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The Big Fail: President Downgrade

- May 18, 2012

When We Should Be Hitting The Brakes On Our Debt, Obama Is Mashing His Foot On The Gas And Steering Us Towards A Crisis

OBAMA WAS REPEATEDLY WARNED TO FIX OUR MASSIVE DEFICITS OR FACE A CREDIT DOWNGRADE BUT HE KEPT THE SPENDING BINGE GOING

In 2009, Moody’s Warned The U.S. Could Lose Its Triple-A Rating If The Deficit Was Not Controlled. “Under the most pessimistic scenario put forward by Moody's, the U.S. would lose its top rating in 2013 if economic growth proves anemic, interest rates rise and the government fails to dent the deficit or recover most of its assistance to the financial sector.” (Joanna Slater, “Moody's Puts U.S., U.K. on Chopping Block,” The Wall Street Journal, 12/8/09)

In 2010, Moody’s Again Warned That A Failure To Bring Down The Deficit Could Result In The Loss Of Our AAA Rating. “Moody’s Investors Service warned on Wednesday that the triple-A rating of U.S. treasury bonds could be in peril unless the federal budget deficit is reduced or the economy grows more vigorously than expected.” (Jake Tapper, “Geithner: U.S. Will Not Lose AAA Bond Rating,” ABC News' "Political Punch", 2/7/10)

In 2011, Standard & Poor’s Warned The Obama Administration “To Get A Grip On Its Finances Or Risk Losing The Nation’s Sterling Credit Rating.” “A key credit agency issued an unprecedented warning to the United States government Monday, urging Washington to get a grip on its finances or risk losing the nation's sterling credit rating.” (Paul Wiseman, “S&P Warning: Fix Deficit Or Risk Credit Downgrade,” The Associated Press, 4/19/11)

  • “S&P Warns: Fix The Deficit, Or Else.” (Jacob Goldstein, “S&P Warns: Fix The Deficit, Or Else,” NPR's "Planet Money", 4/18/11)

Obama Racked Up Three Record Deficits But His Treasury Secretary Said Not To Worry

In April 2011, Treasury Secretary Geithner Insisted That There Was “No Risk” Of The United States Losing Its AAA Credit Rating. FOX’s PETER BARNES: “Is there is a risk that the United States could lose its AAA credit rating? Yes or no?” TIM GEITHNER: “No risk of that.” BARNES: “No risk?” GEITHNER: “No risk. …” (Fox Business, 4/19/11)

  • When Asked Again If The U.S. Would Keep Its AAA Rating Geithner Said “Absolutely”. BARNES: “So Standard & Poor's is wrong, the United States will keep its AAA credit rating?” GEITHNER: “You know -- absolutely.” (Fox Business, 4/19/11)

President Obama Racked Up The Three Largest Deficits In U.S. History. “The U.S budget deficit for fiscal year 2011 is $1.299 trillion, the second largest shortfall in history. The nation only ran a larger deficit for the 2009 fiscal year, which included the dramatic collapse of financial markets and a huge bailout effort by the government.”(Erik Wasson, “Treasury Announces 2011 Deficit Is Second Highest In History,” The Hill’s "On The Money", 10/14/11)

  • FY2009: The Federal Budget Deficit Was $1.413 Trillion, The Highest In U.S. History. (“Monthly Budget Review: November 2011,” Congressional Budget Office, 11/7/11)
  • FY2011: The Federal Budget Deficit Was $1.299 Trillion, The Second Highest In U.S. History. (“Monthly Budget Review: November 2011,” Congressional Budget Office, 11/7/11)
  • FY2010: The Federal Budget Deficit Was $1.294 Trillion, The Third Highest In U.S. History. (“Monthly Budget Review: November 2011,” Congressional Budget Office, 11/7/11)

Obama’s FY2013 Budget Increases The Deficit More Than His FY2012 Budget And Will “Have A More Negative Long-Run Effect.” “The effects of the 2013 budget differ from those of the preceding budget in four main ways. In particular, the proposals for 2013 would do the following: Increase deficits by a greater amount, largely because of a greater increase in spending compared with that in CBO’s baseline. Those larger deficits would provide a bigger short-run boost to output but then have a more negative long-run effect.” (“The Economic Impact Of The President’s 2013 Budget,” Congressional Budget Office, 4/20/12)

EVEN AFTER THE DOWNGRADE, OBAMA HAS CONTINUED TO IGNORE THE WARNING SIGNS AS OUR DEBT RISES TO EURO-CRISIS LEVELS

In August 2011, Standard & Poor’s “Lowered The U.S. Credit Rating For The First Time, An Ignominious Legacy For Obama.” (George E. Condon Jr., “What A Week: Afghan Deaths, S&P, And Debt Limit Debate Challenge Obama,” National Journal, 8/6/11)

  • “The Downgrade, Hours After Markets Closed On Friday, Is A First For The United States Since It Was Granted An AAA Rating In 1917.” (Paul Wiseman, “US Downgrade Raises Anxiety, If Not Interest Rates,” The Associated Press, 8/6/11)

In November 2011, Fitch Cut The US Credit Outlook To “Negative” And Warned Our Projected Debt Levels Are Not Consistent With AAA Rating. “Fitch's revised fiscal projections envisage federal debt held by the public exceeding 90% of national income (GDP) and debt interest consuming more than 20% of tax revenues by the end of the decade, and including the debt of state and local governments - gross general government debt will reach 110% of GDP over the same period. In Fitch's opinion, such a level of government indebtedness would no longer be consistent with the U.S. retaining its 'AAA' status despite its underlying strengths. Such high levels of indebtedness would limit the scope for counter-cyclical fiscal policies and the U.S. government's ability to respond to future economic and financial crises.” (Press Release, “Fitch Affirms United States At ‘AAA’; Outlook Revised To Negative,” Fitch Ratings, 11/28/11)

  • CBO Director Douglas Elmendorf: Growing Debt Increases Risk Of “Sudden Fiscal Crisis.” “Growing debt also would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates.” (Douglas Elmendorf, “CBO’s 2011 Long-Term Budget Outlook,” Congressional Budget Office “Director’s Blog”, 6/22/11)

OBAMA’S U.S.: The IMF Predicts Our Debt Will Rise To 106.6 Percent Of GDP In 2012 And By 2017 Could Reach 113.0 Percent Of GDP. (“World Economic Outlook Database,” International Monetary Fund, Accessed 5/17/12)

  • GREECE: The IMF Predicts Greece’s Debt Will Fall To 153.2 Percent Of GDP. (“World Economic Outlook Database,” International Monetary Fund, Accessed 5/17/12)
  • ITALY: The IMF Predicts Italy’s Debt Will Rise To 123.4 Percent Of GDP. (“World Economic Outlook Database,” International Monetary Fund, Accessed 5/17/12)
  • IRELAND: The IMF Predicts Ireland’s Debt Will Rise To 113.1 Percent Of GDP. (“World Economic Outlook Database,” International Monetary Fund, Accessed 5/17/12)
  • PORTUGAL: The IMF Predicts Portugal’s Debt Will Rise To 112.4 Percent Of GDP. (“World Economic Outlook Database,” International Monetary Fund, Accessed 5/17/12)
  • SPAIN: The IMF Predicts Spain’s Debt Will Rise To 79.0 Percent Of GDP. (“World Economic Outlook Database,” International Monetary Fund, Accessed 5/17/12)

Obama Acknowledged The Risks Of His Spending

Obama Believed That A Failure To Control The Deficit Would “Make It Harder For The Economy To Grow.” “Obama wants to reduce the deficit because he’s concerned that over time, federal borrowing will make it harder for the U.S. economy to grow and create jobs, said the official, speaking on the condition of anonymity.”  (Hans Nichols, “Obama Plans To Reduce Budget Deficit To $533 Billion By 2013,” Bloomberg, 2/21/09)

  • Obama Recognized That If We Failed To Control Our Debt It Could Lead To A Double-Dip Recession. OBAMA: “It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.” (Fox News, “Interview With Major Garrett,” 11/18/09)
  • See The Video Here

The Government Is In A Debt Trap That Could Be Fueling The Recession. “Our recession may be driven, at this point, by the balance sheet of the government. Repairing that balance sheet by lowering spending may be the only way out of the debt trap. Call it the New Paradox of Thrift: the government can stimulate growth only by refusing to borrow. We need thrift all the way down.” (John Carney, “From Jackson Hole: A Defense Of The Debt Ceiling,” CNBC, 8/29/11)

  • Economists Carmen Reinhart And Kenneth Rogoff Found Debt In Excess Of 90 Percent Of GDP Can Cut Growth Rates In Half. “When gross external debt reaches 60 percent of GDP, annual growth declines by about two percent; for levels of external debt in excess of 90 percent of GDP, growth rates are roughly cut in half.” (Carmen M. Reinhart and Kenneth S. Rogoff, “Growth In A Time Of Debt,” American Economic Review, May 2010)
  • Economists At The Bank Of International Settlements Concluded That Debt Beyond As Much As 80 Percent Of GDP Could Thwart Economic Growth. “Its authors—a trio of economists from the Bank for International Settlements—demonstrate that when government debt reaches beyond a certain threshold it begins to sap growth from the economy. Government debt beyond a threshold ranging from 80 to 100 percent of gross domestic product (GDP) begins to thwart growth.” (John Carney, “From Jackson Hole: A Defense Of The Debt Ceiling,” CNBC, 8/29/11)

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