Limbaugh on Market Collapse: Obama Engineering the Decline of America

Rush Limbaugh booking photo from his arrest in...

Rush Limbaugh

Top-rated talk radio host Rush Limbaugh finds a “silver lining” in the downgrading of America’s credit rating: There no longer is any doubt that President Barack Obama can be roundly defeated in 2012.

“Obamageddon — that’s what we have witnessed since Friday,” Rush told his listeners on Monday.

“Obamageddon. Barackalypse Now. The only silver lining I can find is that as far as 2012 goes, Obama’s a Debt Man Walking. Anybody want to tell me he’s not landslidable now?

“Let me repeat this as the Media Tweak of the Day: ‘What we have witnessed since Friday is Obamageddon, Barackalypse Now. And the only silver lining out there is that as far as 2012 goes, Obama’s now Debt Man Walking.”

In his blistering attack on Obama and the Democrats, Limbaugh asserted that “we have a president that’s overseeing — engineering — the decline of the American republic.”

He also charged that Democrats are trying to play the blame game against Republicans over the financial crisis.

“Obama is always running around complaining and whining and moaning about all that he inherited from George W. Bush,” Rush said.

“Well, he inherited a AAA credit rating, an unemployment rate of 5.7 percent.

Editor’s Note: Some experts fear that 50% unemployment, a 90% stock market crash, and 100% inflation are on the horizon. Watch the Aftershock Survival Summit Now, See the Evidence.

Limbaugh’s comments came the Monday after Standard & Poor’s downgraded the U.S. credit rating from AAA to AA-plus , and the Dow tanked 634 points. Obama blamed the downgrade on political gridlock in Washington and said he would offer some recommendations on how to reduce federal deficits.

Obama stopped short of sharp criticism of Standard & Poor’s for its downgrade of U.S. debt to AA-plus from AAA on Friday. Senior administration officials have accused S&P of going ahead with the downgrade despite a $2 trillion mathematical error.

“Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we have always been and always will be a triple-A country,” Obama said.

As Obama spoke, stock markets were registering another steep decline, dropping more than 450 points in afternoon trading.

A joint bipartisan congressional committee, to be formed under the legislation passed last week that averted a government default, is to report its recommendations in late November on how to cut $1.5 trillion in spending over a decade.

Obama said he would offer his own recommendations for fixing the problem and cited again the need to raise taxes on wealthier Americans and make modest adjustments to popular but expensive entitlement programs.

Limbaugh took the president’s comments about the S&P, and threw them right back.

“What are the Democrats doing? Blaming the referees! Blaming Standard & Poor’s! That always changes the outcome, doesn’t it? Blame the refs.

“So go ahead and blame Standard & Poor’s all you want, Democrats. Now they’re blaming the military! Barney Frank and the Democrats are trying to say it’s the military’s fault that we’ve been downgraded.

“This is the fault of the Democrat Party,” Limbaugh said, exasperated.

Limbaugh went on to say: “So now we know what Obama got for his birthday: A downgrade of our credit rating, probably exactly what he wanted in his heart of hearts . . .

“World War II, we had a AAA credit rating, and we lose it now, and for what? For what great purpose did we lose it? Except an ideological hatred of American capitalism and a love of class warfare, what did we lose our AAA rating for?

“Think about it: Obama’s finally managed another major accomplishment on that list he told us he had, that list that he said he’d only done about 70 percent so far. At long last, Obama and his fellow Democrats have finally been able to convince the world that we are just another country, after all. There’s nothing exceptional about us or our economy.

“For crying out loud, France has a higher credit rating than we do. France! They produce cheese and perfume, for crying out loud!”

But one person who does not buy into the theory that Obama is deliberately undermining the economy is Donald Trump. The billionaire developer said on Monday that the president is incompetent not malicious.

“There is a theory that he is doing it on purpose but I absolutely do not believe that. He’s just ill-equipped to be president,” Trump told New York’s WOR radio. “Tremendous wrong moves are being made.”

Host Steve Malzberg asked him if he thinks that Obama takes a sip of champagne every time a trillion dollars goes out of the economy.
“No, I really don’t,” replied Trump. “You just have a president who is not doing a good job.”

Read more on Newsmax.com: Limbaugh on Market Collapse: Obama Engineering the Decline of America
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Why Congress and S&P Deserve Each Other

Having Standard & Poor’s downgrade the creditworthiness of the U.S., and warn the country about further downgrades, is a little like having the Catholic Church lecture Scout leaders on the proper behavior toward boys. The moral authority seems to be wanting. S&P, you may recall, is one of the ratings agencies (the others being Moody’s and Fitch) that greased the skids of the financial crisis by awarding AAA ratings to tranche after tranche of mortgage bonds called collaterized debt obligations, or CDOs.

Recall that, unlike U.S. Treasuries, backed by the full faith and credit of the U.S., CDOs were underwritten by garbage mortgages — that is, backed by no-documentation “liar loans” and other Alt-A subprime pond scum handed to borrowers who otherwise couldn’t get a nickel’s worth of credit at their local dry cleaner. S&P stamped CDOs with the same grade it previously awarded to a precious few companies, including Exxon and Microsoft. More than 30,000 CDOs got the AAA blessing from the agencies. S&P couldn’t pull its snout out of the trough even when it became apparent in 2007 that the mortgage bond pig-out was over. This e-mail from an S&P employee, uncovered by a congressional investigation, says it all: “Let’s hope we are all wealthy and retired by the time this house of cards falters.” In their absorbing history of the financial crisis, The Devils Are All Here, Bethany McLean and Joe Nocera bared the behavior of the agencies.

Even when their own analysts began sounding the alarm, senior management refused to stop the money machine. And if the analysts became insistent on being scrupulous, the agencies got new analysts. Why? Because their clients, big banks such as Lehman Brothers and Goldman Sachs, demanded that the CDO machine keep on cranking, until it utterly collapsed.

And let’s be clear: this was all perfectly legal. “S&P’s ratings do not speak to the market value of a security or the volatility of its price, and they are not recommendations to buy, sell or hold a security. They simply provide a tool for investors to use as they assess risk and differentiate credit quality of obligors and the debt they issue,” testified Rodney Clark, head of ratings services for S&P, to the House subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises. In other words, you can’t take our word to the bank, but you can take it to the poorhouse.

When investors like the Wyoming state pension system sued after many of the CDOs crashed in value, the industry stuck to this “It’s just our opinion” defense and won. The U.S. Second Circuit Court of Appeals ruled last August that the agencies were not “underwriters” or “control persons” even if they were in bed with them. The fundamental contradiction of the industry is that the companies that issue the securities pay the ratings agencies for their grades; independence is always suspect, and the courts upheld that.

One of many ironies of the S&P downgrade is that the three ratings agencies have so much power because the federal government, in the form of the Securities and Exchange Commission (SEC), handed it to them. As former TIME writer Barbara Kiviat pointed out in this space, the power of the big ratings agencies dates to the post-Depression era, when the government increasingly relied on them to bless new issues for credit-wary investors. Then, in 1975, the SEC iced the cake, designating a number of companies as “nationally recognized statistical rating organizations,” or NRSROs. If you were not an NRSO as a ratings agency, you were SOL. Why would anyone issue bonds rated by an agency that wasn’t government-approved? The SEC designation had the unintended effect of creating a market lock for the bigger firms. That S&P would slap the hand that legitimizes it is wonderfully perverse given last week’s debt deal. The Tea Party supposedly hates Wall Street so much that it ignored warnings that its Taliban economic policy — threatening to decapitate the economy unless it got its way on spending cuts — would spook the markets, since the Street abhors uncertainty. For a moment, it looked as if the Tea team won, in that the market didn’t tank as the deal wrangling went on and on. Instead, the market cratered post-deal, as the compromised compromise left so much up in the air. Republicans had been chastising the Obama Administration for creating uncertainty, yet they allowed their own radical wing to impose it for the foreseeable future. (Clearly, uncertainty about the resolution of Europe’s sovereign debt crisis contributed to the market troubles too.) So S&P in effect fired a shot across the Tea Party’s bow: You mess with Wall Street, you will be punished. It had another for Obama: Lead, follow or get out of the way. And the two parties blamed each other. “It happened on your watch, Mr. President,” screamed Michele Bachmann, exhibiting the full extent of her knowledge of economics. In making its decision, S&P said the downgrade “reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.”

Here’s the other laughable irony: Congress had a chance to rein in the ratings agencies but demurred. Even though the statutory authority that gave S&P, Moody’s and Fitch an oligopoly on ratings was complicit in their contribution to the crisis, Congress nevertheless refused to remove the NRSRO status. The solons bought the idea that smaller agencies would be crushed if an unfettered free market were imposed on the ratings industry. Funny, that didn’t happen in the airline industry when it was deregulated. And by the way, can you name the fourth, fifth or sixth largest ratings agency? Republicans, heeding the deregulation call of their banking clients (whose demands for deregulation more than a decade ago, blessed by the Clinton Administration, led us down the path to the crisis), bent over backward to defang the Consumer Financial Protection Bureau, which was central to the Dodd-Frank bill, whose hilarious formal name is the Dodd-Frank Wall Street Reform and Consumer Protection Act. Wall Street, having blown trillions during the crisis, demanded not to be hampered by either reform or consumer protection as it recovered from the crisis. Why should the ratings agencies be so encumbered?

So here’s our reward, America: higher costs for our mortgages and higher costs for the federal, state and local governments to borrow. As Fareed Zakaria points out in TIME’s Aug. 15 cover story, a jump of a single percentage point in the interest rate the federal government pays will more than wipe out the savings anticipated by the debt deal. Nice work, that. And we owe it all to an ethically and intellectually suspect ratings agency. (S&P even made a $2.1 trillion error in its calculations but dismissed it as “nonmaterial.”) Yet it has occurred to me that maybe S&P has a point. After all, this is a Congress that let the banking industry run amok, bailed it out with access to trillions of dollars of credit and has since done precious little to ensure that the process won’t be repeated. Nor would Congress reform the ratings industry, which played a vital role in the crisis. Nor did it agree to a deal worked out between Obama and House Speaker John Boehner that would have preserved the AAA rating. If our Congress is that dumb, perhaps we deserved the downgrade.

S.& P. Cuts U.S. Debt Rating for First Time

WASHINGTON — Standard & Poor’s removed the United States government from its list of risk-free borrowers for the first time on Friday night, a downgrade that is freighted with symbolic significance but carries few clear financial implications.

Political gridlock may have resulted in the downgrade in the country’s credit rating.

standard and poorsThe company, one of three major agencies that offer advice to investors in debt securities, said it was cutting its rating of long-term federal debt to AA+, one notch below the top grade of AAA. It described the decision as a judgment about the nation’s leaders, writing that “the gulf between the political parties” had reduced its confidence in the government’s ability to manage its finances.

“The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenge,” the company said in a statement.

The Obama administration reacted with indignation, noting that the company had made a significant mathematical mistake in a document that it provided to the Treasury Department on Friday afternoon, overstating the federal debt by about $2 trillion.

“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokeswoman said.

The downgrade could lead investors to demand higher interest rates from the federal government and other borrowers, raising costs for governments, businesses and home buyers. But many analysts say the impact could be modest, in part because the other ratings agencies, Moody’s and Fitch, have decided not to downgrade the government at this time.

The announcement came after markets closed for the weekend, but there was no evidence of any immediate disruption. A spokesman for the Federal Reserve said the decision would not affect the ability of banks to borrow money by pledging government debt as collateral, a statement that could set the tone for the reaction of the broader market.

S.& P. had prepared investors for the downgrade announcement with a series of warnings earlier this year that it would act if Congress did not agree to increase the government’s borrowing limit and adopt a long-term plan for reducing its debts by at least $4 trillion over the next decade.

Earlier this week, President Obama signed into law a Congressional compromise that raised the debt ceiling but reduced the debt by at least $2.1 trillion.

On Friday, the company notified the Treasury that it planned to issue a downgrade after the markets closed, and sent the department a copy of the announcement, which is a standard procedure.

A Treasury staff member noticed the $2 trillion mistake within the hour, according to a department official. The Treasury called the company and explained the problem. About an hour later, the company conceded the problem but did not indicate how it planned to proceed, the official said. Hours later, S.& P. issued a revised release with new numbers but the same conclusion.

In a statement early Saturday morning, Standard & Poor’s said the difference could be attributed to a “change in assumptions” in its methodology but that it had “no impact on the rating decision.”

In a release on Friday announcing the downgrade, it warned that the government still needed to make progress in paying its debts to avoid further downgrades.

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” it said.

The credit rating agencies have been trying to restore their credibility after missteps leading to the financial crisis. A Congressional panel called them “essential cogs in the wheel of financial destruction” after their wildly optimistic models led them to give top-flight reviews to complex mortgage securities that later collapsed. A downgrade of federal debt is the kind of controversial decision that critics have sometimes said the agencies are unwilling to make.

On the other hand, S.& P. is acting in the face of evidence that investors consider Treasuries among the safest investments in the world. Yields rose before the Congressional deal on fears of default and a possible downgrade. But after a deal was struck, yields sank as money poured into Treasuries as a safe haven from sharply falling stocks and the turmoil of the European debt markets.

 On Friday, the price of Treasuries fell sharply in heavy selling, and yields rose, reversing the moves of recent sessions. The 10-year Treasury note ended the day with a yield of 2.56 percent.

The United States has maintained the highest credit rating for decades. S.& P. first designated it AAA in 1941, reflecting a steadfast belief that the richest nation in the world would not default on its debt payments. The rating was also bolstered by the role of the dollar as the world’s leading currency, ensuring that demand for American debt securities would remain strong in spite of burgeoning deficits.

“What’s changed is the political gridlock,” said David Beers, S.& P.’s global head of sovereign ratings, in an e-mail several days before a debt ceiling agreement was announced. “Even now, it’s an open question as to whether or when Congress and the administration can agree on fiscal measures that will stabilize the upward trajectory of the U.S. government debt burden.”

Experts say the fallout could be modest.

The federal government makes about $250 billion in interest payments a year, so even a small increase in the rates demanded by investors in United States debt could add tens of billions of dollars to those payments.

In addition, S.& P. may now move to downgrade other entities backed by the government, including Fannie Mae and Freddie Mac, the government-controlled mortgage companies, raising rates on home mortgage loans for borrowers.

However, because Treasury bonds have always been considered perfectly safe, many rules prohibiting institutions from investing in riskier securities are written as if there were no possibility that the credit rating of Treasuries would be less than stellar.

Banking regulations, for example, accord Treasuries a special status that is not contingent on their rating. The Fed affirmed that status in guidance issued to banks on Friday night. Some investment funds, too, often treat Treasuries as a separate asset category, so that there is no need to sell Treasuries simply because they are no longer rated AAA. In addition, downgrade of long-term Treasury bonds does not affect the short-term federal debt widely held by money market mutual funds.

In other words, almost no one would be precluded from investing in federal debt, and even the ratings agencies have concluded that few investors would walk away voluntarily.

World Markets Staggered by Weak Consumer Data

As the debt limit drama ended in Washington, storm clouds thickened in the financial markets.

weak consumer dataThe broader United States stock market dropped 2.6 percent, erasing all of its gains for the year. That capped a string of declines over seven consecutive days, its longest losing streak since October 2008.

Fears of a sovereign default in either Italy or Spain re-emerged, and the interest rates on those countries’ bonds soared. United States Treasury yields fell sharply to their lowest level in nearly a year as investors fled to the safety of American assets but also fretted over sclerotic economic growth. Gold, seen as another safe haven, leapt to a record high.

European markets initiated the descent and the United States soon followed, despite Senate approval of an agreement to lift the debt ceiling and cut more than $2 trillion from federal spending.

The markets and the breaking of the budget impasse have been overwhelmed by bad economic news and the chances of more. On Tuesday, a report showed consumers cut spending the most in nearly two years. Attention turned to Friday’s report on unemployment.

Market analysts and economists made clear that even though the debt limit agreement averted a potential default on United States debt, the drawn-out process had taken its toll.

“As the macro data comes out, it seems like we may have more on our hands than just getting the debt ceiling raised,” said Myles Zyblock, chief institutional strategist and managing director of capital markets research at RBC Capital Markets.

“We get no default, but the bad news is there is a growth trade-off,” he said. “They had to agree on fiscal contraction that would weigh on growth.”

Stanley Nabi, the chief strategist for Silvercrest Asset Management Group, said he was starting to hear the word “recession” in questions from clients over the last few days.

Recent economic data is already weak, he said, noting the G.D.P. revisions on Friday that indicated the recession was deeper and the recovery more fragile than originally thought. On Tuesday, the Commerce Department said personal spending fell 0.2 percent in June, the first time it has declined since September 2009. And now that the debt ceiling deal has offered up the prospect of lower spending from the government, Mr. Nabi said, “Who is going to drive the economy?”

“You can’t rely on capital spending,” he said. “Trade is not strong enough to make that much of a difference. As far as the economy is concerned, what the data is showing is the economy has no momentum.”

Lawrence Creatura, portfolio manager at Federated Investors, said, “The challenges that we are facing economically are that the hits just keep coming. We do have somewhat of a resolution to our budgetary impasse, but that does not overwhelm the fact that, economically speaking, that the data continues to deteriorate.”

The Standard & Poor’s 500-stock index was down 32.89, or 2.56 percent, at 1,254.05, erasing all of the gains it had made this year. The Dow Jones industrial plummeted 265.87 points, or 2.19 percent, to 11,866.62, with a big dropoff toward the end of trading. And the Nasdaq index fell 75.37 points, or 2.75 percent, 2,669.24.

As the markets spiraled, analysts sifted through indexes, graphs and numbers, trying to balance risk and opportunity.

Stephen Wood, the chief markets strategist for Russell Investments, noted that the so-called fear index, or Vix, was “bouncing around a lot.” It was down at 24.67, below its high for the year, but also up from the last few weeks when it had hit the teens, even as low as 14.62 at the end of April.

“This is a risk-on, risk-off market,” Mr. Wood said. “You see waves of risk acceptance, then risk aversion.

“My take on it is volatility will be your constant travel companion,” he said, listing the recent euro zone problems, the latest debt ceiling debates, talk of a United States credit downgrade and the potential for an economic slowdown ahead.

“A lot of these variables need to be priced in,” he said.

The benchmark 10-year Treasury was at 2.61 percent, compared with 2.75 percent late on Monday. For the month of July, the note was down 37 basis points to 2.80 percent, compared with 3.17 percent in June.

Analysts said that the yields showed them that even as the instruments might have been in the line of fire of any government default, their price rose, suggesting economic growth concerns were overriding.

“The bond market has a very loud voice,” Mr. Wood said. “And the bond market is telling us that the bond market is more worried about the global economic slowdown than it is about downgrade or default.”

One of the largest looming economic indicators in the United States comes on Friday, when the Labor Department releases its national report on jobs, with estimates that the economy added 85,000 nonfarm payrolls in July, according to a Bloomberg News survey, compared with the 18,000 tacked on to payrolls in June.

Keith B. Hembre, the chief economist and chief investment strategist at First American Funds, said the behavior of the market on Tuesday is “a bit different than the crisis feel.”

“It seems there is an asset allocation change going on oriented around lousy economic data recently, and perhaps there is some prepositioning to that and the expectation of numbers coming in well below the consensus,” he said, referring to Friday’s job report.

Still, one bright spot might be the corporate sector. Second-quarter earnings are on the verge of setting a record, and records are also expected for the remaining two quarters of this year, according to a recent survey by Howard Silverblatt, S.& P.’s index analyst.

But even that could be in flux.

Uri Landesman, the president of Platinum Partners, said that investors were discounting the news of the debt deal and, with such poor economic data, starting to question the viability of corporate earnings for the second half of the year.

Economic data has been a disaster,” he said. “It’s clunker after clunker.

“If the economy is desultory, how are the earnings going to excel?”