S%P came out today with an upgrade for the 51st state. From BBB- to a flat BBB. S%P cited improved revenue for the upgrade. This is baloney.

The change from (-) to neutral is nothing. How does one measure this? PR was junk. It still is. S%P did (of course) have a caveat. We should probably ignore this, right?

Puerto Rico’s GO credit rating could be “negatively pressured” if the island fails — in the next two years — to take on its $17 billion unfunded pension liability.

Some facts on the PR puzzle:

-Tax revenue for 2011 is projected at $7.2b. This is down $800mm (10%) from 2007. So much for the S%P call.

-One dollar out every four spent comes from Washington.

-One dollar in every six goes to debt service. Debt service will be $4.4b in 2011

-The GNP to debt ratio is 93% (up from 58% in 2004).

The weather is great. The beaches are beautiful. The food is good and the drinks are better. The bonds, on the other hand, don’t get on my “buy” list.

Doug Elmendorf, the boss over at the CBO, spoke this morning. I think he was trying to shake some political trees. He flat out said that cuts in entitlements were in our future. Strong talk. Some bits from the speech:

If current policies are continued, the gap between spending and revenues will remain very large even after we return to normal economic conditions.

In Washington “speak” Very Large is the polite way of saying Disaster.

Fiscal policy cannot be put on a sustainable path just by eliminating waste and inefficiency; the policy changes that are needed will significantly affect popular programs or people’s tax payments or both.

Popular Program AKA Social Security.

Doug concludes that what we are doing is unsustainable. His bottom line: We only have two choices. We deal with it now, or we kick the can a bit further. If we choose to wait this will be the result:

Increases the likelihood of a fiscal crisis during which investors would lose confidence in the government's ability to manage its budget and the government would lose its ability to borrow at affordable rates.

The number one reason given for delaying the cuts that must come?

Helps older generations by deferring the increases in taxes or the cuts in benefit payments they would face.

When Elmendorf says words like this what he is really means is, “We have to look at Social Security”.

Why do I bring this up? Because Mitch McConnell raised it on Face The Nation this past Sunday. More importantly, John Boehner put this issue on the table last Friday. (link)

Austan Goolsbee was on MSNBC Sunday. He took a different track on SS. He made it pretty clear that the Roosevelt promise of retirement for all would be kept. “Maybe some ‘tweaking’ but no changes.


This is about Presidential Politics. The Republicans have said they will talk about the hard topic of entitlements. The Democrats are going to say “no” to that. So nothing will be accomplished. But this will be a central issue in the next election.

It sure is swell to see the “Non-Partisan” CBO weigh in on this issue on such a “timely” basis. Especially after McConnell and Boehner teed it up so nicely. Of course Mr. Elmendorf is smart enough to know that there is no way that SS benefit cuts will happen as long as Obama and a Democratic Senate is around. So this is all talk for now. I wonder what Elmendorf got for the favor.