Did The S&P Downgrade Warning Just Make A Debt Ceiling Compromise Even More Difficult?

Tyler Durden's picture

As S&P noted in its downgrade, and made all too explicit during the follow up call, the rating agency has now started a two year timer on the administration and the legislative branch to come up with not only a fiscal solution, but a credible solution by the end of 2012. Yet as Reuters points out, the "S&P's action -- downgrading its outlook on the U.S. rating to negative from stable -- does not guarantee a deal." Basically expect more posturing from both sides of the aisle, which ironically may merely lead to a cementing of intractable positions, and kick the can so far down the street that not even S&P can see where it lands: a non-compromise compromise that the Hill is so good at, yet one which won't fly any longer. " While the White House dismissed the action, saying all sides were making progress toward agreement, Republicans and Democrats remain far apart on where to make the cuts that will be needed for long-term deficit reduction." Any call for a bipartisan agreement on deficit reduction on fiscal reform is a welcome one, and in that context, I think that (the S&P move) adds to what we believe is some momentum towards that end," said Jay Carney, White House spokesman." Yes, ironically everyone: democrats and republicans are both claiming the S&P decision, which without doubt originated from Wall Street in the first place, validates their policies. Yet the biggest winner out of all this may be the Tea Party: "It is a vindication of the Tea Party and their stance that we are spending too much," Republican Representative Blake Farenthold, a member of the House Tea Party Caucus, said in a telephone interview." ...Or not: if the Tea Party continues "cutting" deficits like it did last week, when it was ultimately uncovered that instead of a $38 billion cut the ultimate impact on the budget was about $353 million, the Tea Party will most certainly burn all its credibility very soon if it continues to "tackle" fiscal sustainability with the same fervor.

From Reuters:

Republicans and Democrats unveiled competing plans to bring deficits down to a sustainable level by the end of the decade, but they differ sharply on how to reach those levels.

Representative Eric Cantor, the No. 2 House Republican, called the Standard & Poor's downgrade of U.S. credit outlook "a wake-up call" against those seeking to "blindly increase" the U.S. debt limit.

Cantor said the S&P action makes clear that any increase in the debt limit must be accompanied by "meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt."

S&P zeroed in on the differences, saying it saw a risk that U.S. policymakers would not reach agreement on long-term U.S. fiscal woes by 2013.

S&P's action -- and the accompanying fall in U.S. stock prices -- will light a fire under negotiators in Washington, some analysts said.

Not all has changed in the extremely humiliating world of rating agencies:

But Moody's Investors Service, S&P's main competitor, read the debate in Washington differently, saying both sides' plans for deficit reduction represent a "potential change in the direction of fiscal policy (that) is credit positive for the U.S. federal government."

After all one should never forget that unless Mark Zandi finds a job in the administration very soon, he may end up with some measly $100k a year tenured professor tip, at some D-grade Ivy league University.

That said, we tend to agree with Greg Valliere, that today's move from S&P will actually delay the debt ceiling resolution:

Greg Valliere, a political analyst for investors at Potomac Research Group, said S&P's action makes a deal even more likely in late June or early July

"I think it stiffens the resolve of people that are convinced that we have to take action," Valliere said.

At this point, Reuters take a turn for the surreal and notes that apparently Americans actually care about stuff like the economy:

Polls show Americans are deeply worried about the state of the country's finances, which will be one of the driving issues in the 2012 presidential and congressional elections.

Um, no. All American care about is what the latest iPad app is, what the calorie content of lunch is (even as the gym membership expires never once used), and who is the latest entrant in the zombifying reality TV arena.


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TruthInSunshine's picture



The sooner the Ponzi collapses, the sooner honest people won't have to fight government in order to make an honest living, let along not be crushed to subsidize the TBTF and chosen insiders.

Default. Now. Period. Eliminate the malignancy.

redpill's picture

None of the spineless a-holes up there have anywhere near enough guts to even remotely consider it in a billion years.

The sad thing is we could dig out of this debt hole without defaulting if we passed a balanced budget, reformed our social welfare programs into something sustainable, scrapped our tax code, and brought our troops home.  But the pols are also too self-serving to do that.


What does it all mean's picture

It is just a head fake to justify the pols' jobs, but the ceiling will still be raised. Pure political theater and expectation management.  But it does nips the chance of a QE3 and probably accelerated the timing of a hike by the Fed in the name of fiscal discipline.   

The truth is that US will not default... we might create a nuclear incident, or cover one up, but financial default is not an option.  

I would love to see that day, but it won't happen....  Because it is certainly TBTF.

redpill's picture

QE3 will have to happen.  The only question is whether it is done in the open or in secret.  Moody's will never downgrade so they'll be held up as the gold standard (pun intended).  S&P and anyone else who tries to speak reality will be marginalized, even if you assume the action today is not orchestrated.

Hell I'm surprised they haven't claimed S&P is now a unique form of domestic terrorism.


What does it all mean's picture

Well, if it happens in secret, then it goes to the non-audited portion of the Fed's balance sheet.... so there is no way to verify it one way or another... So I concede...

But what is observable is that

1.  The ceiling will be raised... (even if like TARP, it happens in two-pass) and that 

2.  US will never default.


The rest... good luck to all.

redpill's picture

That's the problem ain't it?  It's too bad so few of our "representatives" understand why auditing the Fed is so important.

I agree with your points, I can't see a default scenario being a possibility.

What does it all mean's picture

And that is why it is SOOO hard, even after the crisis, for the Fed to have an ongoing audit...  

Dodd-Frank is all bark, no bite...

This "ceiling" is itself total BS, like what Alan Greenspan said on Meet-The-Press interview, (I rarely agree with the Maestro.)  Why have a ceiling?  Just say that we will never default, and give ourselves infinite credit...

Verstehen's picture

You will default thats for sure. But first they will take everything you think is yours because you are property of the Chinese, Japanese and private offshore banks. The big plan the Americans refuse to hear is the ruble will soon be backed by gold. The Chinese will probably do the same. And Brazil and SA too. They have surpluses and can buy commodities. The Americans only have a credit card from the Chinese. You will be defeated. It is going to happen.

George the baby crusher's picture

 You will be defeated

I get the feeling you wanted to write "You will be defeated infidels". Maybe I read it the wrong way.

Bringin It's picture

You appearently don't understand Verstehen.

Creed's picture

 will soon be backed by gold.

They have surpluses and can buy commodities.



blah blah blah....

they can buy our food with their gold

or starve

A Man without Qualities's picture

"QE3 will have to happen"

If the Fed has been selling puts on longer dated Treasuries, then QE3 has already happened... 

morkov's picture

why isn't this scenario probable???

no QE3, just syphone for FIRE and suck-it-up for knuckle skratchers...it's THE GAME/OVER/

redpill's picture

So helicopter Ben is going to do a complete 180-degree turn, abandon the last 4 years of monetary policy, abandon his "inflation target" and suddenly embrace deflation warmly?  Sorry I just don't find it plausible.

The only way that inflation can be contained at this point would be a Volcker-esque rate hike, but such a move would utterly devastate the economy which is on QE-life support, explode the national debt interest, and quite possibly lead to civil unrest in some form.  Making such a move does not logically jive with how the Fed has behaved up until this point.  The Bernank is a true Keynesian devotee, and he will keep showering the market with USDs for as long as he can, to extend and pretend, stretch out the game into extra innings.  From his "student of the depression" perspective, time is on his side, and as long as he can keep printing, the better chance he has of the economy finally "coming back" as a result of his policies.

morkov's picture

YES HE WILL!!! inflation is not going to get "the volker-esque". it's going to get mellowed-down and postponed 'till payments would be conceivable.

the past 4 years have served their purpose. capital has moved. "it" has discovered more fertile ground for profit...pending the army's reaction, of course  :)

WW3 BitcheZ (shape and form still to reveal itself)

Bringin It's picture

I agree with your post, except for this bit -->

the economy finally "coming back" as a result of his policies.

I don't think that's what's going on.  I think the end of the boom is what it is.  I think the plan wass to maximize wealth acquisition on the way up into the intentionally engineered credit bubble. 

On the inevitable way back down, via the benefit of leaked foresight, the plan is the same, ie. maximize wealth acquisition at the expense of the dumbed down masses.

samseau's picture

Even if we default, will things really get better?

tmosley's picture

Exactly.  Governments shouldn't be able to borrow money, period.  It is de facto slavery.

TruthInSunshine's picture

I weep for my nation when 99.99% of the adults don't realize the extremely basic scam being pulled on themselves and their children, whereby a private bank is charging them interest on money it is loaning to them via their government, all sanctioned and blessed by their alleged 'elected' representatives.

  • I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up  a monied aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs. - President Thomas Jefferson.
  • I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its constitution; I mean an additional article, taking from the federal government the power to borrow money. - Thomas Jefferson
  • If (As the supreme court had recently inferred) Congress has the right under the Constitution to issue paper money, it was given to them to be used by themselves, not to be delegated to individuals or corporations. - President Andrew Jackson
  • From the testimony of Marriner Eccles, Chairman of the Federal Reserve Board, before the House Banking and Currency Committee, Sept. 30, 1941:

Congressman Patman: "Mr. Eccles, how did you get the money to buy those two billions of government securities?"

Eccles: "We created it."

Patman: "Out of what?"

             Eccles: "Out of the right to issue credit money." (i.e.Out of the right to create it. Do you see the insanity of it all?  You and I must work hard for every dollar of ?? that we earn, while the banksters havethe legal right to create money!  RWS). 

  • Banking was conceived in iniquity and born in sin.....Bankers own the Earth. Take it away from them but leave them the power to create money, and, with the flick of a pen, they will create enough money to buy it back again.....Take this great power away from them and all great fortunes like mine will disappear (he was said to be the second richest man in Britain) and they ought to disappear, for then this would be a better and happier world to live in.....But, if you want to continue to be the slave of the bankers and pay the cost of your own slavery, then let the bankers continue to create money and control credit. - Sir Josiah Stamp, President of the Bank of England
  • Permit me to issue and control the money of a nation, and I care not who makes its laws. - Mayer Anselm Rothschild

"The few who understand the system, will either be so interested in its profits, or so dependent on its favours that there will be no
opposition from that class, while on the other hand, the great body
of the people mentally incapable of comprehending the tremendous
advantage that capital derives from the system, will bear its burdens
without complaint, and perhaps without even suspecting that the system
is inimical to their interests."

Quote by: John Sherman
Protege of the Rothschild banking family
Date: June 25, 1863 Source: in a letter sent to New York bankers, Morton, and Gould, in support of the then proposed National Banking Act
whatsinaname's picture

The downgrade spiel is to make stocks drop just a little bit so they can get the QE3 running. How much of drop is being targeted is a mystery. All this will be swept under a run after QE3. Easier said than done though as crude & PMs being highly resilient. Crude has to drop below 90 for QE3 to start.

Creed's picture

Clawback all bonuses given to any employee of any company that took taxpayer money to stay afloat.


drink or die's picture

If you want to see what Americans care about, check out trends.google.com on any given day.


This will all blow over in about a 3 days, once the pundits get the message out that rating agencies don't matter.

Dr. Richard Head's picture

yup.  a bunch of circusmonkey morons surround us all. 

treemagnet's picture

When treasuries require more interest, then maybe congressional whores will care a little - otherwise same deal.

SelfishMan's picture

Its too late. No matter what they do its too late. As someone mentioned above, the only way to stop this is to cut 99% of welfare and close all military bases around the world (quell the military industrial complex dragon completely). Even if those things happened, which would of course be absolutely impossible, the economy would still plunge in such a deep shit hole in abesence of regular monetary injections that it would take a few good years if not a decade to work through it. The closest analogy I can come up with is having an addict (in this case fiat monetary junkie named US economy) going through detox. If he follows through with cleaning and healing, it will come out healthy at the other end. Unfortunately, the case at hand suggests that the addict will die of overdose in next couple years.

adeptus's picture

Did the US just downgrade the US? You know SHTF is just around the corner when...

MachoMan's picture

When you create the paradigm for everyone to BTFD, it takes a while for another paradigm to take root...  the problem this time around is that we expect printing, to some degree, in perpetuity...  as a result, the FED's job has gone from herding sheep to herding cats...

blunderdog's picture

Sheesh, talk about political bullshit.  There's our innovation.

It takes 'Merkin politicking to "compromise" on a binary fuckin' decision.

"We've worked together, and after some tough talk and hard negotiations, we decided we're not going to raise the debt ceiling, but we won't keep it the same either."

Dreadker's picture

Doesn't that mean they'll lower it lol... Timmy won't be happy....

Bam_Man's picture

Oh yes, much more difficult.

Maybe that explains why Treasuries are trading higher today.

That's as good an explanation as any for price behavior in these "markets".

disabledvet's picture

exactly.  "talk about a round tripper."  they'd be better off day-trippin' and "callin' it a day."  Is there anyone not trying to force the entire planet to buy equities anymore?  HELLOOOO OUT THERE?  Wall Street KILLED US, okay???!!!   "He's not the messiah, HE'S A VERY NAUGHTY BOY."  I mean "all i want is a couple percent on my WORTHLESS FRIGGIN' GREENBACKS, okay???!!!"

lieutenantjohnchard's picture

maybe it's the world i walk in but i think you are dead wrong in the last paragraph. very clearly, and with unmistakable insight, the folks in my community are very aware of the issues of the day. but like i said, maybe my world is unique.

IdioTsincracY's picture

To the contrary, S&P served its purpose ...

the oligarchy has no interest in letting the good times stop ....

keep moving that wealth to the top....

cut away!!

everybody else, just repeat after me:

I won't feel pain... I won't feel pain... I won't feel pain... I won't feel pain...

ivars's picture

Silver does not seem to be as buyoyant as gold in the wake of S&P downgrade:



Bringin It's picture

May is a Crimex delivery month.  Sliver will get going again soon as the Crimex can't make good on all it's delivery commitments.

Paying large cash premiums to forego delivery is a type of default, enabling and encouraging ... more delivery demands.

earnulf's picture

The CBO estimates released last week guarantee that the US/GDP ratio will move over 100%.   Is anyone else even remotely terrified by off the cuff discussions of trillions of dollars of debt?    I realize in the end it doesn't matter when the whole thing blows up and ratings mean squat after so much debacle the past three years.   Still, one would hope that an animal that can stand for long periods on it's hind legs would be able to, no, wait, it has to actually think with it's brain too....never mind, we are so screwed.

IdioTsincracY's picture

debt to gdp is already 124% if you count the real numbers (You know, like real inflation, real unemployment..)

Bringin It's picture

I think if you throw in the GSE commitments, medicaid, Social security, it comes to a lot more than 124% of GDP.

blunderdog's picture

I could maybe muster up a bit of concern about national debt if I thought for the briefest moment it was ever going to be paid.  I can't for the life of me understand how anyone can take this stuff seriously anymore.

I declared bankruptcy awhile back.  Fuckin' sucked. 

I remember spending about 12 days between the time when I'd finished the paperwork and was waiting for the final judgment--my interview with the judge, etc.  I didn't do anything crazy--if I'd known how things were going to turn out, maybe I would've. 

But I sure didn't worry about buying dinner on a credit-card during that period, either.

For everyone who wants some excuse to bash me for ripping off the creditors: don't worry.  I got my just deserts.  I've been poor ever since.

ivars's picture

Watch the next USA president launch her campaing right in the conflict zone:



SheepDog-One's picture

Screw that Zionist baglady.

Bringin It's picture

Thanks SD-One for calling a spade a spade. 

This Ivazrs is a spam-bot for the zionist-baglady. Notw777 is another troll cruising for the ZBL.

She recently tried to drive to Bethlehem, but she and her goon handlers didn't realize Bethlehem is in the Occupied West Bank.  Could not get thru the ODF check-points.  Clueless wonders one and all.

Sarah was imposed on the nascent Tea Party, simply because she will reliably act as the ZBL.  These guys don't want to get out-flanked.

Creed's picture



or is that ZOG!


I'm always forgetting the nazi jargon, please forgive me

Bringin It's picture

Zionism ≠ Judaism

Grow up Creed.

Stoploss's picture

Screw 'em all, time for Ron Paul..

Dreadker's picture

Frankly... I'd vote for Ru Paul... just as much economic sense as anyone else currently in charge lol

Bob's picture

Lessee now . . . severe auterity for the masses or--clawback from the kleptocracy apparently being off the table for now--default. 

Me thinks the masses prefer default--wishes of S&P, TBTF's, Fed, etc., notwithstanding. 

I guess we'll see if the Tea Party can get it done for them.