The $100 Billion TeaBagger Tax

Last week, when analysts were contemplating a debt downgrade, they put a price tag on it: $100 billion.

A downgrade of the United States’ AAA credit rating is a bigger risk than a default and could over time add up to 0.7 percentage point to bond yields, members of a U.S. securities industry group said on Tuesday.

“That’s on the order of $100 billion over time that we will add to our funding costs,” said Terry Belton, global head of fixed income strategy at JPMorgan Chase. He was speaking on a conference call organized by the Securities Industry and Financial Markets Association, also known as SIFMA.

Over time, he said Treasury yields could rise 60 to 70 basis points on a credit downgrade — “a huge number because we’re talking a permanent increase in borrowing costs.”

That would make it more costly for consumers and business to borrow money and could land the economy back in recession.

That’s a big number though.

A better way of thinking of it is how much every American will have to pay. That $100 billion among 310 million Americans works out to be $322 for every man, woman, and child to pay for the TeaBagger’s little temper tantrum.

To put that in perspective, that’s more than the 2008 Bush tax rebate gave to taxpayers (rebate checks started at $300/person).

So the TeaBaggers are now taking away whatever benefit we got from Bush’s last tax cut.

23 replies
  1. MadDog says:

    @MadDog: Ahhh horsefeathers! For preview I’d give…

    Let me try again:

    Don’t worry. The Teabagger Repug party will put it on their our credit card.

  2. masaccio says:

    I took a look at the S&P methodology for calculating sovereign ratings. The link is unwieldy, but you can find it here:

    Read paragraphs 36-41 or so, the paragraphs that S&P claims are relevant. I can see the change to predictability of the response of the US government to fiscal problems, that is a natural result of the rage around the problem. I’m not seeing the basis for a downgrade in these sections.

  3. masaccio says:

    Here’s a link to the full text of the S&P press release:

    This seems like a pretty good summary:

    Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a ’AAA’ rating and with ’AAA’ rated sovereign peers (see Sovereign Government Rating Methodology and Assumptions,” June 30, 2011, especially Paragraphs 36-41). In our view, the difficulty in framing a consensus on fiscal policy weakens the government’s ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid).

  4. MadDog says:

    @masaccio: The Repugs via folks like Chinless Mitch (™ by Tengrain) McConnell have gamed out that their continued crippling of the US economy will lend itself to Repug hegemony at little cost to them.

  5. radiofreewill says:

    The only thing authoritarians respect, in the final analysis, is authority – and, ultimately, that means physical authority.

    Lincoln’s election – as an abolitionist – was such an affront to the South, that they rejected the authority of the Constitution and the Federal Government altogether – and left the Union to keep slavery ‘legal.’

    We fought the bloodiest war of the 19th century over it; in order to determine with final human authority whether we would all carry-on as a free nation together, or not.

    And, finally, after much fervent and passionate killing – the loser agreed to change his mind and accept the Founders’ principle that equality is the law of the land.

    So, the last time it was authoritarians up in arms over being told ‘no, you can’t enslave blacks’ – this time it’s authoritarians up in arms over being told ‘no, you can’t steal everyone’s money’ – and told to them by a free black man, no less.

    It’s practically guaranteed that they will, once again, challenge the authority of the Constitution and the Rule of Law, and threaten default, downgrade, shutdown, gridlock – everything including encouraging physical violence – if they don’t get their way: No New Taxes on the Rich.

    This should have been the biggest RICO case in history.

    The best thing, imvho, that could happen right now is for the Rule of Law to start shagging some influence-peddling criminals.

    Tossing a steady stream of crooks in jail is a wonderful way to show authority to those who would challenge it nefariously.

    And it wouldn’t be bad for our credit rating, either.

  6. jo6pac says:

    I have to disagree with this numbers game.

    $322 for every man, woman, and child to pay for the TeaBagger’s little temper tantrum.

    We all know that the elite will just add the cost on to Main Street because they don’t feel they should be treated unfairly just because they’re rich

  7. joberly says:

    EW–That JP Morgan estimate you link to is a direct measure of increased US borrowing costs because of a potential downgrade or a default; the comment from JPM was written on July 26th in the context of a failure to raise the debt ceiling. I think it’s hard tonight to figure out if that pre-August 3rd estimate of a 60-70 basis point rise will bear out since the estimate was made assuming something other than simply S & P “pulling the trigger” as you put it.

    One other matter: I’ve seen comments over the past week that a bigger worry is the downgrade would lead to a dumping of treasuries by pension funds that have to keep “AAA” rated securities as part of their portfolios. The only one I can speak to is mine—the Wisconsin Retirement System (WRS) which manages $83 billion of the Employee Trust Funds (ETF). The guidelines for ETF don’t prohibit investments below “AAA” but they do limit how much “AA” “A+” “A” and even “B” rated bonds ETF can buy. There are two exceptions: US treasuries and purchases in the overnight “repo” market backed by US treasuries. There is no limit on how much ETF can purchase in US treasuries or repos-based-on-treasuries, and no requirement that treasuries have any sort of rating at all. So…I guess the WRS will not be conducting forced-sales of treasuries on Monday morning.

    P.S.—as of its last report, ETF had $250 million into “A+” rated Republic of Italy bonds and another $25M in “AA” Kingdom of Spain bonds. Not sure how those are going to work out…

  8. prostratedragon says:

    There are two exceptions: US treasuries and purchases in the overnight “repo” market backed by US treasuries.

    I wonder how common this exception is? Seems reasonable that it would be quite common. I also wonder, as sort of an iq check, how widely known it is.

  9. radiofreewill says:

    Is $100 Billion just a down-payment on the federal-government-wrecking mayhem to come?

    In 1861, the South seceded from the Union.

    In 2001, did the same folks ‘super-cede’ from the Union?…behind the cloak of secrecy called ‘national security’?

    Isn’t the Occam’s Razor answer to the Aug PDB that Bush was ‘made aware’ in the strongest possible terms that 911 was imminent – but that he let it happen, anyway? Resulting in the secret cloaking of the Neocon authoritarians’ security state?

    Could the Neocons, the New South, have secretly changed the definitions of key words to ‘conform’ with their own ideology, which had the effect of ‘legalizing’ activities that – on their face – would be called criminal according to all the precedents of the Law?

    Hiding behind secrecy, could they have acted-out their despotic authoritarian agenda, while spinning the public through kabuki dances played-out on the stage of the subordinated Constitution?

    If so, then how does that genie get put back in the bottle? Why would a group secretly in total control – and very possibly guilty of Crimes Against Humanity – give up that control? They would have every incentive to stay hidden and advance their agenda until their total control was so assured that they could be public about it with impunity – for instance, after the federal government loses its authority…

    How would we recognize that the same group might still be in control today, even if there is nominally a ‘new’ administration? What might that ‘look’ like?

    – ‘Not looking back’ is the same as morally ‘looking away.’

    – ‘Everything is fucked-up, and nobody goes to jail.’

    – It was ‘my way or the highway’ before, and it’s ‘my way or the highway’ now.

    Who’s really in charge, and how do we know?

  10. emptywheel says:

    @joberly: Right, but the passage I quoted came from the discussion about downgrade only–even by July 26, it was looking like a possibility we’d get a deal passed, but still be downgraded.

  11. Carolyn Kay says:

    Yes, but some of that money from higher interest rates will go to older people who did what they were told to do–save some money for retirement, but are having a hard time with the current 1% interest rate.

    At 1%, savings of a million dollars bring in $10,000 a year, barely enough to live on, and even then only in the most stringent of circumstances.

    I’m enjoying your site, Marcy, but I wish you’d stop using the term TeaBaggers. I don’t agree with anything those people stand for, but I don’t think demeaning them will win them over to our side.

    Carolyn Kay

  12. emptywheel says:

    @Carolyn Kay: Remember they actually used the term themselves, first.

    I don’t use it that much anymore–but I thought TeaBagger Tax not only sounded better, but since the right wingers are panicking a bit about this, I thought it worthwhile, this once.

  13. joberly says:

    @prostratedragon # 9– to your question about how typical Wisconsin is in exempting treasuries from any type of ratings limit: I checked Calpers ($233 billion in funds) and can’t find a policy statement about holdings of fixed-income below “AAA”; the same for Teachers Retirement System of New York City ($33 billion), where my oldest son is a member–no policy statement, there either that I can find. So I don’t know the answer.

    @emptywheel # 11–you’re right, I’m wrong about that July 26th article quoting JPM on a one-in-two chance of downgrade even with a debt ceiling deal.

  14. matthew carmody says:

    @radiofreewill: Sorry, but the losers did not decide to change their mind and go along. The losers remained determined to obstruct the orderly functioning of the United States government and refused to honor the constitution or obey the laws passed by the majority of the representatives of the country.

    They then proceeded to indoctrinate their children in the myth of the Lost Cause engendering a resentment and contempt for the rest of the country and harboring a special antagonism for blacks and anyone who would dare speak for them.

    The result is people like Joe Wilson (who shouted “You lie” to Obama on the anniversary of South Carolina firing on a U.S. Navy ship in 1861) and Jeff Beauregard Sessions named after a prancing peacock of a Confederate general with a Napoleon complex.

    Lincoln should have turned Sherman loose on the entire south when the war ended instead of being so conciliatory. The traitors should have been imprisoned and people like Jefferson Davis and Alexander Stephens executed.

  15. Cregan says:

    First, as I mentioned on FDL, the S & P report is like a mirror. You look into it and see what you want to see.

    S & P were quite critical of ALL sides in the situation.

    BOTH out of control spending and not adjusting revenues, taxes, were cited extensively.

    They also cited how the deal made is too small to accomplish what is needed. Which makes one wonder what they might have said if Obama just got the “clean” bill he demanded at the beginning of the cycle. Meaning, NOTHING done, just a blind rush down hill.

    What they saw was a clear demonstration that NOBODY wants to give up their sacred cow. Yeah, Boehner was ready to give up 800 bil in tax changes, but the Tea Party said no. Obama was ready to give up some SS and Medicare chips, but Pelosi and Reid said no.

    It a charade that is easy to see through. You pose and talk like you are ready to do something, but then, you come up with the thing the other guy isn’t doing, which allows you to back out and do nothing while being able to point to the “fact” you were going to do something–if not for the other side.

    A nice tactic that allows you to protect your sacred cow while appearing like you weren’t.

    S & P just finally saw the game for what it is.

    Bottom line; they just concluded that nothing is going to get done about the problem.

    Now, when I combine that with a number of posts I saw complaining about there being no crisis anyway, I can see their point.

  16. Avattoir says:

    Why not look into what S&P really is and what’s happening inside it?

    After 135 years, it remains a fiefdom: a family-run enterprise run by a descendant of the founder; very Murdochian.

    The Chair & CEO is fighting off big pressure from a social-activist investment group & the Ontario (Canada) Teachers’ Pension Fund to break up the conglomerate, particularly the more highly profitable ratings group from the magazine & educational publications groups.

    There may be a big self-interested component to this down-grading stunt.

  17. emptywheel says:

    @Cregan: You do know the US can print its own money, right? You do know that the only real source of inflation right now is coming from speculation in commodities and oil scarcity, otherwise not actually rising prices? You did see that everyone pulled their $$ out of stocks and put it into US debt, right?

    There was no crisis on the debt repayment. There is a crisis on the gutting of the US government to serve the same ideology that, 3 years ago, crashed the global economy.

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