Republicans Kill The Hostage As S&P Downgrades US Debt

Aug 05 2011 Published by under Uncategorized

S&P downgraded America’s debt because the Republicans have made the process of governing so dysfunctional that Washington can no longer be trusted to agree to make even the most basic decisions.

The S&P report laid out their reasoning,

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.

Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see “Sovereign Government Rating Methodology and Assumptions,” June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government’s other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.

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.

Reality denying Republicans have already tried to shift the blame to Obama for the debt downgrade, but it is important to state the obvious. If Republicans would have passed a clean debt ceiling extension, the downgrade would have never happened. The GOP’s political recipe for bringing Obama down of one part chaos and one part obstruction was never going to allow that to happen. Many Republicans wanted the debt downgrade because it plays into their political strategy for 2012.

Whether or not S&P’s numbers are off, and with Standard and Poor’s track record they very well could be, the political point can’t be ignored. S&P downgraded our debt because our political leaders can’t agree on anything. Standard and Poor’s said that the US still can pay its debt, but the Republicans in Washington can’t be trusted to allow the government to function.

The Republican caused dysfunction in DC was one of the main reasons why S&P downgraded. They had already let it be known that a downgrade was possible if the US didn’t agree to the $4 trillion deficit reduction package, but would anyone be talking about using debt as criteria for a downgrade if Republicans had not linked it to the debt ceiling? I doubt it.

The S&P can be described as a troubled and flawed organization at best. They took a justified beating from Democrats for their role in helping to cause the financial crash of 2008. It wouldn’t be much of a surprise if the people at S&P saw this as a chance for a bit of reputation enhancement and political payback.

In economic terms, S&P is one of three ratings agencies. As long as the other two agencies keep the US rating at AAA there should be little impact from S&P’s decision. The biggest impact will be likely felt politically, not economically.

Republicans can try to blame Obama all they want, but they the ones who ginned up a crisis out of thin air, and they are party that has forced the United States of America’s debt to be downgraded for the first time in this nation’s glorious history.

The message to Obama and the Democrats is simple. They can’t fix this. Republicans are hell bent on making sure that the economy doesn’t recover. This reality leaves Democrats with two choices. They can either battle with the Republicans thus adding to the gridlock that is trashing the economy, or they can compromise and flush the economy down the drain.

It is a lose-lose situation that has no hope of improving unless the voters wake up and remove the Republicans from the House majority in 2012. Until then the American people are going to force fed a buffet of embarrassment, humiliation, and failure prepared by the master chefs of economic destruction in the Republican Party.

Eat up America. This is government that you voted for in 2010.

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