Under George W. Bush, Wall Street said nothing as the Bush administration enacted three major tax cuts in four years. None of the tax cuts were paid for. There were no major spending cuts proposed to offset the tax cuts. Wall Street sat silent. The Bush administration started two major wars. Again, none of this was paid for. The Bush adminstration did nothing to try to raise capital to pay for the wars and Wall Street was silent. Now we are coming out of a recession. It is imperative that the government spends money in order to get us out of the recession. Suddenly, Wall Street has something to say about our debt ratio! This is the same rating agency that rubber stamped garbage mortgage derivatives as AAA and AA. Now, I’m sure this is not politically motivated. They’re just warning the United States about our debt ratio. Interesting.
The threat of a downgrade raises the stakes in the struggle between President Obama’s Democratic administration and his Republican opponents in the House to get control over a nearly $1.4 trillion budget deficit and $14.27 trillion debt burden.
The White House last week announced plans to trim $4 trillion from the deficit over the next 12 years, mostly through spending cuts and tax hikes on the rich. Congressional Republicans want deeper spending cuts and no tax increases.
The deficit problem has become crushing since the financial crisis of 2008. Now for every dollar the federal government spends, it takes in less than 60 cents in revenue.
A budget deficit running at nearly 10 percent of output and expected to grow will likely further swell a public debt load that’s already more than 60 percent of the country’s gross domestic product.
“Because the U.S. has, relative to its AAA peers, what we consider to be very large budget deficits and rising government indebtedness, and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable,” S&P said.
Even so, Austan Goolsbee, the top economist at the White House, downplayed S&P’s move, telling CNBC on Monday it was a “political judgment” that “we don’t agree with.
DoubleLine Chief Executive Jeffrey Gundlach said on Monday that the S&P warning “should serve as an effective cattle prod in pushing the politicians toward a program of spending cuts and tax increases.” (more…)