S&P balks at SEC proposal to reveal rating errors [ Obama is off by 2 Trillion Dollars ]

Standard & Poor's, whose unprecedented downgrade of U.S. debt triggered a worldwide stocks sell-off, is pushing back against a U.S. government proposal that would require credit raters to disclose "significant errors" in how they calculate their ratings.

S&P, which was accused by the Obama administration of making an error in its calculations leading to Friday's downgrade, raised concern about the proposed new corrections policy and other issues in an 84-page letter to the Securities and Exchange Commission, dated August 8.

The SEC is weighing sweeping new rules designed to improve the quality of ratings after their poor performance in the financial crisis.

The 517-page proposal includes a requirement that ratings agencies post on their websites when a "significant error" is identified in their methodology for a credit rating action.

The letter was sent three days after the U.S. Treasury Department accused S&P of miscalculating -- by some $2 trillion -- the U.S. debt in the next 10 years. That calculation was in a draft press release announcing a downgrade in the government's credit rating from AAA to AA-plus.

Originally when this came up, I understood this to mean that the administration was accusing S &P of a two trillion dollar mistake in calculations. Reading this article leads me to think that there are differing calculations and the two sides are blaming each other. If S & P is avoiding demands to be transparent, then the administration may have a point. Two much money has evaporated from the market to be unsure of who is wrong. I’m not sure I trust either side here.

Gross Domestic Product calculation:

Y = C + I + E + G

where

Y = GDP

C = Consumer Spending

I = Investment made by industry (basically this is purchases of capital goods, or business-to-business purchases of equipment)

E = Excess of Exports over Imports (this is negative)

G = Government Spending

The net total of all these is about $14.5 trillion per year.

That’s also how much debt that is owed by the Federal government on debt instruments issued by the Treasury; about $14.5 trillion.

Now, the Federal government sucks about $2.2 trillion a year out of us and our businesses.

And then it spends $3.8 trillion and borrows about $1.6 trillion MORE on top of the $14.5 trillion it owes, so a year from now it will have issued a total of about $16 trillion in debt.

It’s pretty clear that we need to “roll over” debt as it comes due, as there is never much cash on hand beyond a month or so. We keep paying interest on every bond (hundreds of billions per year), then, when the bond reaches it’s maturity date and the principal must be repaid - we simply borrow more money by issuing new bonds to pay off the old ones.

The only actual cash the government has access to is what comes in through taxes every month. The government is living hand-to-mouth, month-to-month.

If government spending got down to $2 trillion so there was no deficit, it would stop adding to the debt it owes. But Congress is unable to stop itself.

Ponzi scheme: the principal of the $14.5 soon to be $16 trillion will never be paid back, only interest.

The Federal government got into trouble in 2009 when the deficit basically tripled from 2008, and spending was never reined in to get the deficit under control. At that point the AAA rating should have been cut.

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