Monday, August 8, 2011

U.S. downgrade worse for S&P than Treasury rates?

Just as I supposed yesterday, the stock of Standard and Poor's parent company, McGraw Hill has taken quite a beating today- much worse than Treasury bonds. Yields on Treasury bonds are actually down today (that's a good thing, for those of you not up on your bond trading; the riskier the investment the more interest investors want on their loans) because of a sell off of stocks. McGraw Hill on the other hand, is down almost 9% at the time I'm writing this.

The point is, S&P downgraded the United States and everybody's realizing how unimportant this agency is. This is the group that said toxic Subprime Mortgage-Backed CDOs were AAA. They've lost their reputation and any relevance they had. Like I said yesterday, I think pointing this out diminishes the opportunity the President has to punish Republicans for their role in the downgrade. However, there are some Democrats in swing districts that could benefit from pointing out how insignificant this has turned out to be.

It's incorrect to say that this is going to have no effect on the United States. A lot of things affect treasury bonds, and the rates didn't go down today because something good happened. It's because something worse happened somewhere else and investors think US bonds are a safe place to put their money. Eventually though, this will result in slightly more interest on the government's debt. These numbers just reaffirm that things aren't as bad as some might think and that one rating agency doesn't have the power we might think it does.

Sunday, August 7, 2011

A Statement on the Downgrade of U.S. Treasury Bonds

President Obama released a statement on the downgrade of U.S. Treasury bonds that failed to mention Republicans or place any blame for S&P’s decision. To continue pretending both sides are to blame is dishonest and misses an opportunity to hold the GOP responsible for its actions. The following is what I think the President should have said. To read more of my notes on this speech, click here.

Good evening,

Moments ago, Standard and Poor’s released a report detailing their opinion on the credit worthiness of the United States. In the past century our debt has grown to become considered the safest investment in the world- an unofficial global currency. It has been so strong that, instead of cash, banks instead choose to hold our treasury bills. Today’s announcement puts that in jeopardy.  For the first time since this system began, our country’s credit rating has been downgraded by one of the major agencies. This is an unprecedented event and a sign of just how far our political system has fallen. It is an indictment not of the capabilities of the American people to work and build wealth, but of their government’s ability to responsibly collect and spend.

Notes on "A Statement on the Downgrade of U.S. Treasury Bonds"

Click here to read the speech itself.

This downgrade report is a gift to the President. It's a vindication of almost everything he's been saying and at the same time won't have a huge negative impact on the economy.

The first question in approaching the downgrade is whether or not to give Standard and Poor's their deserved criticism. After all, this rating is coming from the people who said subprime mortgage-backed CDO's were among the safest investments in the world. Their advice lags the market as a whole and serves little useful predictive purpose. There's also reason to believe they hold a grudge against the Obama administration for provisions in the Wall Street Reform Act.

I think people are going to be surprised how little difference this report makes. It won't surprise me if their parent company, McGraw-Hill, sees more downside to this on Monday than the Treasury does. So you could make a good case that this doesn't matter, but then you can't turn around and say that it proves you're right and the Republicans are wrong. Having to make a choice I would go on the attack, with a brief mention of having tried to stop the report to head off the attack you're enjoying this downgrade.

S&P's report has everything. It says there should be revenue increases in a budget fix. It says the uncertainty is a political issue brought on by the debt ceiling standoff, not a matter of the country's ability to afford its debt. It says the AAA rating will be restored if the Bush tax cuts expire and that the President was right to discuss entitlements. It just barely stops short of saying "this is the Tea Party's fault."

I don't see much of a downside to going on the offensive with this, mainly because I wouldn't see the point of having a second term that looks like these past seven months. I think Obama should go all in; make this a referendum on the antics of the 112th Congress. If he can convince people that Congress is dragging down progress in this country he'll have a second term and if he can't what good is facing more of these hostage taking scenarios? It doesn't let him have the Presidency he wants and weakens the Democratic Party. Hell, if this country could survive it, I almost think it'd better if he lost and ran again in 2016 against four years of Bachmann-Cain (or whatever nonsense he faces this year) so he could have a definitive win rather than face four more years like this one.

In the meantime, maybe this downgrade will talk some sense into the GOP leadership. They still listen to what Wall Street wants. In a strange twist, Wall-Street's interests are more palatable than the desires of grassroots members in Congress. What an odd world we live in.

Thursday, August 4, 2011

The Dem's Missed Talking Point?

Here's a thought: What if every time you had turned your television on in the last three or four weeks you saw a Democrat talking about the military? "We can't play games with military salaries. If this debt ceiling isn't raised the Treasury Department won't just stop sending out Social Security checks- they won't have the money needed for our men overseas! What are Republicans going to say to the Army wife when she can't afford rent or food for her children because they forced this country into default?"

This is the card Republicans played as the nation approached the deadline for a government shutdown. I remember seeing on Facebook pictures of toddlers in front of the American flag with a caption reading, "Explain to HER why her father's checks will be late." But why can it only be Republicans that invoke the military? President Obama is the commander in chief. He's proven himself. He's presided over the surge in Afghanistan, he got 'combat' troops out of Iraq, and he ordered a gusty strike that killed Osama bin Laden- despite that fact it violated Pakistan's sovereignty. That's the kind of thing a Republican lives for. You got to kill the most wanted man in the world AND you had to disobey international law in order to do what was right?? For George W. Bush, that would have meant an automatic second term.

It's true, the public was on Obama's side in this fight. However, there's a difference between agreeing with somebody and being passionate about an issue. Two years ago we were witnessing the summer of the town-hall meeting. Congressmen across the country faced question after question from angry people concerned "death panels" and the death of Medicare. This wasn't all an organic movement that political science explains might arise given X, Y, and Z conditions. It was an organized effort. These people were there repeating GOP talking points verbatim. Republicans made health care reform relevant to people. But in the past month nobody ever heard about the debt ceiling outside of its effects on bond ratings and institutional investors. You tell them Republicans are going to stop Social Security payment and they're concerned- then tell them they're also going to stop paychecks going out to our men and women in uniform and they're downright disgusted.

If this was the message Democrats gave, what could the response be? Republicans could say that it just wasn't true.  I guess that would work on a small scale, but not if it got enough exposure. They could have passed a bill through Congress saying Treasury would have to keep paying military personnel after August 2nd. "Oh, so now Republicans ADMIT the country is about to default. Well what about Social Security and Medicare benefits?" If they passed a bill protecting all three you could point to another popular program, or you could start talking about the 401k plans that would become worthless. Any outcome, I don't think you would have actually lost anything from talking about it.

Democrats should stop conceding ground to Republicans because of past defeats. I think it's as true when it comes to the military as it was when the President didn't mention the budget balanced amendment in his prime time speech. Between those two issues you've given both defense and fiscal responsibility to the other party. If you keep conceding ground you'll always wind up on the defensive- just where Obama doesn't want to be in 2012.

Tuesday, August 2, 2011

A Look Into the Future?

Good afternoon,

Over five months ago Congressional leaders on both sides of the aisle agreed to form a bipartisan committee to tackle the issue of our fiscal deficit. They agreed that if this committee’s recommendations were not passed by the end of this year that automatic cuts would be made to defense and discretionary programs. In the subsequent months, the spirit of agreement and compromise that began these talks quickly vanished as leaks of the discussions made their way to embattled partisans.

The media blames both sides equally for what followed. That’s an appealing story. It sounds fair and is the safe thing to say. However, though I don’t agree with every faction of my party, I think it’s clear to the American people there has consistently been one side that’s shown a willingness to compromise in this process. Democratic members of the committee reluctantly accommodated the Republican pledge against increased revenues. Democrats agreed to put extension of the Bush tax-cuts on the table as a show of good faith, despite ultimately receiving nothing in return. I reject the characterization of each parties as duplicitous in this failure.

These recommendations are the capstone to what has been an entire year dominated by a Republican willingness to subvert serious discussion. Their Senate leader launched the new Congress by saying his party’s number one priority was not jobs or the economy, but preventing my reelection. They decided to risk this country’s good credit for an opportunity to amuse the most radical members of their base. They took what was a mandate from voters to cut the deficit and perverted it into a call to slash Medicare and hand money to the rich. They took this committee’s proceedings as seriously as they took their other responsibilities and have once again passed the job of governing along to someone else.