"Balanced Budget Amendment": There I said it, Alan!

Welcome to TishTrek - THE JOB BLOG!!

TishTrek answers some important questions in a discussion on LinkedIn started by Alan Liss on LinkedIn:

Alan asks: "Did S&P downgrade America's AAA rating because of "Tea Party Terrorists" or because both parties in Congress are incapable of making the difficult cuts in spending?"

"S&P… said the bi-partisan agreement reached this week to find $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would have no luck achieving more savings later on. I say let’s blame the only group that actually took a principled stand to stop the insane spending - The Tea Party! I know all of our defenders of the Obama administration will. Can anybody finally say “Balanced Budget Amendment”?"


"U.S. Loses AAA Credit Rating as S&P Downgrades on Concerns Over Debt..." @ bloomberg.com: "The U.S. had its AAA credit rating downgraded for the first time by Standard & Poor’s on concern spending cuts agreed on by lawmakers to raise the nation’s borrowing limit won’t be enough to reduce record deficits."

In TishTrek's professional opinion, the U.S. has a big umbrella problem and it applies to all political parties and every institution in Washington DC - the search for high caliber talent failed so there aren't enough leaders who can multi-task within a 60-mile radius of Capitol Hill, but let's focus on the S&P downgrade...

Make no mistake, the downgrade from AAA to AA+ was the result of more factors than we can count. I don't understand all the people out there looking at these challenges through the paradym of a single issue, talking point, or vitriolic label.

Targeting the Tea Party, the Obama Administration & Spending Cuts in volatile silos won't solve the 'other' root causes which - in a big way - contibuted to the downgrade of the U.S. credit rating. The U.S. is $14 trillion in debt and tracking to a $22 trillion debt burden as a result of last week's Debt Ceiling Deal. USA TODAY SURVEY on August 3rd, 2011 read as follows: "Here's one you can take to the BANK!" 8/4/11 quote from writer Susan Page: "The hard-won, last-minute agreement to raise the debt ceiling and cut the deficit gets low ratings from Americans, who by more than 2-1 predict it will make the nation's fragile economy worse rather than better."

Few were surprised by the downgrade BECAUSE Americans and S&P are not just myopically focused on the Debt Ceiling! We see spending as one tangible risk that is within our reach to mitigate at a time in our nation's history when we are deeply worried about business factors & trends that are mostly out of our nation's control, which - COMBINED WITH OUT-OF-CONTROL SPENDING equates to an alarming systemic risk that 'could' threaten our economic stability for more than a decade. The list includes, but is not limited to:

1) Alarmingly weak GDP growth, (i.e. Contrary to what many 'experts' are suggesting, I have to say you can't add 100 new jobs to my brother's restaurant and think additional customers will show up Friday night because the system doesn't work like that. We need more repeat customers to DEMAND our dining services FIRST; then we get to add additional employees to meet the demand ; 2) U.S. smoke-&-mirror job numbers that don't add up or reflect reality worry everybody (these #'s which are 'revised' way too often to be believed (per CNBC) & include ONLY the # of citizens who apply for benefits for the first time AND exclude the # of unemployed who stopped getting benefits; those who stopped looking for jobs or who are grossly under-employed with no end in sight; 3) No one is counting the millions of unemployed & undocumented citizens who are suffering & out of work & don't qualify for unemployment because they never had the chance to pay into the system, (Analysts are trying to project what it will cost the Federal & State Gov'ts to fund housing, food, education & medical needs so this population can survive throughout this economic downturn) ; 4) News reports & competitive intelligence confirm that 2011 corporate cost-containment initiatives will continue to include tens of thousands of rolling layoffs in the U.S. between today and December 31st as companies work tirelessly to meet their year-end revenue goals in an R-o-E / R-o-I challenged environment; 5) New anti-biz regulations rolled out in the U.S. this year by the Environmental Protection Agency, National Labor Relations Bd, etc have stopped regional industries & other corporate activities in their tracks across the U.S. without the U.S. Congress having an opinion or vote on such matters (Whether you agree with the EPA or NLRB policy is not the issue during a rating assessment. Analysts have to project the adverse impact of these numbers on the economy as this trend and other policies important to the Obama Admin continue); 6) it is reported that the U.S. just surpassed Japan to become the highest 'corporate tax hustler' on the planet, (i.e. - Meaning businesses large & small must plan for a higher tax burden if their business stay on U.S. soil. If they move large business/functional areas or U.S.-centric parts of their businesses out of the U.S. to escape such burden it will have a financial impact on the U.S. economy). 7) Goldman Sachs, HSBC, & others just announced that there is now a hyper-focus inside their companies on emerging markets... HSBC is exiting much of it retail biz in the U.S. (Last wk, it sold 195 bank branches to First Niagara in Upstate New York; its in-process right now of selling its credit card biz to CapitalOne, etc), so Chartered Financial Analysts & other experts are assessing these business trends & decisions and they're forecasting what will be the financial impact of companies rapidly exiting certain U.S. industries & communities; they also have to project where the increased corp tax revenue & jobs will come from if too many of the traditional companies who always executed business & created jobs in the U.S. begin what some worry could become the 'Largest Funded Emerging Market Initiative' in corporate history as companies flee the U.S. to gain market share abroad in an effort to meet business & revenue goals in environments with less taxes and government regulation, (i.e. WHERE companies plan to grow their business over the next three years is a critical data point for the U.S. economy); 8) Then there's the Fed & the Treasury Head: The Fed-led 'paper-over-it' approach, the smoke & mirrors of QE2, bail-this-&-that-out, and TARP didn't accomplish the most important stated goals. Hundreds of billions of dollars were spent for short-lived gains & some want us to keep the print shop open - (The questions Americans & countries all over the world have is who's focused on the value of the dollar?); It's actually been reported that the 'paper-over-it approach' inspired a couple of foreign powers (Russia & China) to 'chat' recently about eliminating the 'declining dollar' as the world's reserve currency, (Don't laugh or call me a crack-pot! I know most think that would be impossible? BUT... if they're chatting about this topic somewhere in the world, we have to be focused on it. Americans (and the whole world for that matter) didn't think Lehman Brothers, AIG and Bear Stearns would go out-of-business in 5 minutes either, so now we know all risks within our reach must be researched, mitigated & eliminated. AND reducing the Debt of the United States falls under that mandatory & critical category.

Finally - I have to say this: FOR 10 YEARS, an army of PhD mathematicians & CFA economists were paid by Wall Street firms to assign contrived 'Triple A' ratings to the Mortgage/Subprime/CDO clandestine bundles as these risky & toxic bets were sold to unsuspecting investors & institutions worldwide, (Go back and research the analysis; take it a step futher - check out how one analyst involved in this mess approached valuations for other asset classes and compare it to what he/she did in the Mortgage/Subprime market. My gosh - you'll cry!). The massive & collusive lack of integrity, objectivity and the failure to execute the responsibilities of their profession wrecked our economy. Where were we and the leaders inside Washington DC & inside these multinational corporations, and inside foreign governments when all of this was planned & executed? How come one lone analyst in Oppenheimer - Meredith Whitney - was the only one with the management courage to warn the world about these toxic bets that were about to send shock waves across the world?! (Everyone should note that people in power viciously attacked Ms. Whitney personally and savaged her spot-on opinions the same way they are attacking S&P now).

Let's hope Standard & Poors is trying to transcend that era of horrific transgressions. Let's also hope all Americans can skip 'talking points' and the attack on 'worried messengers' to focus on solutions. Right now, the U.S. can certainly use help from any 'expert' & 'thinker' who was raised to operate with integrity!

Respectfully submitted,
TishTrek