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S&P Wants A Credible Plan To Reduce Debt

From a transcript of an interview on CNBC’s Kudlow Report:


Tuesday, July 26, 2011

LARRY KUDLOW, host: … How real is the US debt downgrade threat? What will come of us? Here now for an exclusive interview is David Beers. He’s the global head of sovereign ratings at S&P, Standard & Poor’s…

Mr. DAVID BEERS: Well, we’re still at 50 percent, at least a 50 percent possibility of a downgrade

KUDLOW: What will it take to avoid a downgrade? What are your guidelines telling you? What are you looking for?

Mr. BEERS: Well, given the continuing political gridlock, I guess what we’re looking for is some program which we think will make a difference over the medium term in slowing the, if not reversing, the rising trajectory of government debt as, for example, as a percent of GDP

KUDLOW: Is a $3 trillion reduction over 10 years, would that meet your criteria to avoid a downgrade? …

Mr. BEERS: We’ll look at the deal, whatever the deal is, when it’s agreed by Congress and the administration, and we will measure it on a number of parameters. One is, is it actionable? Is it actually likely to be implemented and, therefore, is it credible? … [I]t’s not just about the number. It’s about the all-in intent.

KUDLOW: But if it was low–if it as low as $1 1/2 trillion, would that be, you know, downgrade city?

Mr. BEERS: It depends on what’s folded into the deal. It depends on what comes along with that number. As you know, there are lots of ideas out there about doing this incrementally. But, ultimately, we’ve got to look at the overall plan to make a judgment as to whether it’s likely to make a difference in terms of the rising tide of US debt

KUDLOW: Does it matter to you if the debt ceiling is raised… half this year and the rest next year. How does that affect your thinking? …

Mr. BEERS: If we thought that the debt ceiling debate would come back and be open and we’d have to go through all this again and again and again… That would be a negative in our view

KUDLOW: If we go through August 2nd… If we’re parceling revenues, let’s say to pay the interest on the debt, and a little bit to Social Security, a little bit to health care, and then half the budget is not funded. How does that affect your thinking?

Mr. BEERS: It’s theoretically possible that for some period of time the government could take that strategy while the negotiations continue. But it’s worth remembering what that would mean. It would mean a very sudden fiscal shock that the longer it lasted would filter powerfully through the system because the US has got — running a budget deficit right now of roughly 10 percent of GDP. Suddenly, for a period of time, you’d essentially be running a cash surplus to pay off the debt as it matures. So potentially that would be deeply disruptive to the economy.

KUDLOW: Would it be default?

Mr. BEERS: No, it would not be default so long as the government is continuing… To pay its debt as it matures and its interest payments. But we would suspect that that’s not a tenable situation for very long.

KUDLOW: So it sounds like that would signal a downgrade.

Mr. BEERS: Well, we’ll deal with that as and when the time comes…

We gather Mr. Beers is most concerned that the US lower its spending as a percentage of its GDP.

But look at how selectively our friends at Reuters reported this interview:

S&P warns against prioritizing debt payments: report

By Jennifer Saba and Walter Brandimarte | Reuters
July 27, 2011

NEW YORK (Reuters) – Prioritizing debt payments to avoid a default would be "deeply disruptive" to the economy, Standard & Poor’s global head of sovereign ratings said in an interview with CNBC on Tuesday.

Were not sure what "report" Reuters is talking about in its headline. But notice how they implicitly claiming that going past the August 2nd deadline without a deal would cause a downgrade. Which is not what Mr. Beers said.

David Beers’ warning comes as Republican and Democratic leaders scramble to agree on a plan to raise the U.S. debt ceiling before the Treasury runs out of cash to service its obligations on August 2

Notice: "service its obligations." Not its debt.

Beers said the Treasury could "theoretically" prioritize debt payments over other government obligations for some time while negotiations continue in Washington.

"But it’s worth remembering what that would mean — it would mean a very sudden fiscal shock that the longer it lasted would filter powerfully through the system," Beers said. "Potentially that would be deeply disruptive to the economy."

But Beers refused to say that this would trigger a downgrade. He also said that this would not be defaulting. Which is something the news media and the rest of the Democrat Party have been falsely claiming for months.

Beers also said that a small increase in the U.S. debt ceiling would be negative to U.S. ratings.

"We would be concerned if we thought that the debt ceiling debate would come back and we’d have to go through all this again and again and again," he said. "That would be a negative." …

Again, Reuters focuses on a minor complaint. Which Beers did not suggest would cause a downgrade. He just didn’t think it would be a good idea to have to go through it all over again. But of course Reuters wants to stress this because this is Mr. Boehner’s plan.

Beers said S&P will judge a plan when it comes, but added that it wants to make sure the plan will be implemented before deciding on the ratings.

That’s it. In their entire article Reuters did not once mention that Beers said S&P was "looking for… some program which we think will make a difference over the medium term in slowing… if not reversing, the rising trajectory of government debt as, for example, as a percent of GDP."

And that the most important thing for him is that Congress and the White House come up with a plan that promises to do that in a credible way.

None of that registered with the reporters at Reuters since it didn’t fit their DNC talking points.

This article was posted by Steve on Wednesday, July 27th, 2011. Comments are currently closed.

4 Responses to “S&P Wants A Credible Plan To Reduce Debt”

  1. Georgfelis says:

    Hm. I noticed something that has slipped out of the Lexicon over the last few weeks. “”Pass a clean debt ceiling increase…” or otherwise known as a Blank Check. S&P knows our current debt situation is unsustainable, we are spending too much for the amount of money that is coming in, simply getting another credit card does not fix the problem.

    Now if only we could somehow tell Washington. It would have to be something dramatic, something like a mass firing of Senators or Representatives that had been in their seats for years and years, spending like crazy. Oh yeah, we did that in 2010. Looks like it will take another lesson. Hope we can survive that long.

  2. Petronius says:

    What interesting times we live in. Amazing how Reuters has missed the point so completely, so totally.

    Clearly S&P wants to see a downward shift in the debt trajectory as a percentage of GDP. And they’re looking to see whether the regime, as well as the Republicans in Congress, is “all-in” on debt reduction. So far, I have seen no evidence of this attitude on the part of the President or the Senate Democrats. We have seen only more poisonous gas emitting from Mordor, because for Nerobama government is all about settling scores, and not about sound fiscal management. So far, only the House Republicans and Sen. Rand Paul have offered anything businesslike and meaningful.

    The White House has been calling the rating agencies, jawboning them to back off. Having been criticized by Congress, the rating agencies don’t want to be caught short again, and have their finger on the trigger. But is S&P’s tough talk for real, or is it just private sector smoke and mirrors? Having watched Mr Beers’ interview, I believe that S&P is deeply in earnest.

    Even so, the fact of the matter is that regardless of what the rating agencies may eventually do or say, the rest of world –– the investing world, the financial world –– has already made up its mind. The rest of the world has determined that US debt has become too risky.

    Thus even if the government raises the debt ceiling, there will be nobody lining up to buy US Treasuries –– not China, not Japan, not Saudi Arabia, certainly not PIMCO. Nobody. There is only the Fed as our lender of last resort. And that translates into another round of money creation.

    The markets understand this. Gold and Swiss francs are setting record highs on a daily basis.

  3. proreason says:

    For me, the rating agencies have as much credibility as Congress.

    They were as fully involved in the Loans for Deadbeats scam as anybody.

    smoke and mirrors.

  4. untrainable says:

    “Is it actually likely to be implemented and, therefore, is it credible?”
    Nothing this administration has done since day “WON” has been credible, intelligent or even intellectually honest. Gitmo? still open. Iraq? we’re still there. Afghanistan? we’re still there… and Obie is doing his best to lose! Imigration reform? Simple talking points to get the uninformed illegal vote. Lowering healthcare costs? Obiecare has pushed healthcare costs up and crushed employment numbers because nobody knows what’s going to happen. Job creation? Aside from the fact that the only jobs the government can “create” are government jobs which do nothing for the economy except take from it, private sector unemployment is way up.

    It’s broken promise after broken promise after broken promise. Is it credible? That’s not a rhetorical question. It’s an unnecessary question. The answer is NO!. The simple fact is, our president is a lying anti-American SOB and needs to be removed from any position of power before he does any more damage to this country. Throw the bastard back out into the street where he can agitate and point the finger of blame to his heart’s content without affecting the rest of us.

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