S&P Lowers United States Debt Outlook to Negative

Today,  Standard & Poor’s lowered its rating outlook for United States debt from stable to negative on the heels of the American government’s persistent dysfunction to reduce the deficit.

The market’s reaction has been slightly negative to this news, even though it should be no surprise that America’s debt situation is unsustainable.

Mark my words: if the Federal Reserve decides to raise interest rates this summer to encourage investors to purchase Treasuries, the United States will fall back into recession.

The President and Congress must cut spending and increase taxes in a reasonable manner (i.e., preserve Bush tax cuts for folks earning under $1 million a year), or the economic situation is likely to get worse before it gets better.

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About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
This entry was posted in Business, Finance and Economics, International Security, Investing, Policy, Politics, Predictions and tagged , , . Bookmark the permalink.

19 Responses to S&P Lowers United States Debt Outlook to Negative

  1. Charles McCormack says:

    You had me until you said “increase taxes in a reasonable manner (i.e., preserve Bush tax cuts for folks earning under $1 million a year). Unfortunately, that does little to reduce the deficit. Allowing the cuts to expire on incomes down to about $100K is the only way to produce enough revenue to make a real dent in the deficit.

    • I completely disagree.

      The country needs to cut spending aggressively, particularly on entitlements. In fact, if one is aggressive enough, one can do it with 100% spending cuts.

      Check out my post called My Plan to Reduce the Deficit. In it, I have links to a New York Times application that allows you to select cuts or tax increases to balance the budget. My draconian plan does it with 100% cuts. My more reasonable plan does it with about 80+% cuts.

      If you increase taxes on folks making $100k, you can kiss any economic recovery goodbye.

      • pino says:

        The country needs to cut spending aggressively, particularly on entitlements.

        If done right, this would turn tax takers into tax payers.

      • pino says:

        But they won’t.

        I suspect you are right.

        Compromise usually means I’ll agree to spend on YOUR project if you agree to spend on mine.

      • Charles McCormack says:

        Would you like me to show you the math?

        • Chuck,

          I’m sure you can find a way to reduce the deficit by increasing taxes on everyone making over $100k. What I guarantee your analysis won’t include is the reduction in revenue associated with folks responding to these tax increases (i.e., the Laffer curve).

          Additionally, you will probably show me Ezra Klein’s ridiculus graph showing revenue meeting spending if the government does nothing and the Bush tax cuts expire. What I find most insulting about this chart is that it allows government to grow to over 30% of US GDP (http://www.washingtonpost.com/blogs/ezra-klein/post/the-graph-all-budget-discussions-should-start-with/2011/04/11/AFmhRLKD_blog.html).

          His argument on this chart implies that this is a good thing. That’s if you believe Stalin’s collectivization program in the 1930s was a good thing.

          As a business person, you have to admit a government that represents over 30% of GDP over a prolonged period can not be a good thing as it crowds out private investment dollars.

          See, I am not your typical conservative. I spent five years in the military fighting as the enemy, so I am well-aware of how to do my opposition research.

  2. V. R. Kaine says:

    “Mark my words: if the Federal Reserve decides to raise interest rates this summer to encourage investors to purchase Treasuries, the United States will fall back into recession.”
    Consider them marked, and agreed with. 🙂

    As for giving the middle class a tax break, I say “Nah”. As long as they’re still gobbling up their $5.00 Starbucks coffees, buying Coach bags, and $600 bottles in Las Vegas nightclubs they can afford to chip in a little more as well. After all, they’re lucky enough to be given a job by the upper class in the first place to afford such comforts. They should do more to appreciate it. haha

  3. pino says:

    Today, Standard & Poor’s lowered its rating outlook for United States debt from stable to negative on the heels of the American government’s persistent dysfunction to reduce the deficit.

    Fascinating discussion over here:

    http://poisonyourmind.wordpress.com/2011/04/19/convergence/

    A very refreshing combination of “trouble is revenue” along with rational, reasoned and polite responses.

  4. V. R. Kaine says:

    I don’t disagree, I just think that peoples’ “everyone else can afford to pay but me” attitude goes a little too far no matter which class of people are saying it. I think our recovery needs to have less to do with the emotions and more to do with the hard numbers of it all. In your neck of the woods I believe you’re right – you are heavily taxed. In mine, I’m hardly taxed at all as far as corporate tax or personal state tax is concerned, and a small increase wouldn’t force me out of state.

    As much as I’d hate it ideologically, if the powers that be could offer a reasonable solution that a) was fiscally responsible, and b) was actually realistic, solved a problem, and was adhered to, I could likely afford it and therefore would (begrudgingly) pay it if I knew it helped the state. Since both a) and b) are almost entirely unrealistic, however, I oppose a proposed tax increase (or creation) for simple taxation sake. This 4.5% tax, no matter how “affordable” to me is just a money grab that will be surely well wasted on the undeserving and incompetent.

    By the way – look who it seems is pushing the hardest for the tax (not sure of the credibility of the “News and Views” source, but what Mr. Taxpayer says doesn’t sound too out to lunch.)

    http://nevadanewsandviews.com/2011/04/13/democrats-introduce-45-corporate-income-tax/
    http://www.lvrj.com/opinion/why-not-a-corporate-income-tax-for-nevada-119752654.html

  5. Alan Scott says:

    Sean,

    ” I just wish Obama and Boehner would do the same on Social Security and Medicare. ”

    And just how do you propose that Speaker Boehner reach a compromise with Obama the class warrior ? After totally snookering the Republicans on the budget cuts he slams them while they have to sit there and listen . Like when he slammed the Supreme Court while they sat in front of him .

    If you don’t have some kind of power as leverage against him, he does not do anything for the good of the country . The only reason his bankrupting of the country even slowed down a tiny bit was the GOP taking the House .

    This is about nothing but pure political power . The only way to deal with him is to take more power away . The guy only understands power politics .

    • Yeah, I am really beginning to sour on Obama. He says one thing in public, but then tries to hide the real agenda in the details. For instance, I read in the latest issue of The Economist, that the President’s recent proposed $1 trillion tax hike does not include the expiration of the Bush tax cuts (i.e., it assumes they will happen anyway. The $1 trillion tax hike is in addition to the expiration).

      That is pretty slimy if you asked me.

      • pino says:

        For instance, I read in the latest issue of The Economist, that the President’s recent proposed $1 trillion tax hike does not include the expiration of the Bush tax cuts (i.e., it assumes they will happen anyway. The $1 trillion tax hike is in addition to the expiration).

        Nice.

  6. Scott Erb says:

    The US has the lowest levels of taxation on wealthy individuals, a very large gap between the rich and poor, relatively low levels of generational mobility between classes, and in the last thirty years the income of the wealthiest 1% has risen 289%, the upper 20% by 95%, the middle 20% by 25% and the lowest 20% by 16%. We’ve seen a transfer of wealth from the poor to the rich over the last thirty years, as tax cuts have benefited the very wealthy — while the very poor pay nothing. The losers are the middle class. Spending cuts hurt the poor and middle class, and the wealthy, who have benefited the most over the last thirty years (the debt imbalances started in the early eighties) want to pay little or none of the cost, and let it be on the backs of the poor. If this keeps up, the US will reach a tipping point and there will be a kind of class war — and that isn’t good for anyone.

    So spending cuts and tax increases — but not just increasing the rates, but to eliminate loopholes and exceptions. You can have tax reforms without changing tax rates so much but simply eliminating a lot of benefits lobbyists have helped create for the wealthy in order to avoid paying as much tax. A mildly progressive fair tax could work wonders!

  7. V. R. Kaine says:

    Spending cuts hurt the poor and middle class, and the wealthy, who have benefited the most over the last thirty years (the debt imbalances started in the early eighties) want to pay little or none of the cost, and let it be on the backs of the poor.
    How is it exactly “on their backs” when they pay next to no tax anyways?

    “eliminate loopholes and exceptions” I like the idea of dropping the rate to be competitive but closing the loopholes. Up my charitable donation deduction as well and I’d be happy to contribute more than my normal share.

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