Why did Standard & Poors downgrade the credit of the United States of America?
“We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.
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 had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.
So let’s review:
Who forced “the prolonged controversy over raising the statutory debt ceiling” cited by S&P?
Who rejected “the comprehensive fiscal consolidation program,” with cuts to entitlements accompanied by higher revenues, producing a debt reduction of $4 trillion, proposed by President Obama? That would have produced twice the debt reduction promised in the deal that was finally accepted.
Who rejected the very notion of compromise, making “the differences between political parties … extraordinarily difficult to bridge,” with one side announcing that only total capitulation by the other side would be accepted?
Who embraced the policy of political brinksmanship that pushed the country so perilously close to default? Who publicly embraced the threat of default as “a hostage that’s worth ransoming,” announcing that the tactic would be used every time the debt-ceiling issue arises from now on?
The answers are obvious.
You cannot take the country’s credit rating hostage for weeks — with many Republicans proudly announcing that they were willing, and in some cases eager, to shoot that hostage — and then blame somebody else when the hostage turns out to have been harmed in the process.
At least in a sane world you can’t. In this current insanity, you can do so blithely.
“Standard & Poor’s rating downgrade is a deeply troubling indicator of our country’s decline under President Obama,” Mitt Romney said Friday. “His failed policies have led to high unemployment, skyrocketing deficits, and now, the unprecedented loss of our nation’s prized AAA credit rating.”
This is the same Mitt Romney who, in a great demonstration of leadership prowess, stayed absolutely silent during the crisis, refusing to indicate what he thought or what he recommended. Only after the deal was cut did he announce that he would not have accepted it because it was not tilted sufficiently to the GOP position.
Mitt, S&P is talking about YOU.
U.S. Rep. Michele Bachmann, who voted against the final deal, said last night that “this president has destroyed the credit rating of the United States.”
“I call on the president to seek the immediate resignation of Treasury Secretary Timothy Geithner and to submit a plan with a list of cuts to balance the budget this year, turn our economy around and put Americans back to work.”
Did you catch that? Bachmann wants to balance the budget THIS YEAR, a fact that anybody with a lick of sense knows is financially and mathematically impossible. It sounds good, but it has no basis in reality.
Michele, when S&P laments that “America’s governance and policymaking (is) becoming less stable, less effective, and less predictable than what we previously believed, it is talking about YOU.
As a tactic to achieve political gain, the Republican Party consciously chose to undercut market confidence in the country’s financial status and its willingness to pay its debts. The country is now paying the consequences of that political stunt.
Let’s take a look at what else S&P has to say:
The agency makes crystal clear that its downgrade has come in part because it can no longer assume, as it once did, “that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.”
Furthermore, to justify keeping America’s new credit rating of AA+, S&P envisions a “revised upside scenario” “that incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the administration is advocating.”
If that doesn’t happen, the nation’s credit rating could be dropped still further.
Is that likely to happen?
Ask Michele Bachmann. Ask Mitt Romney. Ask Mitch McConnell and Eric Cantor and Grover Norquist and Rush Limbaugh and John Boehner.
They’ll all say no, it’s not going to happen. And then they’ll blame it on Obama.
Standard & Poors does have credibility problems of its own, having sold its integrity during the runup to the 2008 market collapse by giving artificially high ratings to financial instruments in return for business. It also made a fundamental $2 trillion error in its initial announcement of its ratings downgrade and was forced to correct that mistake by the Treasury Department.
Nonetheless, its decision is correct. You can’t publicly announce to the world that you are perfectly willing to default on our debt, as one of our two major political parties has done, and expect it to have no consequences.
Clearly, it has consequences.
– Jay Bookman