S&P removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal recently brokered in Washington didn't do enough to address the gloomy outlook for America's finances. It downgraded long-term U.S. debt to AA+, a score that ranks below more than a dozen governments', including Liechtenstein's, and on par with Belgium's and New Zealand's. S&P also put the new grade on "negative outlook," meaning the U.S. has little chance of regaining the top rating in the near term.
The unprecedented move came after several hours of high-stakes drama. It began in the morning, when word leaked that a downgrade was imminent and stocks tumbled. Around 1:30 p.m., S&P officials notified the Treasury Department that they planned to downgrade U.S. debt and presented the government with their findings. Treasury officials noticed a $2 trillion error in S&P's math that delayed an announcement for several hours. S&P officials decided to move ahead, and after 8 p.m. they made their downgrade official.
S&P said the downgrade "reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics." It also blamed the weakened "effectiveness, stability, and predictability" of U.S. policy making and political institutions at a time when challenges are mounting.
Friday, August 5, 2011
After all of the faux drama of the debt ceiling debate, the US has endured what we were told we were trying to avoid: a down-grade of our creditworthiness. S&P did the deed this afternoon after the markets closed.
The effort is already on to blame intransigent Republicans. No doubt there's enough media bias and Pelosi rants available to make that sort of thing stick for a little while. But, I just don't see how Obama et al. avoid the fact that the American debt problem is a result of the wild spending in the post-TARP political scene.
We didn't get downgraded because of the Tea Party. We got downgraded because of TARP, the auto bailouts, the stimulus, Obamacare, QE1 & 2, Cash for Clunkers, and a million other wastes of money. Those weren't Republican or conservative initiatives. In fact, with a few notorious exceptions, they were resisted mightily by virtually every Republican in elected office. (and those who didn't resist have found themselves out of office). Hell, the Tea Party started to protest the explosion of spending coming out of DC!
Indeed, S&P specifically complains about the failure of the debt agreement to make a serious attempt to reduce spending. That wasn't the Tea Party's fault. Obama and the Democrats in Congress were the ones who pressed to preserve spending at today's mind boggling levels. As Erik Erickson points out, S&P has indicated that only a plan with a minimum of $4 trillion in cuts would have impressed them. Well that was the Tea Party's plan, a plan that has been denounced as unserious and terroristic.
No wonder S&P considers America's government to be institutionally incapable of making the sort of changes needed to change its depressing course: the people whose proposals would help are routinely denounced as the unsophisticated Hezbollah branch of the GOP, while the people causing all of this destruction can present themselves as saviors even as they blithely promulgate policies that are destroying us from within and from without.
Michelle Bachmann - she of the migraines and the "gay" husband, according to the media - immediately called for Tim Geithner's resignation. If I were him, I would be too embarrassed to show up at the office on Monday, but I'll bet he will, and everyone will continue to act like Bachmann is the one with the problem.
The fact is that we are the ones with a problem. The public has been fairly consistent in protesting the spending of the Obama years. Yet, the spending has continued virtually unabated. While we have a Republican House, we also have a Democrat Senate that hasn't produced a budget in two years for no better reason than they don't want to have to vote on all of the spending they have nonetheless been committing the country to. And, we have an economically illiterate president who has governed as a hard leftist after campaigning as a pragmatic moderate.
America will continue to be institutionally incapable of facing up to its troubles as long as 2/3rds of the government continues to be in the hands of a leftist minority that would destroy the economy rather than admit their technocratic plans have failed utterly.