Morici: Downgrade US Treasurys to Junk

[Poboy]

Published: Monday, 20 Dec 2010 | 11:15 AM ET
By: Peter Morici
Professor, Smith School of Business, University of Maryland


With the new tax cuts, rating agencies should downgrade U.S. government debt to junk.

Economists, pundits and politicians had little choice but to endorse the tax deal between President Obama and Congressional Republicans, because snapping back to pre-Bush tax rates would crush the economic recovery. But Washington exhibited not even the shadow of self-restraint and cut taxes far beyond what is needed or smart.

Newly emboldened Republicans demanded all the Bush tax cuts be extended. President Obama argued the country couldn’t afford those for families in the highest tax brackets, but failed to apply such reasoning to temporary benefits bestowed on Democratic constituencies by his 2009 stimulus program.

Instead of compromising, with each side getting half of what it wanted, Washington feasted—everyone got everything they wanted and more. Business got its R&D tax credit and a temporary tax holiday on new investments. The wealthy got Bush-era tax rates and even lower rates through temporary elimination of income-triggered phase outs on deductions and personal exemptions. The poor and middle class got a temporary 33 percent cut in social security taxes.

In 2012, when the Congress must revisit the personal and corporate tax codes, permanent reductions in Social Security taxes will be politically necessary to win extensions for the Bush tax cuts benefiting even middle income families and the truly essential benefits businesses need to create jobs, not to mention all the additional goodies the Congress has just bestowed.

This renders the Social Security system absolutely insolvent, and makes permanent budget deficits upwards of $1.5 trillion and about ten percent of GDP permanent. Moody’s would be hard pressed to give any government with budget projections like those an investment grade rating, but the United States is different.


FULL-
http://www.cnbc.com/id/40749001

[emulatorloo]

1. No offense but who the fuck asked him for his Ratings Advice? Are Ratings Agencies clamoring for

his advice and I don't know about it?

As to promoting hysteria over social security cuts, 82% of Republican voters are against cutting social security for deficit reduction. Even 75% of teapaggers are against that. It is going to be EXTREMELY hard for anybody to propose that, especially during an election year.

(I'll get the link to that poll, I think I have it somewhere)

HERE:

http://crooksandliars.com/john-amato/new-poll-dire-results-if-social-securit

Overall, of the 1,200 likely voters surveyed, 82% of respondents oppose Social Security cuts to reduce the deficit, including

83% of Dems,
78% of Independents,
82% of Republicans, and
74% of Tea Party supporters.

[PBS Poll-435]

2. Wants to more famous and loved like papa bear

KRUGMAN!!!!11

[Poboy]

8. I've read this post several times. It does not make any sense.

[abelenkpe]

4. There are economists

who are calling for a ratings downgrade on US debt. They are the same set of economists who are calling for a downgrade of Spanish, Irish, Portuguese, Greek and Italian debt. They were calling for a downgrade before the tax deal and are using the tax deal to renew those calls. These are the same people who believe that all governments should hand over their sovereignty to serve the will of international banks imposing austerity measures on citizens, eroding social programs, unions, and workers rights.

[Poboy]

6. I think it is worthy of being skeptical of the intent, but whether or not

it is a legitimate criticism, no doubt this tax plan the president pushed for WILL be used as one more basis for floating mass cuts in SS, etc.

[Lucky 13]

5. He is a business school professor and columnist.

They tend to have relevant opinions and write about them.

Why attack the author instead of focusing on the content?

[emulatorloo]

9. Opinions are great. But he is begging rating agencies to downgrade U.S. government debt to junk

Why?

[nashville_brook]

3. important stuff. big k and r!

[Fool Count]

7. This is a totally ridiculous suggestion. Credit ratings are supposed to reflect

probability of default on a particular debt obligation. Such probability for US federal government bonds is, and will always remain, exactly zero.
They can always print as much money as they need to keep paying those bonds off. Of course, should they do that, inflation will result with
absolute certainty. But that is not the rating agencies' concern. Their concern is that the bondholders get all that is owed to them, and that they
will, albeit in inflated currency.