The Washington Post recently reported that the White House and the Treasury Department put tremendous pressure on S&P not to do this.
No suprise there...
Look. To properly appreciate the Credit Outlook Downgrade from S+P, it needs to be understood on the surface. And then what it
actually means, below the waterline.
So, first, understand that the Executive Branch is at war with Big Business, which is commonly regarded to be the "Fourth Branch" of the USG. This is the level at which individuals of huge wealth moves between governmental positions and the private sector.
Like, why do big executives move between positions that pay fifty million a year, to a position that pays a hundred grand? This is
exactly why. Power and influence, and to protect the monied interests of their counterparts. They take a hit for the team, and go inside the machine for a few years. From there, they influence "stuff", like tax laws and subsidies, and legislation. And then they leave, go back to private, and reap the rewards.
Outside the sphere of government, these same interests are represented by lobbyist organs. Big Tobacco, Big Pharma, Big Oil, Big Finance, Big Telecom.
Another of these lobby organs is the
Business Roundtable. The word "roundtable" suggests that there is not one sector, but a number of individual businesses, being represented.
The Chairman of the Roundtable is Harold McGraw. Harold McGraw is the President and CEO of McGraw-Hill. You probably know McGraw-Hill as a schoolbook publisher. But they do a lot more than that.
McGraw-Hill also owns Standard and Poor.
Did the lightbulb go on yet?
Six months (appx) ago, the White House conducted what was reported as "roundtable meetings" with big business CEO's. Pepsi was there. Verizon. Proctor & Gamble. Big Banks.
But they weren't actually roundtable meetings. They were
Roundtable Meetings. See the distinction?
The Roundtable Meetings were conducted between the Third and Fourth branch. The questions were "What can we do to get Big Business rolling again, and hiring, and borrowing?"
The answer was "Stop imposing draconian business laws, high corporate taxes, and high taxes on persons of large wealth." There was talk of imposing sanctions and compensation limitations of CEO's and other big-title positions of publicly traded companies. The CEO's are vehemently opposed to these sanctions on compensation. They do not want to run these monolithic corporations for a mere bag of shells, and then be taxed 40% of it.
The meetings were regarded as a flop. The 3rd and 4th Branch left the meetings equally grim-faced. The public portrayal from both sides was "The negotiations are on-going, and we've made some progress on several points." Which means, there wasn't a whole lot of back-patting going on. There were no cameras present, inside, during the talks.
And, to my knowledge, they never reached any conclusions. They never had further meetings. This, my friends, is an ominous sign.
---
So... six months later, here we are.
The Fourth Branch is sending a direct message to Obama, in clear-channel. We all heard it. But what does it actually
mean?It (the S+P outlook downgrade) says, if the economy continues in this exact manner, S+P will downgrade the credit rating from AAA to a lesser grade.
Obama says, "The economy is in the process of changing, we're ending QE2 in June, and..."
S+P says, "No, you fucking moron.
OUR economy. The Business Roundtable, remember?"
Obama says, "My advisory board tells me, if the credit is ACTUALLY downgraded, we could experience another recesson. The bond vigilantes will go nuts, crush the markets, and it could have devastating consequences. Our debt will implode, and it will have a global impact of unimaginable proportions."
S+P says, "Exactly."
Obama says, "That would be bad for all of us."
S+P says, "Not really. Mostly, just you. And "main street".
Obama says, "Oh."
S+P says, "Also, you know,
WE ARE the bond vigilantes."
Obama says "Yes, but... This is the 'nuclear option', and you're saying you'll use it? This is financial Armageddon."
S+P says, "Call it what you like. Certain unnamed members of the Roundtable, "friends of ours" if you will, have decided enough is enough. Your requests to quash the downgrade statement are declined. The economic collapse, if one is orchestrated, will be blamed on the conditions of the downgrade, and that means
YOU, this time, not
US. This discussion is over".
--
Of course, that actual convo never happened. But that is
the message. These things have covert meaning beyond their public meaning. There is a great deal of symbolism in the way the markets work. Powerful men from generational fortune families. Educated, ruthless, and shrewd. They send messages like smoke signals through the market behavior. Approval and disapproval can be clearly witnessed on a variety of political issues. The sell-off's and rallies are like the judges gavel falling, and the fish follow the whales.
And, it needs to be said, the Roundtable doesn't represent the wishes of ALL American business. In fact, it wouldn't surprise me if 90% of those companies CEO's are non-participants, because there are always cabals inside of enclaves.
The ball is now back in Obama's court. He can play hardball or softball. He can stick to his guns about meddling in business, or move to the center for a softer approach. If he bends, they'll bend. If he won't, they'll drop the hammer, smash the economy to pieces, and damage his chances for a second term.
So, to crystallize this statement, and confirm the unsaid... what you may be about to witness is basically, John Galt. A few big movers, a few big moves. Except, in the real world, Galt is a massive, monumental Hydra. And I'm not quite certain Obama has managed to wrap his brain around the entirety of the concept.
I'd rather they didn't, but we'll see.