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Moody’s: ‘Fiscal Deal’ Won’t Save Credit Rating

From Reuters:

More steps needed to save US credit rating, says Moody’s Investors

January 03, 2013

New York: The United States must do more than the recently passed "fiscal cliff" measures if the country is to rescue its Aaa debt rating from its current negative outlook, rating agency Moody’s Investors Service said on January 3. Standard & Poor’s said the deal does not affect its negative view of the US credit outlook, and said more work remains ahead for policymakers.

You mean Moody’s doesn’t view raising taxes and increasing government spending as a good thing?

The last minute deal passed on January 1 to avert potentially devastating tax hikes and spending cuts clarifies the medium-term deficit and debt trajectory of the federal government, Moody’s said in a statement. However, it does not provide a basis for meaningful improvement in the government’s debt ratios over the medium-term, Moody’s said…

Lowering the US budget deficits and setting them on a long-term, downward trajectory is needed in order to return the US sovereign credit outlook to stable from negative. "On the other hand, lack of further deficit reduction measures could affect the rating negatively," Moody’s said

Since the CBO says this deal will add at least $4 trillion dollars to the deficit over the next ten years, you have to wonder why Moody’s is waiting to lower our credit rating.

This week’s budget compromise "doesn’t affect our view of the country’s credit outlook, given that we believe yesterday’s agreement does little to place the US’ medium-term public finances on a more sustainable footing," S&P said in a statement on January 2…

So what was the point of this deal again? And why is this so much better than going over the fiscal cliff?

At least the fiscal cliff involved some spending cuts.

And speaking of the CBO, we have this from Breitbart:

Fiscal Cliff Deal: $1 in Spending Cuts for Every $41 in Tax Increases

by Matthew Boyle | December 31, 2012

According to the Congressional Budget Office, the last-minute fiscal cliff deal reached by congressional leaders and President Barack Obama cuts only $15 billion in spending while increasing tax revenues by $620 billion—a 41:1 ratio of tax increases to spending cuts.

When Presidents Ronald Reagan and George H.W. Bush increased taxes in return for spending cuts—cuts that never ultimately came—they did so at ratios of 1:3 and 1:2.

“In 1982, President Reagan was promised $3 in spending cuts for every $1 in tax hikes,” Americans for Tax Reform says of those two incidents. “The tax hikes went through, but the spending cuts did not materialize. President Reagan later said that signing onto this deal was the biggest mistake of his presidency.

"In 1990, President George H.W. Bush agreed to $2 in spending cuts for every $1 in tax hikes. The tax hikes went through, and we are still paying them today. Not a single penny of the promised spending cuts actually happened.”

There almost seems to be a pattern here.

In fact, have there ever been any significant government spending cuts that have actually happened in the whole history of the United States? We can’t think of any, outside of the Defense Department.

This article was posted by Steve Gilbert on Thursday, January 3rd, 2013. Comments are currently closed.

2 Responses to “Moody’s: ‘Fiscal Deal’ Won’t Save Credit Rating”

  1. Petronius

    There is no place in Marxist ideology for market economics. As a result, Liberals are never concerned about how the markets will react to their shenanigans.

    So let’s put it this way.

    If you borrow money from the mafia, and you don’t pay them back, they break your legs.

    The same general principle applies in international relations, except of course they don’t use baseball bats and crowbars … they have other weapons.

    It is in everybody’s interest that the US Treasury bond be stabilized. The global financial markets revolve around it, and depend on it. Consequently I do not expect any drastic measures will be taken … at first.

    The initial market reaction will be an increase in interest rates on US paper and a decline in the US dollar relative to other currencies. These moves are taking place now. These moves started immediately following the November election.

    If the global bond markets raise our interest rates far enough, future US borrowing becomes problematic except at harsh terms. As a result, we would lose the ability to finance future deficits. Fiscal restraint would be imposed on us from outside.

    A downgrade in America’s credit rating, which I anticipate will happen this Spring, could spark such an increase in interest rates and touch off the wealth-destroying death spiral that I described beginning at Petronius’ Prediction #10 (see The Hive).

    If market-imposed discipline isn’t sufficient, China may demand repayment in hard assets (American gold, agricultural products, oil, coal, other commodities, real estate, military weapons systems and technology), instead of worthless paper. Or, as Rusty suggested, they may simply demand Alaska and Hawaii. Or they may demand political concessions in American sovereignty in return for their forbearance. For example, the Chinese might demand a veto power over fiscal decisions of the US government. Or they might demand that the US military evacuate the Pacific theater.

    Otherwise, as a last resort, they break our legs.

    The Japanese have big spending problems of their own, and are in no position to cut us any slack. The oil countries could cut off our oil supplies.

    No matter how it plays out, at some point the great mass of the American idiocracy, documented and undocumented, who voted for “gimedats” are going to lose their suction-hold on the government teat.

    The choice of method is still ours. We can begin to bring this reckless spending under control ourselves, by reducing and restructuring entitlements promptly and in an orderly manner that generates the least pain and preserves American solvency, sovereignty, and prestige, with safety nets for the truly needy, or we can let the bond vigilantes in the world markets, and the Chinese, Japanese, Saudis, Brits, and Russians, impose austerity upon us.

    The Entitlement Cliff is far worse than the Fiscal Cliff. But the regime has declared the entitlements off-limits. Thus a rather modest Republican proposal for tinkering with the Social Security COLAs was rejected out of hand. So I am not hopeful that we possess the will to do the job properly ourselves.

    Instead we will probably take the hard path. In a Death-or-Glory Charge, we will continue to run trillion-dollar deficits financed by trillion-dollar bond purchases by the Fed. Until the US dollar is so badly damaged that the markets punish us and the Chinese threaten to break our legs.

    It’s what the idiocracy wants, and it’s what they voted for. And they have just the right man in Nerobama.

  2. Harding, Coolidge, and Truman undertook massive cuts after the WWs


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