Wall Street Weather

Published by WallStreetWeather.net

“The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents have envisaged until quite recently.” – Standard & Poor’s rationale for downgrading the USA’s long-term credit rating from AAA to AA+, August 5, 2011

Contrary to descriptions in the financial and popular press, S&P is focusing on the long term viability of the political process. Shorter term Treasury bills and notes are remain top-rated.

Far from “removing the cloud of uncertainty” that President Obama proclaimed after Congress passed the Budget Control Act of 2011 on August 2, the debt deal’s two step process creates increased fiscal uncertainty which is contributing to turmoil in the markets and has resulted in the loss of the USA’s long term triple-A credit rating.

The agreement to raise the debt ceiling and gradually reduce the deficit by an estimated $2.1-$2.4 trillion over 10 years was far less than the $4 trillion “grand bargain” the President had sought. Despite Republicans insistence that the debt ceiling could not be raised unless accompanied by massive spending cuts, House Speaker John Boehner said “I got 98% of what I wanted.”

Even though the Budget Control Act was the first major bipartisan piece of legislation passed by Congress, S&P is right to recognize that “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.”

Pluto rules debt, taxes/subsidies, and entitlement spending. Since Pluto entered Capricorn in 2008, the world is experiencing a massive debt deleveraging during Pluto’s sojourn in Saturn’s sign until 2024. Capricorn is ruled by Saturn. These energies rule structural and long term issues. Saturn and Capricorn describe economic conditions that range from contracting to stagnant, to slow and steady growth.

Since Capricorn and Saturn rule government, big business, and the plutocrats, global governments’ initial response to the financial crisis has been to implement policies that have largely benefitted corporate interests and the nation’s most wealthy and powerful. Spending on stimulus measures intended to quickly juice the economy together with government taking on private debt piled onto an already sizeable mountain of sovereign debt has increased the urgency to implement austerity measures that if too harsh, threaten to reverse the tepid recovery.

Challenging transits by Saturn indicate limitations and the need to work within the boundaries of existing structures to implement change from the ground up. Naming the legislation the Budget Control Act reflects Washington’s hope that the deficit can be contained within the boundaries of Saturn’s giant rings. As the ruler of time, Saturn describes how the past reflects the present. Short term solutions do not work with Saturn; one must be prepared to dig in for the long haul.

Saturn in Libra (October 2009-October 2012) represents the limits of fiscal and monetary policy to stimulate economic growth unless policies address structural imbalances and are targeted to achieving long term growth. Building a solid and secure economic foundation takes time and effort but can reap tangible benefits. The problem is that the political cycle demands quick results; no politician wants to be voted out of office only to see their successor reap the rewards of their labor.

Saturn in Libra is a time when government can no longer delay making some very difficult decisions and adjustments which will affect the nation for many years to come. Ruled by Venus the planetary energy of love and money, Libra values civility and seeks to create balance by striving to bridge the gap between two parties. Yet since Saturn entered Libra, the relationship between the two political parties has been more frigid and discordant than ever.

Saturn describes what we fear and the lessons we must learn. Saturn returns to its natal position every 29.5 years, serving as a “reality check.” The Saturn return is a time of being held accountable for one’s actions as Saturn operates on the “as you sow so shall you reap” principle. And Saturn in Libra is the ultimate arbiter of karmic justice. Born with the Sun (self identity) in Cancer in a challenging alignment to Saturn in Libra, the USA is experiencing its Saturn return this month (exact August 28).

The USA’s previous Saturn return occurred on October 22, 1981. This was a time of high unemployment, a depressed housing market, tight credit and record high interest rates. But this is the first time since its founding that the U.S. has experienced a Saturn return under such an enormous mountain of public and private debt. Since its last Saturn return, the USA’s transition from a manufacturing to a consumer-based economy dependent on financial alchemy and wealth creation through boosting asset prices has generated frequent booms and busts. The recovery from the real estate bubble will be long and arduous since real estate is the primary form of collateral in consumer and small business lending. This loss of collateral will prevent businesses from expanding and consumers from making major purchases until their balance sheets are repaired. Unlike large businesses that can borrow based upon their revenues and credit, small businesses and consumers can only borrow based on collateral. It is not until small business and consumers repair their balance sheets that the economy will once again become an engine of job growth. This time is really different!

And what’s really different this time as the USA undergoes its eighth Saturn return is that Uranus in Aries and Pluto in Capricorn are closely squaring each other now before they exactly square each other 7 times between June 2012 and March 2015. At the same time Uranus and Pluto square off, both planets are making challenging alignments to the USA’s natal Venus and Jupiter in Cancer. Uranus describes shocks and unexpected events, and extreme conditions and behavior. Uranus in Aries signifies the need to implement a bold and new plan; Pluto in Capricorn indicates that nothing short of a massive transformation of the nation’s economic and societal structures will do.

The USA Saturn return reflects that maintaining the fiscal status quo is not sustainable as the Treasury is not taking in enough revenue to pay its obligations which cannot be done solely on cuts in discretionary spending or raising more tax revenue. The energies of Saturn, Uranus, and Pluto indicate that nothing short of a radical transformation of the military, the tax code, and Medicare and Medicaid costs must take place to shore up the nation’s finances. As painful as this may be (for the status quo anyway), inaction is likely to bring more severe shocks that will be even more difficult to recover from. The more the public gets financially squeezed, the more likely rebellion and revolution will arrive on the streets of America.

“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.” – S&P

The USA’s Saturn return reflects the reputational fallout and diminished status from failing to deal with the nation’s fiscal situation in a civilized and mature manner. Saturn and Capricorn represent the pinnacle of achievement. What S&P is saying here is that countries with triple-A credit ratings do not behave like this, and certainly not the U.S. who considers itself to be the #1 superpower and the leader of the free world!

And it’s not as if Saturn/S&P didn’t give Washington ample opportunity to get their act together as Saturn has already made two test runs that showcased Washington’s failure to agree to anything of substance.

The USA’s first Saturn return occurred on December 3, 2010. That was the day President Obama’s bipartisan National Commission on Fiscal Responsibility and Reform (how Saturn sounding is that!) voted 11-7 in favor of the recommendations in its report, short of the 14 votes needed for their recommendations to be voted on by Congress. (The energies of Uranus and Pluto were accentuated then as Uranus turned stationary direct from Earth’s vantage point and the Moon was in Pluto-ruled Scorpio.) Instead of raising revenue, President Obama agreed to the Republicans demands to extend the Bush tax cuts until the end of 2012 in exchange for employee payroll tax cuts until the end of 2011.

As I described in “S&P Downgrades U.S. Outlook to Negative For Not Learning Saturn’s Lessons,” around the time when the USA experienced its second Saturn return (due to Saturn being retrograde) on March 22, Washington had narrowly averted a government shutdown over passing the current fiscal year budget.

As the planetary ruler of communication, Mercury represents legislation and ratings agency analysis. S&P downgraded the USA’s long term credit rating to Negative April 18 when Mercury was retrograde. Mercury is retrograde once again when S&P issued the downgrade on August 5 it had originally warned about back in January.

As described in the post above and many others, the USA was born with Mercury retrograde in Cancer in the sector of the USA chart represented by Pluto. The USA’s natal Mercury opposes Pluto in Capricorn in the sector representing the nation’s wealth. This is why during Mercury retrograde periods that Washington has a penchant for passing legislation related to Pluto-ruled issues such as debt/deficits, taxes/subsidies, entitlements.

With his progressed Sun, Mercury, and Mars in Libra, President Obama asserted that reducing the deficit must be done with a “balanced approach.” Reflecting Mercury’s dualistic nature and that the legislation was signed by the President August 2 as Mercury stationed retrograde with Mars in the final degree of Mercury-ruled Gemini, the Budget Control Act is a multi-step process. Mercury’s opposition to Neptune in Pisces reflects that the legislation could turn out much different than what it appears to be. This is reinforced by the Moon (sentiment) Void-of-Course in Mercury-ruled Virgo, an indication that the legislation is unlikely to turn out as expected. Speaker Boehner might end up regretting his remark that he got 98% of what he wanted.

Market sentiment sensed that rather than providing the clarity the President claims, the legislation is creating more uncertainty (Uranus) as half of the legislation has yet to be resolved! Although the debt ceiling will not need to be raised until 2013 and the legislation authorizes $917 billion in spending cuts over 10 years beginning in 2013 (with $350 billion coming from defense spending), the additional $1.5 trillion in deficit reduction will be left to the new “Joint Select Committee on Deficit Reduction.” The committee will be comprised of 6 Democrats and 6 Republicans (3 from each party and house) selected by the party leaders by August 16.

The Committee must hold their first meeting by September 16. (Pluto’s energy is extra powerful then as it stations direct while the Moon in Venus-ruled Taurus on a Venus-ruled day emphasizes increasing revenue through closing tax loopholes and subsidies.) The legislation requires the Committee to vote on their recommendations by November 23 (when the Moon is in Pluto-ruled Scorpio) which is the day before Thanksgiving and the start of the next Mercury retrograde! The committee must issue their report to Congress by December 2, and Congress must hold a straight up or down vote by December 23 on the committee’s recommendations. What has Wall Street and corporate America worried is that the debate over where the additional $1.5 trillion in cuts will come from will take place between Thanksgiving and Christmas!

If the committee fails to make recommendations or Congress rejects them, “triggers” will be activated dividing the $1.5 trillion equally between cuts in defense and non-defense programs. (Under this scenario, everything would be on the table except for Social Security, Medicaid, and unemployment benefits. Medicare benefits would not be cut, but cuts to providers would be.) The Bush tax cuts would expire January 1, 2013 – the same day the triggers or the committee’s approved recommendations will begin to go into effect.

Additionally, Congress still has to vote on approving the federal budget for the new fiscal year that begins October 1. And Congress has between September 30 and December 31 to vote on a balanced budget amendment to the Constitution. We have yet to be told how powerful the balanced budget amendment will be and what loopholes will be provided to skirt its provisions.

I have previously remarked that budgetary constraints could be the quickest way to curtail America’s addiction to war and maintaining its dominant military presence around the globe. As Saturn returns to its natal position in the USA chart as Mars in Cancer squares Saturn, the public is unlikely now to be willing to sacrifice their basic security needs to pour more money into defense spending. Perhaps the public has finally reached the point where “butter” triumphs over “guns” in the age old spending argument.

Another factor pointing to America’s massive military deleveraging is Saturn in Libra conjoining the USA’s progressed Mars on September 30 at the same time the USA progressed Ascendant (the nation’s outlook) moves from imperialistic Leo to budget conscious Virgo until 2047. Combined with Saturn’s need for restructuring, Uranus’ shocks that initiate new innovations in manufacturing and technology, combined with Pluto’s push for death and economic rebirth, America is moving back to making things as it innovates new technologies and breakthroughs. Much of the military spending will need to be diverted to worker retraining and building/repairing the nation’s neglected infrastructure.

S&P notes America’s graying population reflected by Pluto in Capricorn (the elderly) which increases government entitlement payouts. Yet politicians and S&P are concealing the facts (Uranus square Pluto; Mercury opposite Neptune) by convincing people that Social Security benefits must be cut when the fact is Congress has been stealing from the trust fund since LBJ began poaching it to fund the Vietnam War!

The only way to raise enough revenue without raising tax rates is to radically overhaul the tax code (Uranus/Pluto) in a completely fair and equitable way (Saturn in Libra) by completely eliminating ALL loopholes, corporate and individual tax deductions. Consider this: every tax deduction, subsidy and loophole for one individual or company amounts to a tax increase for everyone else! Saturn will be in Scorpio on January 1, 2013 when the deficit cuts must begin to be implemented. Saturn in Pluto-ruled Scorpio and Pluto in Saturn-ruled Capricorn (called “mutual reception” as the planets are transiting in each other’s signs), indicates that such a radical tax overhaul undertaken now is likely to quickly reap rewards.

S&P cited AAA sovereigns Canada, France, Germany, and the U.K. as America’s “relevant peers,” noting that “in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.” (Which just so happens to be when the 7 time frictional square between Uranus and Pluto ends.)

What’s sooo interesting about S&P’s remark is that each one of America’s “relevant peers” provides its citizens with universal healthcare and yet is projected to reduce their level of public debt! Unlike the wars, Medicare Part D, and the Bush tax cuts, the Affordable Care Act has been “paid for.” Yet the U.S. could reap far greater cost savings if it wasn’t paying almost 15% above traditional Medicare for Medicare Advantage (which provides a hefty chunk of Humana’s profits in particular), and cut out the “middle men” (i.e. health insurance companies) altogether. The irony is that Republicans claim to want spending cuts, but won’t allow Medicare to negotiate drug prices. And they are trying their hardest to eliminate the medical commission established under the healthcare law that will determine the most cost effective treatments.

As Uranus and Pluto square off with each other while simultaneously impacting the USA’s natal Sun and Saturn in the spring of 2014, the U.S. can be on the way to transforming its reputation anew. A tax overhaul, shoring up infrastructure, and improving the health and wellbeing of the nation’s general welfare would truly revitalize the economy and make the U.S. a very attractive place for foreign investment. But if no progress is made by then, the U.S. could be even further behind its relevant peers than S&P’s projected downside scenario.

Mercury retrograde in Virgo opposing Neptune in Pisces describes the dispute between the Treasury’s mathematical calculations and S&P’s. But even if S&P’s numbers are too pessimistic, the point is that in donning the costume of Saturn the grim reaper, S&P is warning that Washington must start the structural changes now as it will take at least a decade of diligence before the U.S. can hope to regain the former status of its triple-A credit rating. Which means S&P might not restore the triple A-rating until 2021-2022 when Pluto in Capricorn opposes the USA’s natal Mercury in Cancer prior to the USA’s Pluto return for the first time in the nation’s history.