Rating agency concerned about Democrat willingness to lower deficit

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NY Times:

Washington’s deficit reduction debate came to Wall Street on Monday, after the Standard & Poor’s rating firm lowered the outlook for the United States to negative, saying there was a risk that lawmakers might not reach agreement on how to address the country’s fiscal issues.

Indexes fell sharply as the S.& P. revision pushed the federal deficit problems out of the political arena and into the financial one. By noon, Wall Street indexes were down at least 1.6 percent in afternoon trading as bond prices rose and yields declined.

Many analysts were surprised by the market response to the revision, which cut the long-term United States debt rating to negative from stable. The S.&P. also affirmed the government’s AAA rating.

“The idea that the U.S. public finances are on an unsustainable trajectory is hardly new news,” economists from Capital Economics said in a research note. “Indeed, we warned that the U.S. might be downgraded, or at least put on negative watch, as far back as nearly two years ago.”

Analysts said the upside of the announcement was that it could spur the administration and lawmakers to find a way to reduced the nearly $1.5 trillion budget deficit.

...
The fact is that Democrats made a bad bet on spending to stimulate the economy after Obama was elected and it has blown up in their face. It did not stimulate the economy or job growth in any meaningful way and it lags all post war recovery performances. It is especially weak in comparison to the Reagan recovery where he cut spending and taxes.

The agency message to Democrats is that better get serious about cutting spending quickly. Raising taxes is not going to be the answer. They could confiscate the wealth of their tax targets and still not keep up with their spending binge.

It will be hard for Democrats to admit that the liberal approach to recessions is a failure, but they do not really have any choice other than cutting spending are keeping us on the road to ruin.
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