Local Real Estate Comments and Ramblings

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Debt downgrade- whose fault is it?

The S&P Downgrade- Whose fault is it?

First of all,  here is a link to the actual S&P downgrade report. I would encourage you to read it and arrive at your own conclusions!

After reading the report, here is my interpretation of it.  My one sentence summary is that "Congress did not do enough to cut spending or increase revenue to make a real impact on our deficit spending and the overall debt".  It specifically mentions that congress did not address spending cuts on the major entitlement programs. The report also mentions that the budgets cuts should not have been deferred to a select committee.  

From the report:

We lowered our long-term rating on the U.S. because we believe that the
prolonged controversy over raising the statutory debt ceiling and the related
fiscal policy debate indicate that further near-term progress containing the
growth in public spending, especially on entitlements, or on reaching an
agreement on raising revenues is less likely than we previously assumed and
will remain a contentious and fitful process. We also believe that the fiscal
consolidation plan that Congress and the Administration agreed to this week
falls short of the amount that we believe is necessary to stabilize the
general government debt burden by the middle of the decade. (Italics are mine)

For any budget, whether it is your household, a major corporation, or a government, if there is a deficit on the bottom line there are two ways to address that.  Cut expenses and/or bring in more money.  Simple enough and I think everybody understands that.  

Cutting expenses- The "guns and butter" debate that I studied in high school will always be there and likely we will never have a complete consensus on what to cut and where to spend.  However, anybody who says there is just no room to cut federal spending has their head where the sun don't shine.  We all know the government is a huge bureaucracy full of redundancy and waste.  If we simply freeze spending and let the economy grow at current rates the budget balances in about 11-13 years.  I personally like the "Penny Plan" that has been talked about.  Cut 1 penny out of every dollar spent each year for the next 8 years.  Nothing dramatic but some belt tightening across the board.

Raise revenue - Here is where some big disagreements occur.  A business can raise prices or find a way to sell more of the good or service it provides.  The correlation to government would be to increase taxes or expand the economy.  In the recent debt discussion revenue increases were the Democratic code words for tax increases. Republicans would more favor giving incentives to people that would expand businesses and have the extra benefit of creating jobs.

But those big corporations don't pay hardly any taxes now!  They should pay their fair share!- People need to understand 1 point.  When enough people understand this point then we will finally see the economic progress and expansion that we need ..... Corporations(or any business) don't pay taxes, they collect them! What? Taxes are simply a business expense that is passed along in the final cost of the product or service they provide.  Oh sure, they might write a check to the IRS, but they get the money from whatever it is they sell. Where does that money come from?  Ultimately it comes from you and me.

My opinion- The traditional Republicrats and Demicans came up with a typical compromise piece of crap PR piece of a bill to make look like they were taking serious action when in reality it does very little.  The spending cuts proposed over the next 10 years do nothing to address the current spending levels and the responsibility for those cuts was kicked to a committee. Like we need more government committees.  Tax rates for business should be frozen or even reduced.  Capital gains tax should be lowered.  Money that businesses have on foreign soil should be allowed to be brought back to the U.S. tax free. If they keep the money in a foreign country we never get the taxes anyway. It would be free money flowing back in to the economy.

Read the report yourself, think it through, and tell me your opinions and ideas.
 

*****

 

 


Bob Southard
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Comment balloon 12 commentsBob Southard • August 10 2011 10:34AM

Comments

Hey Bob-I think you and I are on the same page here. I also believe everyone understands except for 1 group in Washington with a very specific agenda. Like you said big corporate America pays hardly any taxes now and where are all the jobs this is supposed to create? They are just stashing the cash.

One thing I know for sure is that even though I scaled back to basic cable, cut my own lawn now and clean my pool myself unless I sell a property on a regular basis and have inflow I will still have a problem paying the mortgage and buying food:)

Posted by Marco Giancola, Realtor (305)608-1922, Miami Beach Florida (Beachfront Realty) almost 7 years ago

It galls me that this same company gave the AAA ratings to the packaged derivatives that brough down the market. I am sure that the "1 group" will blame this on everyone but themselves. 

Posted by Elizabeth Birmingham (EB Realty) almost 7 years ago

Although I understand and respect your opinion about Congress and the current level of spending, the job of S&P is not to involve itself in politics.  They are a rating company that assigns levels of credibility to the issuers of bonds.  Their conclusions are supposed to indicate the level of confidence recommended in an entity's ability to pay the coupon rate on the bond and ultimately redeem the bond on its due date.

S&P has a legacy of failure.  For example, they failed in their rating of RMBS and a few other entities like Enron and Worldcom.  They now have indicated that the United States has less probability of meeting its bond obligations than France, Isle of Man, and Liechtenstein.  There are issues that need to be addressed in this country, but S&P and their ratings are neither reasonable nor accurate.  They are a company looking for business, and they have again shot themselves in the foot.

Posted by Mike Carlier, More opinions than you want to hear about. almost 7 years ago

Mike and Elizabeth,

You know I didnt even touch on that but I think it is reasonably valid.  The other major rating agencies have not downgraded U.S. debt yet. I still think it is a major wake up call but we should be careful how much credibility we even give to S&P.

Posted by Bob Southard, e-Pro - Cobb, Cherokee, North Fulton (Atlas Realty Service, LLC) almost 7 years ago

I agree with much of your post. Where I take issue, is with the S & P report. Their evaluation should be a measure of our ability (or our will) to pay our obligations in a timely manner. In particular, I have no problems with "entitlements" other than the elimination of fraud. A tiny adjustment in contribution would make these programs sustainable for far longer periods of time. Cutting the "entitlement" is a choice the voters need to make, if they choose.

Posted by Fred Hookham (Keller Williams) almost 7 years ago

They didn't even cut the budget. They only reduced the amount spending will increase!

Only in DC could that be considered a reduction in spending. Spending increased by 42 X what the budget was reduced by. No true cuts here.

Hey, Honmy, I am going to reduce or spending by 10% this year (but only after I increase our budget by 50%). HUh? This is a reduction, really?

Posted by Than Maynard, Broker - Licensed to List & Sell - 405-990-8862 (Coldwell Banker Heart of Oklahoma) almost 7 years ago

Certainly there were political agendas in play at S&P. There were at Moodys as well. The sad sad fact is that if the credit of the United States was evaluated like yours or mine they'd be lucky to have A credit. You and I take a hard hit on our credit score if we're overextended (and probably can't get a loan at all due to out of whack debt to income ratios). Moodys and S&P would have been happy if we'd have just given the Congress a much larger increase in their credit card limit.

I'll take it one step further. If you or I presented the bank with the crap that Congress has presented us with in terms of the buget and out spending we'd be put in jail.

Posted by Walter Hayes, Make the Right Move! (Oak Creek Realty Group LLC) almost 7 years ago

Congratulations - This post is now featured in Silent Majority Group of Active Rain!

Posted by Broker Nick, Broker Nick Relocation Broker Service (South Florida Real Estate & Development, Inc.) almost 7 years ago

But don't forget - Obama still has the presidency and the Senate - the Republicans hands are tied - they are doing the best they can do - but we all know they can do alot better as well.

Posted by Broker Nick, Broker Nick Relocation Broker Service (South Florida Real Estate & Development, Inc.) almost 7 years ago

We absoutely need major spending cuts and Washington is the only place that seems to not want to believe it.  Granted the sacred cows of social security, medicare, and medicaid will offend lots of people when cuts start happening.  Not sure how that will play out as I watch riots in France, Greece, and the United Kingdom - it is quite scary. 

As for corporations, yes they pass on the tax expense through their products.  But in the end prices are set by supply & demand (except maybe for monoply oil companies), so a company cannot arbitrarily raise prices just because their expenses go up.  If that was the case, every real estate agent in town would charge twice as much to do a short sale. 

Posted by Rob Arnold, Metro Orlando Full Service - Investor Friendly & F (Sand Dollar Realty Group, Inc.) almost 7 years ago

It is EVERYBODY'S fault except the liberals.  Remember that , folks.  They have done EVERYTHING right. 

 

For the love of Pete, does anyone really still believe that????

Posted by Virginia Cheezum (F. C. Tucker Company) almost 7 years ago

We have a SPENDING problem, NOT a taxing problem. If taxes go up, so will the spending CONTINUE to go up.

Posted by John Mosier, Prescott's Patriot Agent 928 533-8142 (Realty ONE Group Mountain Desert) almost 7 years ago

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