In his email to me yesterday, Mike McKee of Bloomberg summarized his recollection of August 5, 2011. The setting was our annual gathering at Camp Kotok:
We were keeping an eye on Washington as budget negotiations faltered and questions about breeching the debt ceiling grew louder. But nothing much happened that day. In Maine, good fishing and good wine set the stage for the annual lobster night at Leen’s. We finished our last Bloomberg TV hit and met everyone in the lodge. I had a glass of wine and was chatting away when producer Rachel Wehrspann got a phone call. S&P had downgraded the US credit rating for the first time in history. She disappeared outside to finish the call, then came back to say, “I think you need to stop drinking.”
Our crew had packed up the satellite truck and were headed out when they were blocked by a car in the road. Great luck for us, as Rachel was able to run up to the truck and turn them around. They quickly set up on the dock, and we began three hours of live programming from Leen’s. It was a gold mine for us, given the huge number of influential market and economics people who were there for Camp Kotok.
Bloomberg went into special programming, and we interviewed Nouriel Roubini, Josh Rosner, Jim Bianco, John Mauldin, Madeline Schnapp, and of course, David Kotok.
The thing I remember most, besides Rachel’s admonition to stop imbibing, is the mosquitos and bugs. Attracted by our TV lights they swarmed the dock. We did our best to shoo them away but did a lot of interviews waving bugs away from our faces. And unfortunately, I never got any lobster that night.
Neither of us will ever forget the day when a US credit downgrade upstaged lobster.
S&P Global had instituted a AAA rating for the US after World War 2. Moody’s first rated the USA a AAA credit after WW1, in 1919.
No president has had the spine or political courage to take any responsibility since Bill Clinton, in his last year, had the budget surplus in the 2001 budget. The US has run a deficit every year since.
According to Consumer Affairs, the biggest single presidential term deficit, adding $8.18 trillion to our nation’s debt, was delivered by Donald Trump in his first four-year term. Joe Biden comes in second place behind Trump with a cumulative four-year term federal debt increase of $6.6 trillion. It took Barack Obama eight years to rack up an addition of $8.34 trillion in national debt additions — an average of $4.17 trillion for each term. The national debt grew $5.85 trillion under George W. Bush. His time in office included wars in Iraq and Afghanistan in addition to a financial crisis. (“U.S. debt by president: dollar and percentage 2025,” https://www.consumeraffairs.com/finance/us-debt-by-president.html)
In his 1926 novel, The Sun Also Rises, Ernest Hemingway penned this famous quote:
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
In closing, I can report that on a subsequent trip my friend Mike McKee finally got his Camp Kotok lobster.
Kotok opinion. The United States has lost a century of AAA respect. To regain it would take years of behavior that seems impossible when the country faces disingenuous politicians in both political parties.
We’re still capable of paying our bills and the erosion of trust continues “gradually.” Is it accelerating? Maybe. Have we reached the point of “suddenly”? Not today.
Solutions require that federal revenue grows faster than expenditures, productivity increases, and more younger workers pay taxes — given US demographics, that means immigrants. There’s more, and we know the list.
I’m not sure the political will exists in sufficient measure to support the directional change needed. IMO, it will take a painful crisis to get the needed reforms.
Resources
For information about Leen’s Lodge see https://leenslodge.com.
For information about Camp Kotok see https://davidkotok.com/campkotok/.
