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This is a short diary but there are things that need to be added to  the debate about the competing plans in the House and the Senate and what the President is advocating as well.

John Boehner Debt Ceiling Plan May Still Trigger S&P Downgrade: Report


WASHINGTON -- Minutes before House Speaker John Boehner delivered a prime-time address in which he framed his latest deficit-reduction deal as a silver bullet for the nation's economic uncertainty, reports surfaced that the plan being crafted by the Ohio Republican would potentially lead to a downgrading of the AAA credit rating of the United States.


It was a fairly bold selling of a plan that -- in terms of both the size of cuts and structural reforms -- fell far short of what the Speaker had been negotiating with the White House prior to those negotiations ending this weekend. It also was delivered with an unfortunate backdrop. Just minutes before Boehner spoke, CNN's Erin Burnett relayed word from her sources on Wall Street that the newest Republican plan would not satisfy the credit rating agencies, which have soured on the idea of a short-term solution to the debt ceiling debate. Rather, it was Senate Majority Leader Harry Reid's approach (padded by counting the savings from the drawdown of troops from Afghanistan and Iraq) that would calm their nerves.


"Really interesting this afternoon, when I was talking to an investor who had met with the ratings agencies at Standard & Poor, talking about the potential of a downgrade -- which by the way could raise interest rates the same way a potential default could -- and they said the Boehner plan probably wouldn't hit the hurdle to prevent a downgrade," she added. "Even if that deal was reached, you could still get a downgrade. It is unclear whether that would happen for sure, but that would be a real possibility. Whereas the Reid plan, even though a lot of the parts of that are seen by many as gimmicks, probably would pass that hurdle and you wouldn't get that immediate downgrade. That's an interesting distinction."

A down grade and a raise in interest rates of just 1% would be enough to increase the national debt more than any of the "cuts packages" being talked about now.

I'm not cheering the Dems on either as I still haven't forgotten what happened in the UK with their austerity program of cuts... it shrank the GDP and caused inflation and unemployment to spike up.

Nor have I forgotten the confidential letter from Goldman Sach's to its investors:

Goldman Sachs: House Spending Cuts Will Hurt Economic Growth

A confidential new report prepared by Goldman Sachs for its clients says spending cuts passed by the House of Representatives last week would be a drag on the economy, cutting economic growth by about two percent of GDP.

“Under the House passed spending bill [which cut spending by $61 billion],” says the report, which was obtained by ABC News, “the drag on GDP growth from federal fiscal policy would increase by 1.5pp to 2pp in Q2 and Q3 compared with current law.”


In short... these cuts if phased in too soon will shrink the GDP and cause inflation and unemployment to spike.

We should be spending now and cutting later as Krugman and other economists have advocated.

The rupugs are keen in quoting "business leaders are not spending in the economy because of uncertainty in economy" but Boneheads plan of fighting this fight over every six months will fail to do that.

What the GOP leaders don't say in their talking points is that industry leaders say the jobs go where the demand is and advocate a demand side approach for the US... not more radical cuts now.

President Obama's says his plan would phase in the cuts so as not to hurt the economy right now... but the $650 Billion in cuts to Medicare, Medicaid, and Social Security is a real stinker to sell, while Reids plan doesn't touch the big three at all but cuts more on the front end.

Hell of a situation!


The Credit Rating Agencies don't like the Beohner plan but neither do the traders evidently. Here is another diary just posted:

Video: Wall St. not liking GOP plan, Kudlow grills Cantor hard+*

by Alan Arizona
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Comment Preferences

  •  Tip Jar (1+ / 0-)
    Recommended by:
    •  I did call all my reps on this... (2+ / 0-)
      Recommended by:
      pollwatcher, nklein

      My house rep is a tea bagger freshman and were pretty frosty to my remarks to say the least.

      My Senators are Dems and both were glad to get the information and are leaders in the Senate fight.

      I guess I've done my civic duty as it were... now its just hope and pray for a nation and its leaders gone bull goose looney.

      I do have to admire the rupugs for one thing... the skill with which they have gotten so many Americans to vote against their own interest... you do have to give the devil his due sometimes.

  •  There is no revenue in Reid's plan. (2+ / 0-)
    Recommended by:
    nklein, Flint

    The whole problem is revenue.  If you don't go after subsidies for oil, gas, and farmers (there are 27 Senators/Representatives who are collecting farm subsidies - one as much as $3M, including Bachmann), taxes for the rich you are only hurting the middle class, poor, seniors, disabled, and veterans.  Get some revenue!

  •  What would we win? (1+ / 0-)
    Recommended by:

    The avoidance of what amounts to a substantial tax on all Americans who use or need credit at any time, equal to the increase in interst rates, points and other charges, which would not be payable to Gummint and converted to roads, unemployment, schools and other things of general virtue, and be paid instead to Wall Street and the Banks, to become humoungous salaries, buyouts of other businesses, and lobbying for still more benefits.  It's a gift to Rs if it happens since its a form of direct subsidty to lenders and the like. Just like a tax but payable directly to their friends with no intermediaries, and will go on indefinitely.  

    •  What you seem to have missed... (0+ / 0-)

      While default is unthinkable for all the reasons you have cited... but the other side of the coin is:

      The UK did an austerity program with similar cuts and it shrank their GDP, caused inflation to radically spike up and caused unemployment to spike up too.

      This is what Goldman Sachs told its investors privately about the Ryan plan which doesn't cut as much as Reid's plan in the Senate or Beohners plan in the House:

      “Under the House passed spending bill [which cut spending by $61 billion],” says the report, which was obtained by ABC News, “the drag on GDP growth from federal fiscal policy would increase by 1.5pp to 2pp in Q2 and Q3 compared with current law.”

      Let me help you with the math...

      Our current GDP growth rate for Q1 of 2011 is 1.9 percent

      If Goldman's numbers are near correct... Ryan's budget would have taken 1.5% to 2 % off of GDP growth.

      Given that both plans currently have larger cuts than Ryan's proposal... for the sake of argument lets use their 2 pp figure.

      so... 1.9 - 2 = -.1

      Economists argue over the definition but two quarters of negative growth constitute recession...

      In economics, a recession is a business cycle contraction, a general slowdown in economic activity.[1][2] During recessions, many macroeconomic indicators vary in a similar way. Production, as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits, and inflation all fall during recessions, while bankruptcies and the unemployment rate rise.

      Recessions generally occur when there is a widespread drop in spending often following an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.

      •  As long as the Job Creators are sitting on all the (0+ / 0-)

        cash they got for the Job Creation they didn't do, the actual job creation ain't getting done. And now it will be more necessary than ever to come up with real job deals paid for by government to get around the newly found ground for rejecting applicants because they have been unemployed too long. A government job is, after all, work.

        •  Obama's stealth jobs package... (0+ / 0-)

          Obama did try to get a jobs package through congress and several job stimulating infrastructure initiatives like high speed rail.

          Most of those initiatives were filibustered in the senate and the ones that did get through were killed by Republican governors in the states.

          Christie in NJ killed the tunnel project in NJ killing 7,000 jobs outright and an estimated 50,000 jobs that the rail like would have permanently created after completion to support the HS rail link. He also laid off 42,000 public employees in his first six months after giving 1.5 billion in tax breaks to the uber rich and corporations...

          Rick Scott did the same in Florida.

          Obama realized he could get money into the economy with major packages through congress so the next best thing was QE1&2 through the fed.

          The Fed was issuing treasury bonds and buying back mortgages and pumping money into the economy. This gave the banks more money to lend and cut off deflation or the chance of the US slipping into depression.

          It also had the effect of lowering the dollar which made US exports more competitive on the international market.

          The current drop in manufacturing and jobs is due to QEII ending.

          The GOP knows this and the whole artificial debt ceiling crisis is about one thing... destroying the US bond market for treasury bills to cut off QE III which Bernanke had been talking about.

          There is a T bill auction set for August 4th... two days after the default deadline and it is no accident that the teabaggers pulled this stunt with this in mind... the strategy is keep the unemployment high to defeat Obama and the Dems.

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