forever.
You can't continue to over borrow when you have already over borrowed to a record amount.
You can't blame a 1 year government for every set of GDP figures

In any case Governments probably don't influence GDP as much as they would like to think.

As for 2008 there is no automatic need to have high spending when you have high tax take, in fact it would probably be very sensible to use your years of higher than average tax take to ensure you run a surplus to assist when the lean years arrive.

The plain truth is that Britain was not just running a deficit but a structural deficit as well...that means that no matter how high the tax take we were always going to spend more than we took in. That's the deficit we need to remove or we are forever doomed to borrow more than we take in no matter what the GDP figures are and considering the state of the finances (no matter how we got there) it is simply not an option just to keep on over borrowing until the good times come back again because when you have a structural deficit the good times are never good enough.

[bighairyfaeleith]

Sorry but this is simplistic in the extreme.

You don't 'cut back your growth' like it's a choice or something you can influence absolutely and directly.
You can't continue to over borrow forever.
You can't continue to over borrow when you have already over borrowed to a record amount.
You can't blame a 1 year government for every set of GDP figures

In any case Governments probably don't influence GDP as much as they would like to think.

As for 2008 there is no automatic need to have high spending when you have high tax take, in fact it would probably be very sensible to use your years of higher than average tax take to ensure you run a surplus to assist when the lean years arrive.

The plain truth is that Britain was not just running a deficit but a structural deficit as well...that means that no matter how high the tax take we were always going to spend more than we took in. That's the deficit we need to remove or we are forever doomed to borrow more than we take in no matter what the GDP figures are and considering the state of the finances (no matter how we got there) it is simply not an option just to keep on over borrowing until the good times come back again because when you have a structural deficit the good times are never good enough.

sorry perhaps I missed a comma, it should have read

if you cut back, your growth will slow

Your right though you can't borrow forever, however cutting back is not a magic wand to save money. In fact it might cost you money if growth slows too much and your income falls by more than you save. I think this is unlikely but I am assuming this is what happened last month.

I agree with you that the spending needs to be cut as does pretty much every sensible person in the country, however it would appear that every time you try and question how that is done you are shot down as wanting to spend spend spend.

[RyeSloan]

sorry perhaps I missed a comma, it should have read

if you cut back, your growth will slow

Your right though you can't borrow forever, however cutting back is not a magic wand to save money. In fact it might cost you money if growth slows too much and your income falls by more than you save. I think this is unlikely but I am assuming this is what happened last month.

I agree with you that the spending needs to be cut as does pretty much every sensible person in the country, however it would appear that every time you try and question how that is done you are shot down as wanting to spend spend spend.

I'm not shooting anyone however the point I asked is how can the government be accused of choking off growth when the deficit was still increasing.

This goes back to the basic argument of asking whether government spending (based on tax income and borrowing) can actually provide any real growth at all...it would seem somewhat impossible to argue that taxing and borrowing more could ever provide long term growth.

What it can do is provide a short term stimulus to the economy...smoothing the peaks and troughs if you will. The fact is we don't have any money to provide any more stimulus and at some point the medicine needs to be taken. The exact method of that medicine doesn't actually bother me too much, just the fact that it needs to be taken and taken soon...some of the government spending figures would seem to suggest that it's still not being taken at all despite over a year of hearing about 'cuts' and how they they are 'too far and too fast' !!!!

Back to the OP though....I think S&P should be commended for finally stating what they think...Obama's response yesterday was as pathetic as the brinkmanship on the credit ceiling that the two sides had taken part in over the last months. Some Americans seem to think that they can continue to pay less and less tax yet take more and more in entitlements with some of the Republicans the worst protagonists of all, makes the discussion over here look like consensus politics perfected!

[Mibbes Aye]

I understand the implication of low or no growth.

I was merely asking how the Tories could be accused of having 'choked' growth while at the same time the deficit continues to widen....what have they choked this growth with if they are continuing to spend more than we are getting in or would that imply MA thinks we should be borrowing even more than we are?

It isn't me or anyone else thinking we should be borrowing more, the Government are borrowing more - public sector net borrowing for June was £14bn, £400m higher than the same month a year ago!!!

I take on board what you are saying in your posts SiMar and I think we're at slight cross purposes, though BHFL has done a good job in explaining partly what I was blethering on about.

The Tories set out a programe of removing the whole deficit in one term.

In order to achieve this they have spelled out a programe of massive cuts. This isn't a partisan point. I know that folk have posted about how the government will continue to spend huge sums of money and that's true. The scale of the retrenchment is huge though, in relative and absolute terms, unheard of in our modern history and all sides recognise that.

The danger with massive cuts (as the Tories acknowledged) was that it can tip the country right back into recession. The money being taken out of public sector spending impacts in many ways. Jobs lost means no income tax and national insurance receipts, but increased unemployment benefit, so you've got a double whammy. It also means a drop in consumer spending because public sector workers are out of work and don't have the money and that affects a wide range of private sector industries. If sales dry up then jobs are at risk there too.

But you've also got the drop in money spent by the public sector procuring goods and services from the private sector. Capital expenditure projects are among the first to go so the construction industry and everything related takes a beating, and it's the same deal - the orders dry up and the jobs start to go. And the public sector buys a lot from the private sector across the whole spectrum.
And then it becomes self-fulfilling, a vicious cycle, with your tax take dropping and your benefit bill going up.

Now that can possibly be mitigated, it can be offset , if the private sector is able to grow, able to sell more goods and services, produce more goods and services to sell, take on more staff to achieve this. This is Osborne's rationale, although I'm using the word very loosely indeed :greengrin

But the growth isn't there. The private sector can't ride to the rescue because the scale of the cuts means that too much demand is being choked off, and it's unable to grow.

If we want to reduce the deficit then yes, we need to slow down - my fear is that by braking too hard, too quickly, we stall the engine.

[RyeSloan]

It isn't me or anyone else thinking we should be borrowing more, the Government are borrowing more - public sector net borrowing for June was £14bn, £400m higher than the same month a year ago!!!

I take on board what you are saying in your posts SiMar and I think we're at slight cross purposes, though BHFL has done a good job in explaining partly what I was blethering on about.

The Tories set out a programe of removing the whole deficit in one term.

In order to achieve this they have spelled out a programe of massive cuts. This isn't a partisan point. I know that folk have posted about how the government will continue to spend huge sums of money and that's true. The scale of the retrenchment is huge though, in relative and absolute terms, unheard of in our modern history and all sides recognise that.

The danger with massive cuts (as the Tories acknowledged) was that it can tip the country right back into recession. The money being taken out of public sector spending impacts in many ways. Jobs lost means no income tax and national insurance receipts, but increased unemployment benefit, so you've got a double whammy. It also means a drop in consumer spending because public sector workers are out of work and don't have the money and that affects a wide range of private sector industries. If sales dry up then jobs are at risk there too.

But you've also got the drop in money spent by the public sector procuring goods and services from the private sector. Capital expenditure projects are among the first to go so the construction industry and everything related takes a beating, and it's the same deal - the orders dry up and the jobs start to go. And the public sector buys a lot from the private sector across the whole spectrum.
And then it becomes self-fulfilling, a vicious cycle, with your tax take dropping and your benefit bill going up.

Now that can possibly be mitigated, it can be offset , if the private sector is able to grow, able to sell more goods and services, produce more goods and services to sell, take on more staff to achieve this. This is Osborne's rationale, although I'm using the word very loosely indeed :greengrin

But the growth isn't there. The private sector can't ride to the rescue because the scale of the cuts means that too much demand is being choked off, and it's unable to grow.

If we want to reduce the deficit then yes, we need to slow down - my fear is that by braking too hard, too quickly, we stall the engine.

MA I get that you don't want to break too hard but my point was you accused the government of choking growth by doing exaclty that yet in the same post showed that spending continued to outpace income...I just don't get that. Where is the evidence that the 'cuts' are choking the growth? Surely it's the lack of growth in the rich world economies that is the biggest driver rather than anything the government is (not) doing?

Anyway while I think it's clear that a severe retrenchment in government spending can and will impact growth figures in the short term that misses the wider point quite signifcantly. There is a reasonably accepted view that debt to GDP fgures over 60% impact growth and that continues to get worse the larger the debt, anything over 90% oof GDP severely impacts growth. It's a fallacy to say that you can borrow your way into growth, it simply can't happen.

Sure the period between slowing government spending and the private sector picking up the slack may be painful but at some point we have to start the process....despite Osbournes grand plans and announcements I'm not seeing too much progress to date, to me that's the biggest concern, not the fact that GDP growth is flattish but that the deficit is still going up. If we can't bring borrowing under control when the political will is actually there to do so then we are totally stuffed.

[Big Ed]

MA I get that you don't want to break too hard but my point was you accused the government of choking growth by doing exaclty that yet in the same post showed that spending continued to outpace income...I just don't get that. Where is the evidence that the 'cuts' are choking the growth? Surely it's the lack of growth in the rich world economies that is the biggest driver rather than anything the government is (not) doing?

Anyway while I think it's clear that a severe retrenchment in government spending can and will impact growth figures in the short term that misses the wider point quite signifcantly. There is a reasonably accepted view that debt to GDP fgures over 60% impact growth and that continues to get worse the larger the debt, anything over 90% oof GDP severely impacts growth. It's a fallacy to say that you can borrow your way into growth, it simply can't happen.

Sure the period between slowing government spending and the private sector picking up the slack may be painful but at some point we have to start the process....despite Osbournes grand plans and announcements I'm not seeing too much progress to date, to me that's the biggest concern, not the fact that GDP growth is flattish but that the deficit is still going up. If we can't bring borrowing under control when the political will is actually there to do so then we are totally stuffed.

We are in recession in all bit name: I suppose that the theory is that tortoise speed growth will eventually gain momentum and we will eventually find ourselves back in times of prosperity.
Meanwhile we must sit tight and endure the pain.
Our banking system requires fundamental change, because exposure of our banks to sovereign debt must surely mean that the Government would have to bail them out again and thus destroy any progress in growing our economy.
Unfortunately there is no evidence of reform any time soon, so we continue to be led by the nose under the cycle of cuts followed by recession.
There are too many vested interests, whispering in the ears of respective political parties, who have no intention of allowing their grip on the financial system to be loosened for the benefit of the public at large, and yet, surely one of the principal roles of any Government is to achieve long term stability.
I nearly laughed when I typed that last senetence.