Standard and Poor's Archives | Restoring Liberty

Despite Oil Prices Plummeting, S&P Not Downgrading Alaska, Yet

December 19, 2014/1 Comment/in Alaska News, Featured /by Standard and Poor's

Photo credit: roger4336

Alaska has built up layers of budgetary reserves that allow it to absorb one or two years of large operating deficits — just outside of our outlook time horizon –at its current rating level. But in order for it to avert credit quality deterioration, we believe the state must make material progress in reducing the deficit in its fiscal 2016 budget.

Although the rapid decline in oil prices exacerbates Alaska’s existing fiscal budget deficit, whether it will weaken the state’s credit quality will depend on the state’s budgetary response. For fiscal 2015, the state assumed oil prices would average $105.06 per barrel, giving rise to about 495,900 barrels
per day of production on Alaska’s North Slope. Based on more recent price and production information, the state has revised its estimates to $76 per barrel and 509,500 barrels per day for fiscal 2015.

The state’s assumptions regarding oil prices and production are integral to its budget condition because oil-related revenues made up 88% of its estimated revenue for the 2014 fiscal year and 79% of fiscal 2015. At enactment, the state’s budgeted general fund expenditures for fiscal 2015 exceeded its unrestricted revenues by $1.4 billion. Weaker oil prices and production resulted in an updated budget gap of $3.5 billion, equal to 57% of general fund expenditures. For most states, an operating deficit of this magnitude would likely result in immediate negative rating consequences. In Alaska’s case, however, extraordinarily large budget reserves effectively buy the state time to deal with its structural misalignment.

In Surprise Move, Standard & Poor’s Cuts Spain’s Debt Rating to One Step Beyond Junk Status

October 11, 2012/0 Comments/in International /by Angeline Benoit and Ian Katz

Spain’s debt rating was cut to one level above junk by Standard & Poor’s, which cited euro-region peers’ backtracking on a pledge to severe the link between the sovereign and its banks as it considers a second bailout.

The country was lowered two levels to BBB- from BBB+, New York-based S&P said in a statement yesterday. S&P assigned a negative outlook to the nation’s long-term rating and lowered the short-term sovereign level to A-3 from A-2.

The downgrade comes after Spain announced a fifth austerity package in less than a year and published details about stress tests of its banks. Creditworthiness concerns have grown since the government requested as much as 100 billion euros ($129 billion) in European Union aid in June to shore up its lenders and amid signals that the deficit target is in jeopardy.

S&P said the government’s action will probably be constrained by “a policy-setting framework among the euro-zone governments that still lacks predictability.” Recent statements on the European Stability Mechanism’s involvement in bank recapitalizations put into question the mutualization of loans to Spanish banks among euro-region nations, it said.

That possibility was a key factor in S&P’s decision to affirm ratings on Spain on Aug. 1 as it would enable Spanish net general government debt to remain under 80 percent of gross domestic product beyond 2015, it said.

U.S. Credit Downgrade: Another Obama First!

August 8, 2011/1 Comment/in News /by newseditor

Three years ago, many well-meaning Americans suspended concerns about Barack Obama’s experience, judgment, and associations in order to vote for an “historic” president. To paraphrase H.L. Mencken, they got one — good and hard. Friday night, for the first time in history, Standard & Poor’s downgraded the U.S. credit rating from AAA to AA+. The United States earned the top rating the moment such rankings began in 1917 — which means we maintained our AAA rating through the Great Depression, stagflation, malaise, and the 1982 recession. Thirty months of Barack Obama, and it is gone for the first time in history. Change we can believe in!

The retrogression is neither surprising nor is it the only “historic” first The One has perpetrated against the United States. Obama cajoled Congress for weeks that it had to pass a debt ceiling compromise by August 2 to avoid just this occasion. But as Rep. Tom McClintock, R-CA, pointed out, “The purported cuts, even if realized, are far below the $4 trillion deficit reduction that credit rating agencies have warned is necessary to preserve the Triple-A credit rating of the United States government.” S&P used precisely this language in its statement about downgrading the United States, saying the resultant cuts fall “short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.” It faults political gridlock and the lack of “containment” of entitlements. The same administration experts who insisted GOP sellouts on the debt compromise would stave off Friday’s downgrade also insisted passing a stimulus plan would hold unemployment below eight percent.

Even less surprising is the fact that the Obama administration actually believed its rhetoric could stop the inevitable. When Standard & Poor’s began hinting at its actions, anonymous officials began a whisper campaign that the agency’s math was off. Jake Tapper reported Friday evening, “Because of the pushback, the Obama administration is preparing for the downgrade but is not 100% positive it’s going to happen, officials said. And if the downgrade does happen, officials are not sure when it will happen.” S&P downgraded the U.S. hours later. Choosing talk over action has consequences, at home and abroad.

The consequences of his actions are unknown and foreboding. The new credit rating may cause inflated interest rates to trickle down to states and localities, or make all borrowing rates rise.

Economic growth would shrink the importance of the national debt — but such growth is not expected as long as Obama is president. Economists expert growth in debt, and its attendant economic disintegration, in the years to come. Under most estimates, debt would amount to 88 percent of GDP in ten years. S&P warns under its pessimistic scenario, debt will reach 101 percent of GDP in 2021. (AFP news service reported on Wednesday, that U.S. borrowing topped 100 percent of GDP.) Carmen Reinhart of the Peterson Institute for International Economics testified before the House Budget Committee in March that growth begins to slow noticeably once debt crosses the 90 percent threshold. The European Central Bank suggested negative impacts begin at the 70-to-80 percent level. Even the adoption of the debt compromise spooked the stock market, causing a decline for nine out of the past ten sessions, a streak not seen since 1978 when Jimmy Carter was president.

Read More at Floyd Reports By Ben Johnson, The White House Watch

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