This is precisely the point S&P is making with respect to the downgrade. Or is it? For months, the agency has been warning Washington that it faced a downgrade if lawmakers did not come up with $4 trillion in savings — in projected deficits over the next ten years. The bet here is most Americans thought $4 trillion in savings would mean our now $16.7 trillion of debt would be reduced. And while the Obama administration and others are blaming S&P for making a $2 trillion error in its calculations, which is accurate, the chart here reveals that, error or not, America’s debt as a percent of GDP will still increase. Inexorably.
Thus, the reality is that even S&P’s reasons for the downgrade understate the seriousness of the problem. Whacking $4 trillion of projected deficits from $9.5 trillion of projected spending leaves $5.5 trillion of additional debt piled on top of that which the country has already accumulated, meaning we break the $20 trillion “ceiling” in less than ten years, even if the committee comes up with twice as much “savings” as anyone anticipates.
Yet that didn’t stop S&P from taking heat. The Obama administration accused them of “amateurism.” Treasury Secretary Tim Geithner said the agency showed “really terrible judgment” and a “stunning lack of knowledge about basic U.S. fiscal budget math.” Not regular math. Fiscal budget math, which includes baseline budgeting.
Should S&P be hammered for lowering our credit rating? It might be more honest to say that the other two major ratings agencies, Moody’s and Fitch, should be hammered for not following suit.
Yet if Republicans can’t succeed in destroying the dual narratives of “Tea Party downgrade” and “S&P idiocy” — and current polls suggest the narratives might be bearing fruit — they are utterly hapless. It necessitates the complete suspension of logic to blame the Tea Party, currently the only political constituency in Washington dedicated to reducing the spending driving this nation into bankruptcy, for a credit downgrade based on that spending. And it takes an almost unfathomable level of denial to blame S&P for doing exactly what it is supposed to do when every calculation it makes, errors or not, leads to the indisputable reality of long-term fiscal impossibility.
To that end, S&P only appears to be becoming more serious with the profligate path the U.S. government is on. Also on Monday, mortgage giants Fannie Mae and Freddie Mac, along with farm lenders; long-term government-backed debt issued by 32 banks and credit unions; and three major clearinghouses used to execute trades of stocks, bonds and options, all had their credit ratings lowered from AAA to AA+ as well.
The president? Mr. Obama said nothing regarding Friday’s announcement until mid-afternoon yesterday. Unfortunately, when he spoke, Mr. Obama said nothing new, reiterating the need for more government spending and making the same tired excuse that “partisan gridlock” caused the latest market turmoil and the ensuing credit downgrade. He also took a veiled swipe at S&P, saying America “will always be a AAA nation.”
As the president spoke, the Dow dipped below 11,000 for the first time in ten months. During the day, gold soared to record levels. At the end of the day, Tim Geithner, who predicted the nation would never lose its AAA rating, remained Treasury Secretary. All in all, it was yet another demonstration of the president’s abdication of anything resembling genuine leadership.
An abdication that can’t possibly be blamed on the Tea Party or Standard & Poor’s.
Pages: 1 2