Thursday, September 22, 2011

Why the U.S. of A got downgraded

Neat analysis via the Corner:
Why S&P Downgraded the US:
U.S. Tax revenue: $2,170,000,000,000
Federal budget: $3,820,000,000,000
New debt: $ 1,650,000,000,000
National debt: $14,271,000,000,000
Recent [April] budget cut: $ 38,500,000,000
Let’s remove 8 zeros and pretend it’s a household budget:
Annual family income: $21,700
Money the family spent: $38,200
New debt on the credit card: $16,500
Outstanding balance on the credit card: $142,710
Budget cuts: $385
Of course, if we're making the household budget comparison then traditionally it's been reasonable to look at the national debt vs. GDP, or the household credit card balance vs. yearly income.  The CBO estimates that the total debt will reach 100% GDP in 2021 and could reach 190% GDP by 2035.  When you owe as much as you're making in one year it's time for the repo men, who are not going to be impressed by your recent pledge to slow spending by $385.


B&S said...

Neater analysis:
Why S&P downgraded the US:
Because after repeatedly screwing the pooch by not spotting the world financial crisis or the imminent failures of banks and major financial institutions, all the while handing out AAA-ratings like funny money at a strip club, the company's reputation was in the crapper and it needed to make a "bold statement."

You'll notice that Fitch and Moody's have not followed S&P's lead.

You'll also notice that even as domestic and international investors have been dumping many other assets these past two months, they are streaming towards U.S. bonds. (Which have supposedly just gone up in risk.)

This isn't to say that the math in that table is endlessly sustainable. But citing S&P's downgrade as significant is like taking marriage advice from Larry King because of his vast experience on the subject.

Eric said...

IIRC, both Fitch and Moody's issued warnings or negative outlooks on their recent ratings. I can't believe that Obama's "Buffett Rule" nonsense is going to ease their concerns.