White House attacks S&P rating as "political"
Standard & Poor's move to lower the company's outlook on the long-term rating of the U.S. sovereign debt to negative may have caught investors by surprise, but Michael Pento, senior economist with Euro Pacific Capital, has been making this case for years.
"It's not a surprise to me," Pento says of Standard & Poor's revision. "It's clearly late. But at least S&P is now waking up to the fact that the American sovereign debt picture is unsustainable and eventually we have to default on our debt in some form."
Just how late is S&P's revision to its outlook of U.S. debt?
"I heard that the ratings agencies just downgraded the Titanic's chances of crossing the Atlantic," Pento jokes.
Being late to the game is not a new criticism of credit ratings agencies like Standard & Poor's, Moody's and Fitch Ratings. They have been hammered for their role in the financial crisis, with critics arguing that the agencies were negligent for continuing to rate securities of subprime-related loans highly even as the market deteriorated. Once again, they are being lambasted for their inability to be forward looking.
In the report released Monday, S&P analysts write that there is a "material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013."
If an agreement is not reached and meaningful implementation is not begun by then, S&P analyst Nikola Swann writes, the U.S. fiscal profile would be rendered "meaningfully weaker than that of peer 'AAA' sovereigns.". . .
So what does the Obama administration say?
In an interview with CNBC, Austan Goolsbee, chairman of the Council of Economic Advisers, characterized the S&P move as a “political judgement.”
“What the S&P is doing is making a political judgement and it’s one we don’t agree with, and it appeared to me that Moody’s and some others don’t agree with that judgement,” Goolsbee said.
The U.S. Treasury also voiced disagreement with the S&P revision.
“…We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” Treasury Assistant Secretary Mary Miller said in a statement. . . .
Douglas E. Schoen argues that Obama just really is all rhetoric and nothing more on cutting the deficit.
To date, President Obama’s strategy on ‘fiscal responsibility’ has been to say most of the right things, most of the time, but do as little as possible. This tactic, after all, had long proved a political winner. But as others began stepping up to face the nation’s looming crisis, the backbench approach just appeared weak.
In an attempt to regain fiscal credibility, the president on Wednesday revealed what was advertised as his plan for deficit reduction. . . .
Regrettably, the president chose instead to tell Americans not what they needed to hear, but what they wanted to hear: we can keep on spending like we have been because, well, we’re Americans and we deserve it. While that may be a comforting thought, the reality of following such a plan will certainly not be so sweet. . . .
DeMint tries to bring some sanity to the situation by threatening to filibuster on debt ceiling increase.
Throwing down the gauntlet, Republican Sen. Jim DeMint threatened Monday to block a vote in Congress on raising the U.S. debt ceiling unless he wins a balanced-budget amendment to the Constitution.
The filibuster threat comes a day after Treasury Secretary Tim Geithner suggested Republican leaders had offered private assurances to the White House that they ultimately would vote to raise the $14.3 trillion ceiling, regardless of whether a deal is reached on long-term spending cuts.
Publicly, Republicans say they will demand spending cuts as a condition for supporting a hike in the debt ceiling. They stood by that claim following Geithner's comments, and DeMint took their demands a step further.
"I will oppose any attempt to vote to raise the limit on our $14 trillion debt until Congress passes the balanced-budget amendment," the South Carolina conservative said. He first made the remarks to McClatchy, which his office confirmed to Fox News. . . .
The S&P reports are available here and here.