February 22, 2012
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S&P knocks U.S. debt down a notch
Wednesday, 10 August 2011 23:00
During this past weekend, rating agency Standard & Poor’s (S&P) downgraded the sovereign debt of the United States by one notch, from AAA to AA+, with a “negative outlook,” meaning there is danger of further downgrades in the future. Other rating agencies, notably Moody’s and Fitch, are staying for now with their AAA equivalent ratings, though Moody’s carries a “negative watch.”
The United States now has a “split rating” — meaning inconsistent — from the top agencies.
There are two chief criteria that lenders consider in making a loan. The first is ability to pay. The second is willingness. No one questions the ability of the United States to pay its debts at this time. However, the circus in the House of Representatives raised the question of whether we are willing to pay, and long term, whether paralysis in our political institutions will undercut our ability to pay. As S&P stated, the downgrade reflected its view that “the effectiveness, stability, and predictability of American policy making” have weakened at a time when we face “ongoing fiscal and economic challenges.”
Our asthmatic economy
Written by Andrew Szabo
Wednesday, 03 August 2011 23:00
In the midst of the crisis over the debt limit of the United States, the most recent numbers came in on Friday for our gross domestic product (GDP). They brought no joy. It appears that our economy is still breathing, but asthmatically. With its flow of federal stimulus oxygen cut back and choking on high oil prices, a continuing huge trade deficit with China, and state and local government cutbacks, it’s gasping.
In particular, according to the U.S. Bureau of Economic Analysis (BEA, part of the Department of Commerce), U.S. GDP grew at only a 1.4% annualized rate in the second quarter of 2011. (GDP measures the total final value of all goods and services produced in a country during a given year.) Even more striking is that first quarter GDP was revised downward from 1.9% to only 0.4% annualized. I suspect in due course that the second quarter GDP advance estimate will similarly be revised downward.
Fairness and economics in entitlements
Wednesday, 13 July 2011 19:00
In this series, I’ve reviewed the major federal and federal/state entitlement programs, including Medicare, Medicaid and Social Security (old age, survivorship and disability benefits). Important decisions are facing us, and political considerations will naturally come to the fore in that debate, as the two parties and different interest groups seek to energize and mobilize their supporters. However, sometimes it makes sense to step back and try to look dispassionately at the fundamental issues. In this concluding piece, let’s go back to first principles, asking three basic questions about entitlements: What is fair? What is economically efficient? What is feasible?
The Social Security Dilemma
Written by Andrew Szabo
Friday, 01 July 2011 12:30
This week, let’s continue our review of federal entitlement programs and their fiscal problems by considering social security.
The social security program is massive. As of 2009, it paid benefits to36 million retired workers and their dependents, 6 million survivors of workers, and 10 million disabled workers and their dependents. During that year, approximately 156 million people made contributions to the system through payroll taxes.
Medicare trustees give warning
Thursday, 02 June 2011 00:00
We had written last month, concerning Medicare, that the Hospital Insurance (“HI”) Trust Fund “has faced problems with solvency almost since inception.
The Patient Protection and Affordable Care Act (“ACA”) of 2010 extended the officially projected date of HI insolvency from 2017 to 2029. However, examined more carefully, this improvement is based primarily on projections of greatly increased health care productivity, which may never be realized.”
This gets a little technical — please stay with me. By way of background, the HI Trust pays for Medicare, Part A, which includes hospital, nursing home, home and hospice care, and other services for the aged and disabled. There is a second trust fund, Supplementary Medical Insurance (SMI). It pays for Medicare, Part B, including doctors and outpatient care, and part D, which is for prescriptions and was enacted under President George W. Bush. SMI is called a trust fund, but it does not have long-term capital.More Articles...
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