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Sunday, August 7, 2011

Obama Stays Quiet After Downgrade

Decision by Standard & Poor’s to downgrade the U.S. credit rating leaves France as the AAA country most likely to lose its top grade, some investors and economists say.
France is more expensive to insure against default than lower-rated governments including Malaysia, Thailand, Japan, Mexico, Czech Republic, the State of Texas and the U.S.
“France is not, in my view, a AAA country,” said Paul Donovan, London-based deputy head of global economics at UBS AG. “France can’t print its own money, a critical distinction from the U.S. It is not treated as AAA by the markets.”
While all three major credit-rating companies have confirmed France’s top level in recent months, market measures indicate increasing investor skittishness over the country’s vulnerability to the European debt crisis. Euro-region central bank governors will hold emergency talks today over how to protect Spain and Italy and limit fallout from the U.S. cut.
“If Italy and Spain have difficulties, are we sure that, for instance, France can still be considered a ‘core’ country?” said Marco Valli, chief euro-area economist at UniCredit Global ‘Core’ is becoming a narrower group of countries.

President? That's what reporters, and the general public, asked themselves after Standard and Poor's announced a downgrade of U.S. debt Friday night.
It took the White House over 15 hours to comment on the loss of the nation's 'AAA' rating — and it didn't even mention the agency responsible for it.
The statement released by White House Press Secretary Jay Carney instead called for the same thing Obama has sought for and failed to attain for months — a bipartisan compromise on deficit reduction.
As Republican anger flared over the downgrade this weekend, Democrats have been letting the S&P statement, and its critique of those opposed to raising taxes, stand for itself.
"The majority of Republicans in Congress continue to resist any measure that would raise revenues," the ratings agency wrote, saying that it doubts that the Bush tax cuts will be allowed to expire — which unless offset by further cuts, would sink the nation deeper into debt.
Speaker of the House John Boehner issued a statement highlighting Republican efforts to lower the deficits, criticizing Obama for asking for a "clean" debt limit increase without spending cuts.
"It is my hope this wake-up call will convince Washington Democrats that they can no longer afford to tinker around the edges of our long-term debt problem," he said.
But the White House — and even usually combative congressional Democrats — appear to be taking an extremely cautious approach, unsure of how the public will react to the news.
In Washington the buck always stops in the Oval Office, and President Obama is the first to hold that office to have a downgrade occur under his watch — something his 2012 opponents are slamming him on.
"That rating has endured the great depression, World War II, Korea, Vietnam and the terrorist attacks on 9/11. This President has destroyed the credit rating of the United States..." Rep. Michele Bachmann said in a statement.
But firing back at Republicans, despite their role in the crisis, only weakens the administration's position that the downgrade was completely uncalled for.
Indeed, the only signs of life from the White House came as criticism of S&P late Saturday.
In a statement, Gene Sperling, director of the National Economic Council, laid into the agency for going ahead with the downgrade based on political, not numerical, analysis, noting the $2 trillion error caught by Treasury.
The magnitude of their error combined with their willingness to simply change on the spot their lead rationale in the press release once the error was pointed out was breathtaking," he said. "It smacked of an institution starting with a conclusion and shaping any arguments to fit it."
Obama's assertion that S&P is at fault will likely serve him well in the short term, but the nation's underlying fiscal problems (with or without the mathematical error) are incontrovertible, and only getting worse.

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