(Reuters) – Standard & Poor’s downgraded the credit ratings of nine euro- zone countries, stripping France and Austria of their coveted triple-A status but not EU paymaster Germany, in a Black Friday the 13th for the troubled single currency area.

“Today’s rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone,” the U.S.-based ratings agency said in a statement.

In a potentially more ominous setback, negotiations on a debt swap by private creditors seen as crucial to avert a Greek default that would rock Europe and the world economy broke up without agreement in Athens, although officials said more talks are likely next week.

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China is suffering a brutal economic “hard landing” as the pay-back for their massive Keynesian stimulus spending to revive economy growth after the 2008 credit crisis. China’s stimulus bought two years of economic boom, but the cost of this instant gratification was unleashing venomous run-away inflation that forced the central government to hammer the economy this year. Touted by most Wall Street analysts as the world’s engine of growth, we now learn that regional Chinese governments are so cash-strapped they are refusing to make interest and principal payments on their bond debt. Given the state integration of banks and the economy, if Chinese local governments are unable to pay their debts, who will bail-out China’s economy?

China Daily reported this morning: “China’s biggest provincial borrowers are deferring payment on loans just two months after the country’s regulator said some local government companies would be allowed to do so.” After the economy shrank by 8% during the 2008 worldwide credit crunch; Chinese authorities responded with epic spending of borrowed money. Adjusted for the differences in size of economies, the China stimulus was twice the size and happened in half the time for the U.S. stimulus programs. But now that the world’s economies have again stalled and the European sovereign debt crisis is about to spark a deflationary spiral, the cash-flow of China heavily indebted provincial governments has evaporated.

China’s Zhou Mubing, Vice-Chairman of the China Banking Regulatory Commission, announced in October the first Chinese national audit determined local governments had $1.7 trillion dollars in debt. Given China has 1/3 of the GDP as the United States, Chinese provincial government debt is twice the debt load of U.S. state and local governments. More than half this debt was issued in the last three years and Chinese state-owned-banks hold 79% of the debt.

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American Exceptionalism has routinely been underestimated by America’s adversaries. We have argued for the last year that powerful trends are reshaping U.S. that will lead to result a rebirth of American manufacturing, coupled with positive business trends, and just as powerful political trends are shrinking the size of government and its capacity to intervene in the economy. The combination of these trends will create a sustained upward spike in the American economy.

Last week the Financial Times newspaper published an editorial: “America Must Manage Its Decline”. The jest of the FT article was that United States must develop an effect foreign policy, similar to Great Britain’s in 1945, to manage her economic and political decline:

“If America were able openly to acknowledge that its global power is in decline, it would be much easier to have a rational debate about what to do about it. Denial is not a strategy.”

President Obama, the American press, the rabid right wing, and even a Harvard professor were all excoriated by the FT for their pathetic reliance on such homilies as: “Decline is not a condition. Decline is a choice.” From the high floor in the FT’s office tower, the author cynically snarled down at America’s inability to take “determined action” to increase higher education funding and “self-indulgent episodes such as the summer’s near-debt default” as prime evidence of America’s “declinism” and the inevitable rise to economic dominance by China.

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Just when the world financial markets had seemed to stabilize after five weeks of the violent convulsions caused by the first credit downgrade in the history of the U.S.; Standard & Poors announced the United States remains on negative credit watch and there is now a one-in-three chance of another U.S. credit downgrade. S&P understands that the President has been politically successful when he refused to cut spending and let the world suffer massive financial losses when S&P downgraded. It appears to be in President Obama’s political interest for America to suffer another credit downgrade crisis.

The new S&P warning follows President Obama’s efforts to sabotage bipartisan cooperation on the “Supercommittee” deficit reduction panel by making confrontational demands for half of a trillion dollars more in stimulus spending and trillions of dollars of new class warfare tax increases on investment and charity.

Most investors prior to August 5, 2011 assumed that the President would be so afraid of voter wrath if the U.S. credit rating was downgraded; that he would wait until the last moment possible before agreeing to just enough Republican spending cuts to save the AAA rating. Those assumptions turned out to be very expensively wrong.

President Obama refused to make any last minute cuts; then calmly left the Capitol for a family vacation on Martha’s Vineyard. On the next trading day, markets around the world suffered $2.5 trillion in losses. The New York Stock Exchange is off 11% from its recent highs; but China’s Shanghai Exchange is down 28% and Germany’s DAX exchange is down 26% from their highs:

Investors mistakenly was assumed President Obama’s opinion polls would suffer from a downgrade. According to the Gallup Poll; President Obama maintains the same 43% voter approval level he held from before the crisis, as he does today. But Congress hit a new all-time low approval rating of 13% during the crisis.

On the eve of the first meeting of Congressional Supercommittee, the Obama Administration leaked to the New York Times their demands for millionaires to lose the favorable tax treatment on capital gains, municipal bonds and charitable donations. This political poison pill to bipartisan cooperation is affectionately referred to as the “Buffett Rule”; in a honor of Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.

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Following the fire storm over our call in Big Government last week-end for an investigation of potential Presidential and Administration leaking of the Standard & Poors downgrade of the AAA credit rating of the United States; the Securities & Exchange Commission has formally requested S&P disclose who at the company knew about the downgrade, “as part of a preliminary look into potential insider trading.”

According to the Financial Times:

“The inquiry was made by the SEC’s examination staff, which has oversight of credit rating firms, one person familiar with the matter said. The SEC examination staff has the power to make referrals to the SEC’s enforcement division if it believes any laws have been, but the inquiry might not result in a referral….

Proving someone leaked information about the downgrade, or traded ahead of it, could be challenging. Many traders anticipated the downgrade and bets could occur across numerous securities or currencies without inside information. In a traditional insider trading case, there is often a more predictable correlation between a company’s stock price and a particular development.”

An investigation coming so soon after a trading event, usually means that the SEC “Stock Watch” computerized surveillance system has discovered large concentrations of profitable trading activity involving “material non-public” information prior to an event.

By Tuesday the Daily Mail British newspaper published a story attributed to stock brokers in London’s financial district; that a secretive hedge fund turned an $85 million highly leveraged futures speculation placed a few days before the downgrade, into an $850 million profit. Rumors are now swirling that the name of that “lucky” investor was Obama Administration super-supporter, George Soros.

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Character always matters. Character is the foundation of civilizations, it is the font of understanding a person’s value and values. People of discernment always judge a person based upon their character or want of it. At the core of character is good judgment (and hopefully wisdom). Character always matters except where ideology is concerned.

Character can be understood by a person’s actions and associations. During the 2008 Presidential campaign apparent deficiencies in character – mainly seen through associations with extremists and domestic terrorists, failure to release pertinent personal information and academic writings/grades, and a less than stellar senatorial voting record of “present” were entirely ignored by the majority of the electorate apparently unconcerned with such matters as character.

With falling poll numbers, a disturbingly split and degraded society, and partisans on both sides of the political divide louder than any shrinking rational middle the country now faces a growing economic crisis while fighting multiple wars. The entire world is affected by the precipitous drop in the US financial markets, not only Americans.

The Dow was at approximately -440 when the President, some 40 minutes behind schedule, delivered his partisan-and-blame speech on the economy on Monday afternoon – his most important speech up to this time – whereupon the Dow dropped further to close past -600. The roller coaster markets continued to shake as Tuesday ended up, but Wednesday brought another -520. Instability in the markets translates to fear.

The downgrade by S&P is fundamentally about a loss of trust and faith. Investors at all levels are emotional capitalists trying to gain a profit and also protect their funds in a hostile “irrational market.” In this market “protection of assets” mainly translates to selling as prices collapse.

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Mr. Geithner, please check your crystal ball because it appears to have a major malfunction!  Either something’s wrong with the ball or you’ve got a classic case of “operator error” going on.  You might look into borrowing your good buddy Barack Obama’s.  His crystal ball seems to be shooting fairly straight these days.  “Electricity rates will necessarily skyrocket,” anyone remember this gem?  He could start a 1-800-psychic line with that one!  Hey it might not be pretty, but at least it was truthful.

In an interview with Fox News on April 19, 2011, a little over three months ago, when U.S. Treasury Secretary Timothy Geithner was asked if the U.S. was at risk of losing its AAA rating, he replied:

“No risk of that, no risk…you see the leadership of the United States of America, the President…the Republican leadership…the Democrats…recognizing now that this is the right thing to do for the economy.”

For some time now, the United States debt has been creeping up to the 100 percent of Gross Domestic Product (GDP) mark.  That’s a disaster just waiting in the wind. It’s reminiscent of 2001 when the Bush Administration warned of potential problems and warned that financial giants, Fannie Mae and Freddie Mac, could “cause strong repercussions in financial markets.”  In 2003, the White House upgraded the concerns to a “systemic risk” that could spread beyond the housing sector.  But U.S. Representative Barney Frank (D) told the House Financial Services Committee that the housing market was fine, stating, “Fannie Mae and Freddie Mack are not in a crisis.”

In 2008, the housing market crashed, sending the economy in a downward spiral, from which we have not recovered.  You would think that our “leaders” would have learned their lessons from the past, especially from such a debacle just a few short years ago.  But with the passing of the recent budget hijacking, debt ceiling busting deal that our lawmakers recently compromised on, ignoring the warnings of the TEA Party, it is apparent that the lessons of history were short-lived.  Shortly after the deal was done, the unthinkable happened.  The US debt hit the 100 percent mark of GDP, the market tanked, and the US credit rating was downgraded from its AAA rating, with the real possibility of being downgraded again.

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Just when you thought the Progressive Movement could be more deeply invested in denial, now comes the absurd notion that somehow, the TEA Party Movement, whose pinnacle tenet is fiscal responsibility; which has devoutly insisted that the federal government cease the practice of spending beyond the tax revenue it gleans from taxpayers, that somehow it is the TEA Party Movement and their affiliated members of Congress who are responsible for the downgrade in the US credit rating by S&P and not the glad-handing spendthrifts of the big government, nanny state Progressive Movement.

“Bottom up, top down…inside out.”

Shameless partisan, Chicago Progressive operative and former senior advisor to Pres. Barack Obama, David “Say Anything, Lie, Cheat and Steal to Win” Axelrod is quoted as saying, “The fact of the matter is that this is essentially a Tea Party downgrade.”

US Sen. John Kerry (D-MA), who, it was revealed during the 2004 General Election, was fast and loose with the truth about his service in Vietnam, parroted Axelrod’s talking point, saying, Standard & Poor’s decision was “without question the Tea Party downgrade” because Tea Partiers held bipartisan lawmakers back from a bigger deal. This, even though the facts bear out that it was in fact Democrats who refused the deal, demanding almost a half trillion dollars in additional tax revenue be added to the mix.

And Howard Dean, Progressive ideologue extraordinaire, who has devolved into irrelevance since losing both his ill-fated presidential bid and the leadership post of the DNC, said, “I think they’re totally unreasonable and doctrinaire and not founded in reality. I think they’ve been smoking some of that tea, not just drinking it.”

One has to be impressed with the coordination it must take to ensure that all the political operatives in the Progressive Movement are using the exact same talking points during each and every interview almost at exactly at the same time. If one were of a curious mind the question of who is at the helm of the USS Propaganda would come to the forefront. Of course, we shouldn’t expect to find inquisitive minds of this nature within what used to be referred to as the mainstream media…they get their Cliff Notes from the same source.

Only from the minds of the Progressive Movement can we find a converse-reality in thinking so striking, so absurd, that it would condemn as being the cause of repercussions for fiscal irresponsibility those who are demanding that deficit spending come to a halt; that those who are demanding fiscal responsibility are responsible for fiscal irresponsibility.

Night is day and day is a tree.

Yet, even as the cancer of disingenuous, partisan, Progressive ideological madness comes “fast and furious” to the American people via the usual suspects in the alphabet media, it would appear that, increasingly, the American people are beginning to see through the political propaganda of the Far-Left.

A new Gallup poll – and we point out that Gallup leans Left – has concluded:

“Americans’ political ideology at the midyear point of 2011 looks similar to 2009 and 2010, with 41 percent self-identifying as conservative, 36 percent as moderate, and 21 percent as liberal.

“If this pattern continues, 2011 will be the third straight year that conservatives significantly outnumber moderates — the next largest ideological bloc. Liberalism has been holding steady for the past six years, averaging either 21 percent or 22 percent…”

“Among Republicans, conservatives currently outnumber moderates by nearly 3 to 1, 72 percent vs. 24 percent, while very few are liberal (4 percent)…

“Conservatism among independents increased fairly sharply in 2009, from 30 percent to 35 percent, largely explaining the expansion of conservatism nationally at that time, and it has held at that level since then.”

Meanwhile, a new Rasmussen Reports poll indicates that:

“…just 17 percent of likely US voters think the federal government today has the consent of the governed. 69 percent believe the government does not have that consent. 14 percent are undecided.

“The number of voters who feel the government has the consent of the governed — a foundational principle, contained in the Declaration of Independence — is down from 23 percent in early May and has fallen to its lowest level measured yet.

“Perhaps it’s no surprise voters feel this way since only 8 percent believe the average member of Congress listens to his or her constituents more than to their party leaders. That, too, is the lowest level measured to date. 84 percent think the average congressman listens to party leaders more than the voters they represent.”

So, with the Progressives and Democrats holding the Executive Branch, half of the Legislative Branch and just under half of the Judicial Branch (which, in and of itself has become increasingly useless in the eyes of the electorate), and with the overwhelming majority of American voters believing that the federal government does not have the consent of the governed, and with a mass movement of independents toward the Conservative political line of thinking – not to mention a move within the Democrat Party away from their fringe Progressive Left – is it a wise political move to continue jamming the disingenuous stick of non-factual propaganda into the political hornets’ nest that is the TEA Party Movement?

The American people have been awakened to the need to divine fact from fiction where the management of our country is concerned. This truth is self-evident in the results of the 2010 Mid Term Elections. That said, the only ones who seem to be in denial about the realities facing our country appear to be elected Progressive elitist politicians who would rather bankrupt the country while degrading its chances for recovery, all in the name of social engineering and social justice.

In times past, better men would have identified this behavior as treason. Perhaps it is time for those who identify with the principles of the TEA Party to “take the gloves off”; perhaps it is time for the American people to “downgrade” the Progressive Movement to its proper place…the rotting garbage heap of failed political ideology.

What do you think about that, Mr. Kerry? You had better go check with your puppet master for a response. Run along now.

“The full faith and credit of the United States Government.” That’s what backs up our currency—and that’s all that backs up our currency. Throughout most of history, governments had to back their currency with something tangible, typically a fixed quantity of gold. In fact, most coins actually contained the requisite quantity of gold because many of the folks who used those coins in commerce didn’t particularly trust the King whose likeness they bore. It’s good to be king and all, but if you wanted to add a ducat’s worth of wheat to the royal granary, you had to put up an actual gold ducat.

Paper currency required people to place a bit more trust in their governments, though the rule remained—at least in theory—that anyone holding the note could take it to the official treasurer and exchange it for the specified amount of gold. Roughly forty years ago, when Nixon took the U.S. off the gold standard, we dropped every last pretense of convertible dollars. From that day forward, the only thing backing up our currency was two simple words: “trust us.”

Imagine that. Richard Nixon—of all people—stared at the world and said “trust us,” and the world complied. Through seven Presidents of both parties, the world—from multinational corporations to anti-American drug dealers and terrorists—has trusted us to stand behind our currency and our debt. In an uncertain world filled with violent disagreement, the one point on which all could agree was that the U.S. remained uniquely trustworthy.

So when Standard & Poor’s downgraded our credit rating on Friday, the message was both stark and clear: the United States is a little bit less trustworthy than anyone had thought. Why? What happened? Who is to blame? The White House, of course, is quick to point fingers everywhere but the Oval Office. Yet this perceived decline in America’s trustworthiness is eerily familiar to those who have paid attention to the Obama Administration.

In foreign policy, Obama failed to stand behind anti-regime protestors in Iran or pro-democracy moves by the Honduran Congress and Supreme Court; he canceled missile defense systems that we had promised to Poland and the Czech Republic; he abandoned a deeply flawed but longstanding ally in Egypt; and he has taken every opportunity to embarrass Israel. From Colombia to Saudi Arabia, Obama has put our allies on notice: prepare to act unilaterally, because the United States is a bit less trustworthy than you might have thought.

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The tremendous 7% crash in stock market prices over the last five trading days serves as over-whelming evidence that the President of the United States or someone in his inner circle leaked “material non-public information” to Wall Street traders that the AAA credit rating of the United States of America would be downgraded.. Leaking of such information is criminal activity for both the trader who profits and the leaker. Depending on the level of the leak in his Administration; the President may be forced to resign of face severe sanctions.

Standard & Poors (S&P) has been providing credit rating services since 1860. The firm is extremely sensitive to the effect of rating changes have on the value of the securities they review and has an extraordinary capability to track the communications and actions of their employees to avoid any impropriety associated with the securities markets. In the case of a downgrade of the United States, every member of the firm would have known that exposure of such a leak by an S&P staff member would create a scandal that would destroy the 151 year-old firm and the offenders sentenced to long prison terms. Consequently, there is only a remote possibility that an employee of the S&P would have leaked the downgrade to Wall Street.

Reuters News Service reported from a source familiar with the talks on Friday: “Obama was briefed earlier in the day regarding S&P’s intentions, but discussions only took place with Treasury officials and did not include the White House.” This statement suggests the worst type of political spin possible. Either the President is completely incompetent in financial matters or he is disengaged from the plight of the nation!

It is preposterous to believe that the Administration would not have maintained intimate contact with the rating agencies over the last six months as the Sovereign Debt Crisis ravaged much of Europe. As the former CEO of two New York Stock Exchange listed companies and Treasurer of Orange County, California; I am personally familiar with policies and the procedures of each of the credit ratings firms. Ratings agencies meet regularly with every organization they rate. When S&P is about to issue a change in credit rating, they send a preliminary rating and a justification for the rating to the organization. The organization is given the opportunity to formally respond in writing to the proposed ratings change. The formal response is then forwarded to the Standard & Poors Credit Committee for final review. In the momentous event of the issuance of a preliminary downgrade of the United States; the most senior credit analysts at S&P would have personally met with Treasury Secretary Timothy Geithner and senior Treasury staff. President Obama himself or another White House official would have attended the meeting to provide the Administration’s input.

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the fallout from the S&P downgrade of our credit rating, the false “Tea Party Downgrade” spin from Democrats and the Verizon’s union strike.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

The credibility and integrity of S&P’s ratings action
S&P Seen Surrendering to Tea Party Costing U.S. Taxpayer
“Tea Party Downgrade”? They Can’t Possibly Sell That
Second Recession in U.S. Could Be Worse Than First
45,000 Verizon Workers Go On Strike Over Contract

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From The Associated Press:

Credit rating agency Standard & Poor’s on Friday downgraded the United States’ credit rating first time in the history of the ratings.

The credit rating agency said that it is cutting the country’s top AAA rating by one notch to AA-plus. The credit agency said that it is making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country’s debt situation.

A source familiar with the discussions said that the Obama administration feels the S&P’s analysis contained “deep and fundamental flaws.”

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As uncertain and unruly and disheveled as the debt-ceiling debate may be, there are still good grounds to reach a deal. It could help the economy. It could keep the policy ball moving in the direction of smaller government. It could add a key business tax incentive for economic growth. And it could even stabilize the dollar.

There really are two problems here: First is raising the debt ceiling to avoid default. (That’s a real good idea.) Second is stuffing enough spending and deficit reduction into the deal to accommodate the newly militant demands of S&P and Moody’s, who want roughly $4 trillion in cuts over ten years in order to keep our AAA rating.

But here’s the tricky part for me: What kind of numbers are we talking about in the event of a last-minute deal? So many of these numbers are phony, and they often reflect baseline fiddling and out-year budget cuts that never materialize.

But the credit raters are on the war path. The small deal offered by Senator McConnell would raise the debt ceiling in three parts. But with only $1 trillion in so-called cuts, this “Plan B” won’t pass the S&P/Moody’s test. The number is too small.

Then there’s the grand design for President Obama’s big-picture deal. It is over $4 trillion, but it includes taxes that look to be off the table from the Republican standpoint.

But this has me thinking.

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Standard & Poors (S&P), the credit rating agency that started in business more than 150 years ago and operates in 23 countries, issued the ultimate in realty checks this week when they downgraded its credit outlook for the United States.  S&P cited a “material risk” that policymakers may not reach agreement on a plan to trim the large federal budget deficit.

While the agency maintained the country’s top AAA credit rating, it said “Authorities have not made clear how they will tackle long-term fiscal pressures.” S&P said the move signals there is at least a one-in-three chance that it could cut its long-term AAA rating on the United States within two years.

What would a credit rating downgrade mean to the average citizen?  Immediately following a downgrade, the interest required to refinance our debt would climb dramatically and the Federal Reserve would have to print more money resulting in a sharp devaluation of the dollar.  If you think $4 per gallon for gasoline is an outrage, try $8 per gallon or higher.  If you think that your 401(k) took a hit in 2009, how about a permanent hit due to the United States currency losing its value?  Food, energy, clothing, housing and all other staples of life will experience sharp and permanent price increases.  Unemployment will also rise as businesses attempt to adjust to a new and uncertain economy.

It should be absolutely clear that the growing national debt and continued federal budget deficits are a threat to our economy and a clear and present danger to our way of life.  President Obama took office with a $10 trillion debt and a $740 billion federal budget deficit.  Two years later the national debt is $14.2 trillion and the federal budget deficit has reached $1.6 trillion.  Mr. Obama and the Democrats insist that we need to keep spending, even though our debt will exceed our Gross Domestic Product (GDP) before the end of this year.  They insist that rolling back the George Bush era tax cuts for those making more than $250,000 per year and reductions in defense spending is the path to a solution.

The truth is that the additional revenue potential from rolling back those cuts would only equal a maximum of $64 billion per year.  The risk to jobs in our economy by increasing tax rates on many small businesses that are taxed as individuals, S-Corporations, is extremely high.  There could easily be a spike in unemployment as those business owners adjust their planning to preserve their net income.

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On Wednesday, if all goes as planned, President Barack Obama will sign the financial-reform bill crafted by Senator Chris Dodd of Connecticut and Congressman Barney Frank of Massachusetts, sponsored by the Democratic Party in both houses, and supported by three Republican Senators – Scott Brown of Massachusetts and Susan Collins and Olympia Snowe of Maine. When the bill is signed, we will be told, as we have repeatedly been told in the last few months, that the measures included within it will prevent future financial crises of the sort that we have suffered from over the last two years.

By now, of course, most Americans have become skeptical of such claims. We were to told that the so-called “stimulus” bill would bring unemployment down, and we learned that its main function was to reward constituencies favoring the party in power. It increased dramatically the salaries of those within the federal civil service, it expanded that civil service massively, and it enabled the state governments and the localities to continue to pay those who worked within the public sector at those levels. Similar lies were told during the healthcare debate. We were told that no one would lose his coverage, that no one would be forced to acquire health insurance, that the cost curve would be bent downward. It is proper to ask whether we are being lied to now and whether Senators Brown, Collins, and Snowe have sold us down the river.

The answer depends – to a considerable degree – on what were the causes of the recent financial crisis. Was it caused by a market failure? If so, is it likely that governmental regulation will prevent such failures in the future? These are the claims advanced by Paul Krugman and the like; these are the claims put forward by President Obama, Senator Dodd, and Congressman Frank. And, on the face of it, they would appear to be true. There was, after all, a bubble in the real estate market. Goldman Sachs and the like marketed junk bonds, made up of mortgages, on a gigantic scale and managed to get for them a triple-A rating from S&P and from Moody’s, and insurance against default was purchased from outfits like AIG that had no idea of the risks involved. The Securities and Exchange Commission and the Federal Reserve could and should have intervened.

But one must be cautious about calling what happened “a case of market failure,” for the real-estate market was not a free market. One could, of course, reply that no market is a genuinely free market. The “free market” is an ideal type. It does not exist in reality. The government interferes and gives shape to virtually every market through taxation, regulation, and laws detailing how contracts are to be enforced.

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