After a few days of reading and reflection, this writer is now prepared to opine on the recent degrading of US credit.
In a statement released August 5, 2011, the credit rating agency Standard & Poor’s made financial history by being the first such company to lower the United States credit rating from the perfect AAA to the less-than-ideal AA+. While pundits, politicians, and Americans still stumble through defining what, in fact, the outcome of this change will be, one is left to speculate that this may be the beginning of dark times in the American economic landscape.
Of course, it didn’t take long for the political establishment in this nation to respond. The White House was quick to point out that, in their opinion if not in reality, S&P’s decision was based on fuzzy math. True to form, the leaders of both Houses in Congress did not pass up an opportunity to take partisan political shots at the other party’s spending priorities. Sen. Majority Leader Harry Reid (D-NV) stated that “[t]he action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners” and chastised “hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding.”
“This decision by S&P is the latest consequence of the out-of-control spending that has taken place in Washington for decades. The spending binge has resulted in job-destroying economic uncertainty and now threatens to send destructive ripple effects across our credit markets.
“Republicans have listened to the voices of the American people and worked to bring the spending binge to a halt. We are no longer debating how much to spend, but rather how much to cut. Unfortunately, decades of reckless spending cannot be reversed immediately, especially when the Democrats who run Washington remain unwilling to make the tough choices required to put America on solid ground.”
John Boehner’s quote is especially interesting since his Republican Party was the only one cited by name for promoting intransigence that led to a more negative projection of future spending controls. While both parties were castigated in the S&P press release, the agency reserved a special admonishment for the Republican party and its insistence on not including any revenue rises. Ever…:
“Compared with previous projections, our revised base case scenario now assumes 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.” (my italics)
While the S&P was very careful to walk the political minefield without scoring points or taking sides, portions like this show a clear connection between the development of a less optimistic fiscal assumption upon which the decision to downgrade was made and the Republican’s “resistance” to any revenue rises. In a strange twist, it is the insistence on only spending cuts, an insistence Republicans assured Americans would be good for their economic future, that played a significant role in the decision to downgrade America’s credit. It wouldn’t be too much of a stretch to state that S&P downgraded America’s AAA credit rating, in large part, because of Congress’ inability to raise revenues and create a more balanced, and therefore more effective, delevering scenario.
So today, this writer would like to thank Standard & Poor’s for the part it is playing in America’s future. After all, this may be the first case of an “activist credit agency” trying to parlay its influence into more balanced fiscal policy and a less partisan, dysfunctional Congress. Indeed, maybe (remember, this author said “maybe,” not “definitely”) Americans should be thanking S&P (up to the point where their interest rates go up, which this correspondent would argue is certainly cause for throwing tomatoes and other rotten vegetables) for giving post-partisan American voters ammunition to discuss the arrogant and self-serving actions of Congressional Republicans who have deemed that they, with control over only 1/3 of the houses of government, know better than the rest of America what citizens of this country want.
Further, the S&P decision has given the broader American citizenry ammunition to show how the general gridlock that dominates Washington, DC, and its political environment is harmful to America’s future. It is up to all of us to make these points loudly across the American landscape, especially this month while your Congressional representatives are home relaxing in the midst of the worst jobs outlook since the 1930s.