Weekend open thread: Downgraded

The big story of the weekend is Standard & Poor’s downgrading U.S. sovereign debt. Political reaction to that news and other headlines that caught my eye are after the jump.

Standard & Poor’s lowered its rating on U.S. sovereign debt from AAA to AA+ with a negative outlook on Friday. The credit rating agency’s press release faults the American political process as much as current fiscal conditions. Excerpt:

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. […]

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.

The U.S. Treasury Department asserted that the S&P analysis was flawed because the agency assumed $2 trillion more in discretionary spending than the Congressional Budget Office estimate. But S&P stands by its decision to downgrade, saying in a statement, “The primary focus remained on the current level of debt, the trajectory of debt as a share of the economy, and the lack of apparent willingness of elected officials as a group to deal with the U.S. medium term fiscal outlook.”

Economist Robert Reich, a strong critic of the austerity policies S&P advocates, slammed the agency’s judgment:

Pardon me for asking, but who gave Standard & Poor’s the authority to tell America how much debt it has to shed, and how?

If we pay our bills, we’re a good credit risk. If we don’t, or aren’t likely to, we’re a bad credit risk. When, how, and by how much we bring down the long term debt – or, more accurately, the ratio of debt to GDP – is none of S&P’s business.

S&P’s intrusion into American politics is also ironic because, as I pointed out recently, much of our current debt is directly or indirectly due to S&P’s failures (along with the failures of the two other major credit-rating agencies – Fitch and Moody’s) to do their jobs before the financial meltdown. Until the eve of the collapse S&P gave triple-A ratings to some of the Street’s riskiest packages of mortgage-backed securities and collateralized debt obligations.

Had S&P done its job and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn’t have become so large – and their bursts wouldn’t have brought down much of the economy.

A downgrade could raise borrowing costs for consumers as well as for government, but how markets will react to S&P’s action remains unclear. The other two major ratings agencies, Fitch and Moody’s, have kept the U.S. at the highest rating level. Yves Smith predicts that “the reaction in the Treasury market to the news [from S&P] will be underwhelming.” She also cites S&P’s “highly questionable conduct [and] the lack of any analytical process behind this ratings action” to argue that the downgrade “stinks to high heaven.” Like Reich, Smith points out the utter failure of the ratings agencies to downgrade packages of bad mortgages before the housing meltdown. Furthermore,

A country that controls its currency can always satisfy the IOUs it creates. The risk is inflation, not default. But ratings agencies assess credit ratings, not interest rate risk. Japan was downgraded to single A, yet that did not affect its ability to sell bonds at very low yields.

S&P has published criteria for sovereign ratings, but they are still vague and inconsistently applied. And no wonder. They aren’t paid to provide these ratings, and accordingly understaff the activity.

Democratic political reaction to the downgrade was mixed. Some commentators questioned the basis for the action, pointing out the $2 trillion calculation error, or the ratings’ agencies track record before the 2008 financial crisis. Others pointed to the S&P press release as proof that Republicans are hurting the country by reflexively blocking every revenue increase.

Republican reaction generally blamed President Barack Obama for presiding over U.S. decline. Several GOP presidential candidates quickly released statements faulting Obama’s economic policies. Representative Michele Bachmann still seems to be under the impression that the U.S. could get without raising the debt ceiling ever again, even though laws already approved by Congress make new borrowing necessary to pay all the federal government’s bills.

So far two Iowa members of Congress have released statements on S&P’s action. Democrat Leonard Boswell (IA-03) said,

“This is what happens when you play a game of chicken with the economy. As I said before, this manufactured crisis is an absolute disgrace. We need to have a balanced solution that reforms our revenue structure in addition to making sacrifices. The amnesia and fake ignorance that is the Republican and Tea Party position on this issue is astounding and pure partisan politics that is destroying jobs and the middle class. Make no mistake about it, they are coming after Social Security and Medicare next.”

Republican Tom Latham (IA-04) had this to say:

“Standard & Poor’s had been attempting to send Washington a wake-up call since April when they changed their outlook on U.S. Treasury securities from “stable” to “negative.” Friday’s credit downgrade is yet another alarm to warn us that our national debt and reckless spending has reached a point of crisis.  It reinforces my opposition to the recent debt ceiling agreement as it did not go far enough to put us on true path towards long term fiscal sustainability.”

“Washington must heed this warning and recognize that regardless of political differences, the simple truth is that we have a responsibility as a Congress and as a government to work together to find real solutions to these problems – to put people before politics and progress before partisanship. I am, as I have always been during my service to Iowans, committed and ready to work with any members of the House or Senate, regardless of political affiliation, who are willing to join me to move our country forward on the path to fiscal responsibility to save the American Dream for our children and grandchildren.”

Boswell and Latham will compete in the new third Congressional district in 2012. Both voted against the deal to raise the debt ceiling, but for very different reasons.

I find it frustrating that U.S. long-term debt continues to dominate political discourse, when yet another weak monthly employment report suggests policy-makers should be much more concerned about stimulating the economy. There will not be long-term deficit reduction if 9 to 10 percent unemployment becomes the new normal.

In news closer to home, the Missouri River level finally started dropping over the past week, but the Federal Emergency Management Agency denied the state of Iowa’s request for assistance to individuals affected by this summer’s flooding in Fremont, Harrison, Monona, Pottawattamie, and Woodbury counties. Governor Terry Branstad’s administration will appeal the decision. Iowa Homeland Security and Emergency Management Administrator Brigadier General Derek Hill commented,

“It is incredibly important to the citizens along the Missouri River that we are successful in this appeal. The aid provided in the Individual Assistance program is a major piece of the puzzle that is needed to help Iowans recover from this flood.”

The new IA-03 includes several western Iowa counties affected by Missouri River flooding, and both Latham and Boswell criticized FEMA’s decision. Latham formally asked FEMA Administrator Craig Fugate to reconsider. Boswell’s Congressional campaign released this statement on August 5:

Congressman Leonard Boswell is asking President Obama today to reconsider his denial of individual FEMA assistance to western Iowa counties that were devastated by flooding earlier this summer along the Missouri River. Boswell visited residents and city officials impacted by flooding last month when waters peaked.

“I am joining Governor Branstad in his call for an appeal of the FEMA decision to deny assistance to individuals in Fremont, Harrison, Monona, Pottawattamie, and Woodbury Counties,” said Boswell. “In my time serving this state, I have seen FEMA assistance extended for a lot less. Rural Iowans pay their taxes just like everyone else, and deserve access to disaster relief aid. If FEMA is denying homeowners help because they live in a smaller community and don’t meet its new threshold for number of dwellings destroyed that is outrageous and discriminatory.”

The FEMA Individual Assistance Program is made available to homeowners, renters and businesses and can include grants and low interest loans to help pay for temporary housing, home repairs and other disaster-related expenses not covered by insurance or other aid programs.

This is an open thread. What’s on your mind this weekend, Bleeding Heartland readers?  

About the Author(s)

desmoinesdem

  • Michele Bachmann and Taxes

    Hi DmD,

    I spent nearly an hour on a teleconferenced “Town hall Meeting” with dearest Michele this a.m. prior to us all heading up to that Ames Straw Poll thing next weekend.  

    It seems Bachmann’s take on taxes is that 34 percent is far to burdensome for the “job creators” of this mighty nation, and a more reasonable 9 percent corporate tax rate would just be peachy for maintaining that strong, vital, militarily invincible uberpower America we have come to know and love.  

    How we can lower taxes and pay for a strong military was not made plain.

    But hey, as long as there’s free chicken and beer in it for me, who am I to question her beliefs?

    Feeling a bit fickle at this stage, and might switch to Ron Paul in the end.  I think it would be a gas to see him less than marginalized this time around.  Might force the other candidates to answer some of the tough questions that would arise from his presence in the arena.  

    But, hanging with Michele might just get me the weirdest and grooviest Facebook profile pic imaginable.

    • have fun

      I could see Ron Paul finishing in the top three. Ames does have a strong Libertarian presence (relative to other parts of Iowa). He’s a bit unlucky that most of the college students won’t be back yet, though.

    • Bachmann

      I got the robocall invite Sunday afternoon to participate in one of her telephone town-hall meetings. Normally I love to listen in on stuff like that, but the timing was bad for me today.

      She must be casting the net wide to call our household (with only registered Ds). I would think she would target Rs and maybe certain no-party voters.

      • I checked my voter registration status...

        They never put me back to I from D after the last primary I voted in. And still Bachmann has been calling our house.  Not sure how much vetting is going on with this.  Just hope they don’t bother to Google me before they send out the invitation package.  When a campaign staffer called me yesterday to confirm my attendance at the Straw Poll, they referred to me as Mr. [my wife’s surname].  Seemed like the young eager Tea Party staffer on the other end simply could not wrap her mind around my wife being a Ms. and maintaining her original surname.  

  • Iowa Governor

    Since this is an Open Thread, I would like to see some chatter about Demo gubernatorial possibilities. I know it is early, but I have a feeling Branstad is a one-termer, for any number of reasons, including his job performance, health, age, etc.  But who can the Dems put up?  I don’t see anyone in the wings.  At one time, Gronstal, maybe, but he will have a tough enough time hanging on in the Senate, and is probably too polarizing a figure.  So, who else? To throw a name out, how about Robb Hogg?

    • Tyler Olson

      Tyler Olson may work as a good Lt. Governor pick on a ticket, but he would probably be viewed as too young for the top job.  

    • good topic

      I think Branstad will run for a sixth term, assuming he doesn’t have any major health problems. Completing the fifth term would make him the third longest-serving governor ever, but finishing a sixth term would set the record in U.S. history. I think he will go for it.

      It’s been decades since Democrats nominated anyone for governor who wasn’t already either a statewide elected official (Sec State Culver, Attorney General Campbell) or a state legislator (Vilsack, Avenson, Junkins). We don’t have any “up and coming” statewide elected Democrats now, and I don’t know who among the legislators will want to take a crack at Branstad.

      I think Gronstal has a good chance of winning in 2012, but I don’t see him running for governor. I like Rob Hogg a lot, but he will be up for re-election in 2014. Would he give up a safe Senate seat for a race against an incumbent governor?  Branstad’s approval rating hasn’t been measured above 50 percent at any time this year, to my knowledge, but he will be able to raise a ton of money for a re-election campaign.

      • Okay then...

        One theory I have heard is that Branstad will resign before the end of his term and turn things over to Kim Reynolds. I just don’t think his health is going to hold out.  If you see him out and about, he just doesn’t look that good.  Of course, I’ve never been a fan, but some of the flat out nutty things going on up there lead me to believe that others are really calling the shots…Boeyink, Roederer and any number of other contributors off the books. TB really likes Kim, and he could add to his legacy by appointing the first female governor of the state.

        As far as Demo candidates, I think voters might look favorably at a non-politician running.  Whether that person could get the nomination, working his or her way through the party thicket and other considerations is open to question.  I’m not a big party person, but it amazes me that both parties would most of the time rather annoint some hack with no chance, then take a flyer on a newcomer or outsider with a real chance of winning the general. How important is paying your dues within the party?

        I’ve blathered long enough. Want a name?  How about Fred Hubbell?  Sterling business credentials. Major Demo contributor, which gives him some party insider cred. He can raise money from his rich friends. I can see rural Iowans viewing a rich Des Moines businessman with suspicion and skepticism, but maybe he could take the metros with a wide enough margin to win.

        People have had enough of politicians from both parties.

        • It makes more sense to me

          I’m with you. I think Branstad plans to be a one-termer–if that. His new “my way or the highway” attitude doesn’t make sense to me if he plans on being Guv for seven more years. But if he knows he’s only got one term, it makes sense for him to try to railroad through as much stuff as he can.

          Plus, I never got the sense from him in the campaign that his family was really thrilled to go back into politics.

          If us Dems are in the same position that the Republicans were in 08-10 (in the wilderness a little bit, no big names stepping up, the next generation isn’t ready yet) maybe we need a one-term “elder statesman” of our own. Tom Miller maybe?  

        • others have always called the shots

          for Branstad. At least that’s been my impression since the 1980s.

          I have not seen him in person this year. To me he does not look unhealthy. I know he has had past health problems, but I’ve seen nothing to suggest he couldn’t make it through this term.

          I agree with you that Branstad would like to help a woman become governor at some point. Actually, in the spring of 2010 (when Branstad was still saying he wouldn’t run for office again), I heard rumors that he and Doug Gross were trying to recruit Vermeer CEO and president Mary Andringa to run for governor. She declined, and I don’t think she could have beaten Bob Vander Plaats for the GOP nomination anyway. If Branstad doesn’t run again in 2014, I could see him supporting either Reynolds or Teresa Wahlert to succeed him.

          I have no problem with looking outside typical party channels for a nominee. I supported John Chrystal in the 1990 gubernatorial primary and still believe he would have beaten Branstad that year. Actually, if Tom Miller had been pro-choice at that time, he would have won the 1990 primary and possibly beaten Branstad.

          No clue whether Fred Hubbell has any interest in running for office, but I think many Democrats would be open to a candidate from the business community.  

    • You're missing a main theme of Branstad in this term

      I think you’re all using credible information and reasoning, however, I think I could predict 2014’s early lineup as not including Branstad.

      Let’s me explain:

      Branstad did not want to run. Gross recruited him, and out of Branstad’s familiarity, the chance to be such a long serving official in the ranks of Neal Smith, Chuck Grassley, etc, and loyalty to the GOP in Iowa, he came back to save the day because he knew it would easy to sail past Vander Plaats and too easy to crush Culver. Culver was fine at policy, but did not exude any confidence and was guaranteed to lose.

      Branstad has repeatedly said it’s a shame Iowa has not had a female governor, Congresswoman, or Senator. He says it all the time.

      He also puts Kim out in a way we haven’t seen Lt. Govs in a while–he skips Monday’s weekly press conferences and has her take them over, sends her out on media friendly events, brings her to every media heavy event he goes to. She is his hand picked successor in training.

      I don’t think Branstad wants to do another term (not health related). From seeing him in pressers, at events, taking questions, he just doesn’t like it that much. He hates the divisive social issues Iowa Republicans want to go after in the Legislature, he hated the judicial retention election but didn’t want to alienate the far right base in Iowa. He just wants to talk economic policy and regulations.

      For Dems:

      Gronstal likes the Senate, he doesn’t mind getting divisive, and really knows how to hold a caucus together. Hogg might have interest, but I doubt it.

      And I don’t think Olson is viewed as too young, if he skips 2014, he’d have to wait until at least 2018 and that might lose a lot of steam or ambition. He seems like he does want to get out there take over, he shows a lot of frustration in pressers that make you think he doesn’t want to just write a different bill, but rather take the reigns himself as governor.

      but I could see a new face coming out from the business community or from another office because they may do much better as a new face to counter the whole career politician image that Branstad, Vilsack carry. Matt Campbell would probably surprise Iowans with how well he’d do if put in a statewide election. He walks a very Democratic, but safely moderate line but was unfortunately put against Steve King in the wrong year to try to beat him in such a conservative district.

  • Governor

    Chrystal would not have beaten Branstad in the general.  John was great, but he would’ve had limited appeal.  Miller stood a better shot, but in both cases, their personal lives would’ve been an issue.

    Dunno is Fred is interested or not, but I know for a fact he and his wife have had the conversation. For a short window of time last year, there was a movement afoot after Culver was nominated and it was apparent his candidacy was a non-starter, to pack Chet off to Washington, send the thing to convention and get Fred on the ballot. But for various reasons, it didn’t happen.  

    Poor Chet – how bad a Governor do you have to be, not to get re-elected in Iowa?  All you really have to do is show up. I read somewhere in The Register that someone is floating his name for a rematch.

    Anybody got any more names out there? I got a GOP name: Scott Raecker.  Pragmatic guy, gets along well enough with the Tin Foils, but is really a Bob Ray Republican.  

    • Wow

      That would have looked bad for Chet.  This is a great story though, thanks for posting.  

    • don't know much about Raecker

      Seems like a smart guy. Haven’t seen any evidence of Bob Ray-type moderation, but he’s not particularly outspoken.

      I doubt Fred Hubbell parachuting into the IA-Gov race could have salvaged things last year.  

  • Northey

    Northey is no spellbinder, but he is personable and no tin foiler…

    Any Demo women out there who would stand for Governor.  We need some women in state leadership roles, as we are all painfully aware, but they seem to be reluctant to step forward…Janet Peterson?  Amanda Ragan?

    I don’t want to belabor the thread, and I appreciate the feedback.  It is something I have been thinking about lately, and the lack of leadership in this state is damned depressing.  Thanks.

    • no, thank you

      for starting this discussion.

      Agree, Northey is personable. Would probably be hard candidate to run against.

      State Senator Amanda Ragan will be up for re-election in 2014. Her district got more conservative with the redistricting, so she is likely to face a strong challenge. I am a fan but don’t see her running for higher office.  

      Janet Petersen may be in a safe Des Moines-area Senate seat at that time. No idea whether she plans to run for statewide office someday. I have heard her name mentioned as a possible successor to Leonard Boswell in IA-03. She is smart and highly capable.

      Andy McGuire, the doctor/insurance company exec who would have been Mike Blouin’s running mate if he had beaten Chet Culver in the 2006 gubernatorial primary, may run for office again someday.  

      • Another name

        Just heard another name as possible Demo candidate for Governor.  One I’ve heard before, but forgot about.  Barry Griswell, former Principal Financial Group bossman, and now running the Greater Des Moines Community Foundation.  He would be a formidable candidate, but, again, not sure if rural Iowans would elect a rich Des Moines businessman.

        • he was mentioned

          as a possible opponent to Chuck Grassley, but I’m not sure it was ever confirmed that he is a Democrat.

          I am standing by my prediction that Branstad will seek a sixth term, and if that happens, I don’t think any prominent Des Moines business figure will run against him.

  • Straw Poll

    I plan to attend the SP this weekend purely for my own enjoyment…and the free food and drink…and to sow seeds of discontentment. 😉  I’m sure others are going…and since we’re D’s I assume there is NO plan.

    I’d like to elevate the discussion of environmental concerns. (wish me luck)

    With all the R’s talking bad about the EPA and Global Warming actions and about anything else that would help clean the air and water, I wonder just what their plan is to protect the air and water for their little silver spoon fed babies to ingest.  Trust in god?

    We need some of the (gods creation) folks to ask some pointed questions about the future environment of the planet and how their leaders polices will get us there.  DO I HEAR AN AMEN BROTHERS AND SISTERS??

    Ron P says that polluting ones neighbors would not be allowed…ok..right.  But I’ll spend time there just to gin up his (bring ALL the troops home)and (drug war)messages.

    • have fun

      Be sure to mention studies showing higher rates of miscarriages and birth defects among pregnant women who live near areas sprayed with herbicides and pesticides. That will make you popular with the “pro-life” crowd in Ames (not).

    • Offensive

      Your submission is offensive in many ways.  The downgrade is not based on America’s failure to have a good environmental policy.  The stock market dip is not because of environmental concerns.

      Our Country is in trouble because of this immature tribal warfare.  

      Food and drink are never free.  Someone else is paying for it.

      Instead of entertaining yourself and sowing seeds of discontentment you should listen with discernment and seek to understand what other people are saying. Maybe you do not understand our situation.  The best way out of this problem is for America to work together, understand the problem and work together on a mutual solution.  It will take a higher maturity than you and your community have demonstrated.  The other way out of this problem is the destruction of our Country.

      • maybe you do not understand

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