America's Triple-A Credit Rating? It Was Fun While It Lasted
Yes, it's after 5:00 on Friday, the main news-cycle is over, which means it's time for your Big News of the Day.
"Breaking: S&P downgrades U.S. to AA+" Allahpundit writes at Hot Air:
With a “negative outlook” to boot.
America is now a risky investment.U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.
The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.
See the last few updates in the other thread for details on this afternoon’s drama between S&P and the White House. Supposedly the agency admitted privately that it goofed in using the wrong debt-to-GDP baseline — a $2 trillion error. But when you’re $14 trillion in the hole and set to add $6 trillion more by the end of the decade, what’s $2 trillion, really? A deadbeat’s a deadbeat.
Odds of that negative outlook turning into a further downgrade if the Super Committee chokes: High. Stand by for updates.
Update: A grumpy White House points to S&P’s math error and calls it “amateur hour.”
Yes, that's as good a description of the Obama White House's approach to the economy as any.
Meanwhile, the Obama-friendly Financial Times posits that two out of three ain't bad. Maybe:
The US is still, of course, rated AAA by Fitch and Moody’s — the good and the bad to S&P’s ugly. A split rating should mean fewer knock-on impacts. And as Martin Wolf always tells us — and anyone within earshot — credit rating agencies provide absolutely zero new information about US treasuries. It’s the linkages and the contagion (the horror! the horror!) that matter.
Therefore, we guarantee some European-style political bloviation, especially given the palaver over the maths, but the tangible impact remains unclear.
Still, feels like a big deal, no?
Why, yes it does. Mark Steyn's latest column, written before the word from S&P was official, describes this weekend's financial cascade failure as the opening act for Mad Barack in Thunderdome:
Like America's political class, I have also been thinking about America circa 2020. Indeed, I've written a book on the subject. My prognosis is not as rosy as the Boehner-Obama deal, as attentive readers might just be able to deduce from the subtle clues in the title: "After America: Get Ready For Armageddon". Oh, don't worry, I'm not one of these "declinists". I'm way beyond that, and in the express lane to total societal collapse. The fecklessness of Washington is an existential threat not only to the solvency of the republic but to the entire global order. If Ireland goes under, it's lights out on Galway Bay. When America goes under, it drags the rest of the developed world down with it.
When I go around the country saying stuff like this, a lot of folks agree. Somewhere or other, they've a vague memory of having seen a newspaper story accompanied by a Congressional Budget Office graph with the line disappearing off the top of the page and running up the wall and into the rafters circa mid-century. So they usually say, "Well, fortunately, I won't live to see it." And I always reply that, unless you're a centenarian with priority boarding for the Obamacare death panel, you will live to see it. Forget about mid-century. We've got until mid-decade to turn this thing around.
Otherwise, by 2020 just the interest payments on the debt will be larger than the U.S. military budget. That's not paying down the debt, but merely staying current on the servicing – like when you get your MasterCard statement, and you can't afford to pay off any of what you borrowed but you can just about cover the monthly interest charge. Except in this case the interest charge for U.S. taxpayers will be greater than the military budgets of China, Britain, France, Russia, Japan, Germany, Saudi Arabia, India, Italy, South Korea, Brazil, Canada, Australia, Spain, Turkey and Israel combined.
When interest payments consume about 20 percent of federal revenue, that means a fifth of your taxes are entirely wasted. Pious celebrities often simper that they'd be willing to pay more in taxes for better government services. But a fifth of what you pay won't be going to government services at all, unless by "government services" you mean the People's Liberation Army of China, which will be entirely funded by U.S. taxpayers by about 2015. When the Visigoths laid siege to Rome in 408, the imperial Senate hastily bought off the barbarian king Alaric with 5,000 pounds of gold and 30,000 pounds of silver. But they didn't budget for Roman taxpayers picking up the tab for the entire Visigoth military as a permanent feature of life.
And even those numbers pre-suppose interest rates will remain at their present historic low. Last week, the firm of Macroeconomic Advisors, one of the Obama administration's favorite economic analysts, predicted that interest rates on 10-year Treasury notes would be just shy of nine percent by 2021. If that number is right, there are two possibilities: The Chinese will be able to quintuple the size of their armed forces and stick us with the tab. Or we'll be living in a Mad Max theme park. I'd bet on the latter myself.
Time to start printing that Weimar money.
When Obama first took office, one excitable lefty had a Start From Zero moment, and decided that a Brave New America needed some brave new Federation credits-style currency to go with it. Perhaps he could just add six zeros to his redesigned one dollar bill to reflect our possible hyper-inflationary future. Keep the Hopenchange.
Related: "Just a small point of compare and contrast here — while President Obama has presided over the unprecedented downgrading of US credit, a certain governor of a large southern state has presided over the elevation of his state’s credit rating," Bryan Preston notes at the Tatler. "That’s right. Rick Perry has led Texas to the point where its credit rating is equal to that of the United States."
And as suggested by the Professor...