Well, it finally happened. Standard & Poor lowered the U.S. credit rating from AAA, the best there is, to AA+. Still good, but not the best. They said it was because of the fact that the recent political battle over raising the debt ceiling showed that the government’s ability to manage its finances is “less stable, less effective and less predictable.”
Standard & Poor officials also indicated it may be quite a while before the credit rating would be raised again. The other two agencies that issue ratings, Moody’s and Fitch, haven’t lowered their rating, but warned that could change if there is a significant deterioration in the economy, or if our leaders don’t follow through on meaningful action to tackle the deficit.
Already, last week the market took a nosedive, the worst since the 2008 debacle. And markets around the world, including Japan, Europe and Hong Kong, tumbled, so this could be a harbinger of things to come. Economists are split on whether we are headed into a deepening recession or if this is just an example of the volatility of the market in these times of uncertainty.
As I wrote in this column a few weeks ago, the ugliness of the battle over the debt ceiling could have dire consequences, and the Republicans lack of willingness to compromise in the slightest, even to give in symbolically on some tax loopholes that beg for closing, could cause unintended consequences that will affect us in very bad ways.
The downgrade can affect a lot of things, and if one of the other agencies decides to also lower the rating, we’re in big trouble. Interest rates charged to the U.S. on its debt could go up, costing billions in extra payments and making the deficit even worse, exactly what the idiots in Washington profess to be trying to avoid. And interest rates you and I pay, on credit cards, mortgages and car loans, which are tied to the prime rate, could go up, making it tougher for us to make the payments. It’s a downward spiral that could send the economy into a recession worse than 2008.
Other companies that rely on the U.S. government, such as defense contractors who receive payments from the Pentagon or hospitals that receive Medicare payments, could have their debt downgraded as well.
Many institutional investors, such as pension plans and universities, are required to hold a certain percentage of AAA debt, so they would have to sell off massive amounts of U.S. debt, which would create havoc in the markets.
This would be the perfect time for President Obama to appear on TV, along with the leaders of Congress—John Boehner and Nancy Pelosi in the House of Representatives and Harry Reid and Mitch McConnell in the Senate—to say that, ‘Hey, we get it. We will sit down and work together for the good our country and its citizens, so they don’t have to suffer because of our actions.’
But that’s not what’s happening, In fact, they are doing just the reverse, and continuing down the path that got us into this mess. They immediately started blaming each other. Boehner blamed “the Democrats who run Washington,” and said they are unwilling to make the tough choices required. He quoted the part of the S&P report that said entitlement reform is necessary. He conveniently left out the part of the report that called for new tax revenue. Republican Senator Ronald Johnson of Wisconsin said that the downgrade, “provides further evidence that President Obama’s agenda has been a disaster.”
Not to be outdone, Democrats joined right in. Timothy Kane of Virginia said it’s the resistance of the Republicans to entertain new revenue that was the critical part of the cause. He neglected to mention the part of the report about entitlement reform. Senator Christopher Coons of Delaware blamed the Republicans for refusing to negotiate in good faith, and turning the debt ceiling debate into a hostage crisis.
Republican Presidential candidates joined in as well. Tim Pawlenty called President Obama “inept,” and Michele Bachmann said that the President is “destroying the foundation of the U.S. economy one beam at a time.”
A major part of the reason for the downgrade, and subsequently for the consequences that affect us all, is the inability of the politicians to get along and work out solutions. And their response? To bicker and argue even more. It would be a cruel joke if it weren’t so serious. These guys, especially the Republicans, choose to use this looming disaster to try and gain political advantage, rather than actually trying to govern. It really seems like they would rather see us fall into a depression, and see people unemployed, on food lines, losing their homes, if it meant that they would win the next election.
The Republicans talk about Obama’s stimulus spending, bailouts and deficits as a disaster. I agree; the way he handled those things was horrendous. But he did it pretty much just like President Bush did, and they voted for it when he was in charge. This is nothing but political showboating, and it’s taking our country down the proverbial river.
If some of these politicians, or even one, would just rise above the muck and call for working together and using a balanced, fair and logical approach to our problems, I believe he would be lauded by the public. However, going against the party leaders would be blasphemous, so they stick to the party line even when it is leading them over the cliff, like the bunch of lemmings they are.
We better hope that one of the jerks we send to Washington speaks up and can convince others that there is a greater purpose than winning the next election. Or that by doing the right thing, they will be seen as brave and it will actually help win the next election. If we are to survive as a powerful and prosperous nation, we need some semblance of sanity in Washington. Don’t hold your breath.