On The One Year Anniversary Of The US Downgrade

Tyler Durden's picture

From Bill Buckler, author of The Privateer

The Disconnect Between Mouth And Brain

A year ago, at the beginning of August 2011, the Obama Administration and the US Congress came to an “agreement” on financing the borrowing of their government for the foreseeable political future. That foreseeable future stretched out until November 6, 2012, the date of the election. The part of the deal which was trumpeted the loudest was a “plan” to cut deficit spending by $US 1.2 TRILLION - over the next TEN years. On July 27, the Obama Administration’s Office of Management and Budget (OMB)announced with great fanfare their latest “estimate” of the deficit for the fiscal year ending on September 30, 2012. It was $US 1.21 TRILLION, down 9 percent from the $US 1.33 TRILLION they had estimated in February. According to the White House, the major reason for this downward revision is the fact that the US Congress has blocked many of Mr Obama’s tax and spending plans. The February forecast assumed they would take place in the 2012 fiscal year. The new forecast assumes that they will take place in the 2013 fiscal year.

As of July 31, 2012 - with two months left to go in fiscal 2012 - US Treasury funded debt was already up by $US 1.14 TRILLION over the year to date. But there is something here that very few commentators have wasted any ink on. A year ago, the budget “deal” concocted between Mr Obama and his Congress was ballyhooing a “plan” to cut $US 1.2 TRILLION off annual budget deficits over a DECADE. Now, the projection for the 2012 budget is that the US government will add that amount to the funded debt of the US Treasury over ONE YEAR. This would be hilariously funny if it wasn’t so tragic. What is even funnier - and more tragic - is that the entire world is “depending” on the people who concoct this stuff.

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malikai's picture

This would be hilariously funny if it wasn’t so tragic. What is even funnier - and more tragic - is that the entire world is “depending” on the people who concoct this stuff.

Vote for shit, get shit on.

Sounds about right.

fonzannoon's picture

Maybe I should have posted this here instead. 20 trillion here we come.

Stockton, California, Police Chief Tom Morris was supposed to bring stability to law enforcement when he was appointed to the job four years ago.

He lasted eight months and left the now-bankrupt city at age 52 with an annual pension that pays more than $204,000 -- the third of four chiefs who stayed in the position for less than three years and retired with an average of 92 percent of their final salaries.

“We didn’t have very many people looking out for the taxpayers when these deals were negotiated,San Jose Mayor Chuck Reed, 63, said in a telephone interview.

I am Jobe's picture

CA singing FB song and got azzz fucked.

Vet4RonPaul's picture

and these are the guys we have fighting crime!! what a joke.  Our government is simply legalized crime.

Anyway, the socialist trend is undeniable with the majority of US Citizens (and illegals too!) depending on local, state, regional and federal government funded fixes.  This includes teachers, retirees, police, government contractors (eg. Defense, Energy, Environment, etc.), SSN folks and other government employees.  They will sooner see America implode before giving up their tax-payer funded weekly fixes.  Only collapse via inflation or deflation will be reverse the course of socialism in America.

Son of Loki's picture

The $65 Billion Monorail from Mexico to LA should fix everything for them.

pamriallc's picture

"You didn't BORROW" that"

Yellowhoard's picture

In order to save capitalism, we must first destroy it.

Vet4RonPaul's picture

dude, we already destroyed capitalism; FDR replaced it with socialism 100 years ago and the GOP and Dems have increased YOY.

emersonreturn's picture

"in order to save capitalism, we must first destroy it."


mao thought as much and set the cultural revolution in play.

I am Jobe's picture

Next: Bankruptcy for a whole Generation


IPAD FB IPHONE IAPPS Bitchez  Gen, and nothing to show for, buch of whiny azzz kids and parents.


Platinum_Investor's picture

It's all going to end very badly this decade.  It will be fire works like we've never seen.

orangegeek's picture

Since Obama became President, there has been an explosion of US government spending.


The markets have responded with "overlapping waves" - considered corrective.


When the spending stops (downgrades), the market decline will commence, if not sooner.



Sluggo91's picture

The explosion didn't just start with Obama ...

Everybodys All American's picture

up over five trillion in three years which is nearly 50% and on pace to double in his eight years if re-elected. Ok, what is explosive?

Cruel Aid's picture

Rate of change  is what you want to look at. It is on O

Shizzmoney's picture

Ever since we got off the Gold Standard, and onto purely fiat, did spending increase under our corportized, financialized government.



fonzannoon's picture

When are we due for the next downgrade? I am surprised Egan Jones has not hit us yet.

Winston Churchill's picture

Right  after the election.

Whats interesting then will be the total implosion of the fujnding provided

by the shadow banking system(SBS),in the repo market.From there to the whole


One more notch down and those trustees,fiduchiaries etc can not fund it.

Thats $15tn sucked out of the system.

Was wondering yesterday if that is happening and thats why the Fed Res is re opening

the discount window.Timing wise it fits.Also explains the rush into Swissie bonds.

Tyler beieve that SBS is  whats been buffering out inflation.

So we could have a triple whammy all at once.


Totentänzerlied's picture

$15 trillion at near-0 velocity, for the moment. It's a very interesting theory, the timing - extension of Twist(2), launching of FRNs, MEP ending, NIRP (as you mention with SGBs) beginning, LIBOR scandal breaking, lack of "QE3" (meaning LSAP), and the election - is telling us something.

Not exactly certain what that something is, but the Tylers are correct that "time to et out of Dodge" it will be.

Lednbrass's picture

I could be wrong and feel free to correct me if I am, but wasn't the most recent Egan-Jones downgrade of the US what preciptated the Federal 'investigation" into that firm a few months ago?

alexdg's picture

Egan-Jones did downgrade the US back in April : http://www.zerohedge.com/news/egan-jones-downgrades-us-aa-aa-outlook-neg...


Inflection point - when debt to GDP exceeds 100%, a country's financial flexibility becomes increasingly strained. For the first time since WWII, US debt exceeds 100%. From 2008 to 2010, debt rose a total of 23.6% while GDP rose a total of 1.6%. Unfortunately, with an annual federal budget deficit in the area of $1.4T, debt is likely to reach $16.7T as of the end of 2012 while assuming GDP grows 2.5%, total GDP is likely to reach $15.7T. Therefore, as of the end of 2012, debt to GDP is likely to be in the area of 106%. Assuming the federal deficit for 2013 remains at $1.4T and GDP growth is 2.5%, the total debt will rise to $18.1T and GDP will rise to $16.1T, resulting in debt to GDP of 112%. In comparison, France's and Italy's debt to GDP are 81% and 117% respectively. Regarding efforts to address budget problems, the Super Committee was seeking spending cuts of $1.5T over 10 years or merely $150B per year, and was a failure. Obviously, the current course is not enhancing credit quality.


Without some structural changes soon, restoring credit quality will become increasingly difficult. Yields on 10-year treasury notes have fallen to their lowest since early Feb 2010 with US Federal Reserve's aggressive purchases of US Treasuries. A concern is the rise in interest rates placing higher pressure on the US's credit quality. Excess growth of money supply (i.e., debt monetization) harms creditors and ultimately, the economy. Weak debt reduction efforts force a neg. watch.

BlueStreet's picture

Rice and beans boys, stock up.  


bugs_'s picture

Ratings agencies should be banned.  Their only purpose is to deceive.

RiverRoad's picture

Squeezing blood out of turnips is hard work.

Element's picture

What's all the kafuffle?

Were going to cut it in 2024!

Relax, we got this, you'll see.


- Barry

Pairadimes's picture

That light at the end of the tunnel?


It's an oncoming train. California high-speed rail, to be precise.

RobotTrader's picture

Hilarious, all this talk about the "Fiscal Cliff" and the "Debt Bubble" and all the rest when the 10-yr. is at 1.5%.

And everybody is panicking because poor Spain has to pay a 7% coupon on new debt, when the U.S. 10-yr. yield was at 7% back in 2000 when the Nasdaq went to 5,000.

If the U.S. 10-yr. interest rates were to double and go back up to 3.0%, the markets would panic, the S & P 500 would crash back down to 1,100, and there would be an instantaneous bid into Treasuries driving yields back down to new record lows in no time.

Under that scenario, why not just print and spend to infinity as Paul Krugman suggests?

fonzannoon's picture

please finish the story about the nasdaq...what happened next?

bigdumbnugly's picture






Everybodys All American's picture

How is California doing? http://finance.yahoo.com/blogs/daily-ticker/three-california-cities-bankrupt-tip-iceberg-says-fmr-155121281.html

Now there is a not so funny example of out of control city government spending. I wonder how Krugman would solve that problem.

malikai's picture

I totally agree. Let's just print $200,000 per man, woman, and child. Per day.

Let it rain.

RiverRoad's picture

Hmmm, I do recall a time when the US long bond was at 9% and when the Asian Tigers were paying 15%.  Folks who grabbed those rates did well.  There is definitely something else going on here....

bank guy in Brussels's picture

Some of us remember much higher bond rates, which somehow were manageable ...

1981 ... US 10-year Treasury note ... 15.84% yield ...

1981 ... US 30-year Treasury bond ... 15.25% yield ...

Now the US would explode at those rates.

So as Jim Sinclair says ... QE to infinity ... what is absolutely 'needed' by the bankers, will be provided.

slewie the pi-rat's picture

as the chairsatan sez:  with fiscal leadership like this, we'll just keep the checks in the mail and  hope that iceberg dedahed is just another housing hallucination

check fil-a

bend over, debt slave;  you ain't even gonna get kissed...

knukles's picture

Ah Slewie, don't be so pest-a-mystic.

We're already BENT OVER but bein' asked to bend over ahgin is like bein' kissed before bein' fuuuuuked.


Whut more cuud we ask fer?

Totentänzerlied's picture

BUT Tim Geithner told us there was NO RISK OF THAT! He seems like stand-up guy, he wouldn't lie to us, would he???

theTribster's picture

What is most depressing is that this continues to happen day after day after day, outright lies from every corner of gubmint and corporate america. Definitely not funny, when you really consider how much of our lives have been stolen from us! and how much more they still plan on taking! Our wealth, our time - our life, our kids lives! It really is getting close to the time where we stand up and eliminate the scurge of politicians, corporate officers and most definitely bankers - of all shapes and sizes.

It looks like either China or America will be forced to start and lead this revolution as Europe has proven to be unreliable and apparently incapable of mounting any type of real, sustained pushback. At least we had OWS for a time, an initial attempt. The next iteration will be far more aggressive than OWS as it that which will be required to change anything. Ruthless tactics that outright destroy the banks, corporations and Governments. In masses we can achieve this type of momentum and actually (and finally) realize that we are the ones with the power and puppets and pinheads like Obama (All politicians are pinheads regardless of party as far as I'm concerned) work for us.

The political pundits either don't get it or refuse to acknowledge this reality, both parties are equally corrupt and their actions over at least the last dozen years are unacceptable and reprehensible - in short, they are scum. It was the politicians that allowed this to happen and continue to allow it to happen on an even more grandiose scale. They don't even bother to read the legislation they submit, instead they simply collect the checks.To be a congressional member simply means you have the legal right to extort, cheat, lie and basically commit any type of fraud or crime you want without fear of retribution. Their fear lies exclusively in the corporate entities that fund their campaigns, they certainly haven't been watching out for us.

The question really is how long can this continue?

vinu02's picture

1 year on donwgrade anniversary, VIX is down from 48 to 15.84 and S&P500 is up 16% or 192 point


Me_Myself_and_I's picture

Our kids are the pawns.

In Red State America, they insist on dumbing down our schools with religious/creationist nonsense.  In Blue State America, they preach that Gubmint-Is-Good.

Americans just don't care.  They just don't understand.  And Blue or Red, they don't want to learn how to question their assumptions and hold politicians accountable for royally screwing up our system.

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