It was no surprise that the markets would react negatively to news of Standard & Poor’s downgrading our credit rating, but the market had one of its 10 worst days in history on Monday after losing 634 points, or 5.5% of its value:
Stocks took a sharp nosedive in another choppy day Monday to finish at session lows as investors fled from risky assets following S&P’s downgrade of U.S.’s credit rating last week in addition to ongoing economic jitters.
The Dow Jones Industrial Average plunged 634.76 points, or 5.55 percent, to finish at 10,809.85, well below the psychologically-significant 11,000 mark. The move marks the blue-chip index’s biggest point and percent drop since Dec. 1, 2008.
The S&P 500 plummeted 79.92 points, or 6.66 percent, to close at 1,119.46, its lowest close since Sept. 10, 2010.
Nasdaq sank 174.72 points, or 6.90 percent, to end at 2,357.69, its lowest close since October 4, 2010.
August is already on track to be the worst month for the S&P and Nasdaq since Oct. 2008.
Not only were the markets reacting to the S&P downgrade of our credit rating, but also the credit agency’s downgrade of Fannie Mae and Freddie Mac, the government-created housing giants. And President Barack Obama didn’t help matters either. The White House announced that he would speak at 1pm; however, he didn’t speak until approximately 1:50pm. The Wall Street Journal noted after Obama delivered his remarks at 2:04pm:
A huge number of people disapprove of Congress, at least according to a report from the New York Times. That huge number is 82%. The report cites the debt ceiling debate as a key reason for such disapproval, but personally I think it’s more than just that. The truth is that Congress, and the White House, has had their focus on everything that had nothing to do with the economy. That’s what people want to see fixed. For most people, they wanted the debt ceiling raised and raised quickly because they were terrified of what would happen if it wasn’t.
Predictably, the poll conducted by the New York Times found that Republicans are being blamed more in the eyes of respondents.
Republicans in Congress shoulder more of the blame for the difficulties in reaching a debt-ceiling agreement than President Obama and the Democrats, the poll found.
The Republicans compromised too little, a majority of those polled said. All told, 72 percent disapproved of the way Republicans in Congress handled the negotiations, while 66 percent disapproved of the way Democrats in Congress handled negotiations.
This doesn’t bode well for Republicans leading into the 2012 general election, though the numbers for President Obama aren’t exactly glowing:
The public was more evenly divided about how Mr. Obama handled the debt ceiling negotiations: 47 percent disapproved and 46 percent approved.
The way I see it, Obama still has the inside track for re-election, but not by much. The right candidate can still take him down, but it won’t be particularly easy. This is especially true for candidates who also are members of Congress.
The following was submitted by Nick Nottleman, a reader and concerned American, on the debt ceiling debate and subsequent downgrade in our credit rating by S&P.
Newt Gingrich recently said that his biggest regret while Speaker of the House was not addressing baseline budgeting. This is the mechanism that says Federal Government Spending is automatically increased each year based on a given percentage. For Example, our 2011 Federal Budget is approximately 3.9 TRILLION dollars. Using the baseline of 8 percent, our spending should automatically increase 312 BILLION in 2012.
It is also the mechanism that projects these increases in spending and thus a projected budget for the next 10 years. And the really neat part is that if you decide to spend a little bit less than what these projections indicate, you get to call it a “cut”.
Now here’s the kicker… Anything you add to the annual spending, call it something crazy like “Stimulus”, “Omnibus”, or heck, even “Socialized Medicine”, well, that stuff sneaks right in there and receives it’s nasty little automatic increase.
As you’ve no doubt heard, on Friday, Standard & Poors (S&P) downgraded the United States’ AAA credit rating because the debt deal reached by the White House and Congress failed to cut the $4 trillion deemed necessary by the credit rating agency during the debate the debt ceiling:
S&P removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal recently brokered in Washington didn’t do enough to address the gloomy outlook for America’s finances. It downgraded long-term U.S. debt to AA+, a score that ranks below more than a dozen governments’, including Liechtenstein’s, and on par with Belgium’s and New Zealand’s. S&P also put the new grade on “negative outlook,” meaning the U.S. has little chance of regaining the top rating in the near term.
The unprecedented move came after several hours of high-stakes drama. It began in the morning, when word leaked that a downgrade was imminent and stocks tumbled. Around 1:30 p.m., S&P officials notified the Treasury Department that they planned to downgrade U.S. debt and presented the government with their findings. Treasury officials noticed a $2 trillion error in S&P’s math that delayed an announcement for several hours. S&P officials decided to move ahead, and after 8 p.m. they made their downgrade official.
With the debt ceiling being increased by Congress and subsequently signed into law by President Barack Obama earlier this week, it’s a good time to note that for the first time since World War II our national debt now equals the size of our economy:
US debt shot up $238 billion to reach 100 percent of gross domestic project after the government’s debt ceiling was lifted, Treasury figures showed Wednesday.
The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium.
Public debt subject to the official debt limit — a slightly tighter definition — was $14.53 trillion as of the end of Tuesday, rising from the previous official cap of $14.29 trillion a day earlier.
Treasury had used extraordinary measures to hold under the $14.29 trillion cap since reaching it on May 16, while politicians battled over it and over addressing the country’s bloating deficit.
The official limit was hiked $400 billion on Tuesday and will be increased in stages over the next 18 months.
And as we cannot emphasize enough, the “cuts” pushed through earlier this week will not decrease government spending. Unless Washington is willing to, not just cut spending, but reform entitlements; our dependence on government will turn us into the next Greece.
Rep. Michele Bachmann launched her third ad this week in Iowa, where she is leading the field, touting her voting against the debt ceiling, knocking President Barack Obama’s economic policies and encouraging Iowa Republicans to support her at the Ames Straw Poll, arguably the most important event for campaigns in this early stage of the race.
The ad comes just over a week before the straw poll, which will be held at the Iowa State Fair on Saturday, August 13th:
Since Tuesday, there have been a lot of concerns expressed about the “Super Committee” created as part of the debt deal hashed out between the White House and Democrats and House Republicans, including whether it has the ability to raise taxes. Republican leaders in both chambers have played down this possibility, but Philip Klein writes that they aren’t being honest with themselves, let alone taxpayers:
It’s an ominous sign that, even before the legislation creating the committee actually became law, the parties were already sending out dueling press releases about what it could and could not do.
If Republicans were smart, they would take Democrats at their word. But instead, they have been publicly in denial about the obvious risks of this committee for conservatives.
The key problem lies with the enforcement mechanisms, or “triggers,” created to compel the committee members to reach an agreement. While Republicans wouldn’t agree to a tax-hike trigger, they did agree to one that would slash defense spending by up to $600 billion, depending on how far short the committee falls of the deficit-reduction goal. This puts anti-tax Republicans who favor a robust military in a bind.
Democrats on the committee could insist on raising taxes, and Republicans will either have to give in to their tax demands or accept the deep defense cuts.
When I posed this clear dilemma to House Majority Leader Eric Cantor, R-Va., as he was leaving the Capitol after Monday’s vote to raise the debt limit, he was dismissive.
Once again, I am in agreement with Dennis Kucinich:
A liberal Democrat on Tuesday called the “super committee” included in the debt-limit deal “anti-democratic.”
Rep. Dennis Kucinich (D-Ohio) said the committee reduced the governing majority down to a seven-person agreement on a 12-member committee. “It’s like ‘Honey, I shrunk the Congress,’” he said on ABC’S “Topline.”
The debt-limit agreement cuts federal deficits by nearly $1 trillion over 10 years while raising the debt ceiling at least $2.1 trillion through 2012. It also establishes a bipartisan, bicameral committee of 12 legislators charged with putting together an additional $1.5 trillion deficit-reduction package.
Of course our agreement ends at the establishment of the so called “Super Committee.” It is difficult to tell if Kucinich is genuinely opposed to this cessation of power to a small group because of its “anti-democratic” nature or if he’s simply trying to prevent any cuts any way possible. For now, however, I’ll take him at his word since he is one of the only Democrats to consistently oppose the wars regardless of who is president.
Ron Paul is running for president, and as such it’s no surprise that he has his own solution to the budget problem we’ve been having. It was posted recently on The Hill’s website. I have little doubt that detractors will call it “radical”, but after reading it, I just don’t see it. It calls the proposed cuts “illusory”. He’s got a great analogy for how many Washington cuts are made:
No plan under serious consideration cuts spending in the way you and I think about it. Instead, the “cuts” being discussed are illusory, and are not cuts from current amounts being spent, but cuts in projected spending increases. This is akin to a family “saving” $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda. But this is the type of math Washington uses to mask the incriminating truth about their unrepentant plundering of the American people.
Yeah, that’s kind of the way it works up in D.C.
Paul’s suggestion? Freeze spending as a start.
Well, the debt plan has been passed by both chambers of Congress and signed into law by President Barack Obama. While Republicans are trying to save face by continuing to say this deal will cut spending, the fact is they’ve done next to nothing, especially since the cuts are largely placed at the end of the 10 year period; meaning that they’ll likely never come to pass. And the most glaring short-coming is entitlements. This deal does nothing to rein in entitlements, programs that represent over $61 trillion in unfunded liabilties.
Economists at the Cato Institute, Dan Mitchell, Chris Edwards and Jagadeesh Gokhale, also express skepticism that the so-called “Super Commission” is going to be able to get anything accomplished other than kick the can down the road: