Since the Standard and Poors downgrade report was released, pundits and politicians on various sides of the political spectrum have been spinning its contents to support their camp or damage another. One would blame the Tea Party for resisting tax hikes. A second would blame the President for a lack of leadership, while another would blame the prior administration for spending increases. Some wanted the Democrat led Senate to take the heat for refusing to touch costly entitlement programs, while others went after the GOP leadership in the house that was stuck between the idealists in their own caucus and a powerful opposing party that controls the upper chamber and the White House. Wading through the sea of finger pointing to get to the nitty-gritty can almost seem impossible.
So, I looked at the report, searching for who and what were the culprits that led to this unprecedented black mark on the rating of our government’s credit worthiness. From the beginning, S&P’s “rationale” focuses on bloated entitlement spending as a key factor, specifically citing Medicare twice. Later, it refers to “age related spending drivers” which implies Medicare, yet again, along with Social Security. This would seem to vindicate more conservative voices, especially the tea party faithful, and cast a shadow of doubt on the leftist government program pushers.
Income tax is mentioned twice but only in the area of future projections--never as a basis for the downgrade. However, insufficient revenue increases are referred to numerous times, twice in the reasoning for the downgrade. But it is unclear whether this is a reference to income taxes, other forms of taxation, a moratorium on subsidies, an increase in tariffs, or any other avenue that the government could use to take in additional funds. With this ambiguity, it’s far from conclusive that under-taxation led to the downgrade in the eyes of S&P.
Another contribution to Standard and Poors assessment of the lowering is the uncertainty of the political process. Difficulties bridging the “differences between political parties” is mentioned as a factor, as is the “brinkmanship” that seemed to define the debt ceiling debate in the final days before it became law. It’s clear to see that both sides of the isle were complicit, for better or for worse, and the S&P report was right to avoid charging any single caucus. Of course, I’m sure the rating agency was delighted that they oversaw a scenario that needn’t vilify one side or the other because you never know who the next ruling party will be, nor do you want to damage ties with the current one. That’s why the report’s readers must endure absurd disclaimers like, “Standard and Poors takes no position on the mix of spending and revenue measures that Congress takes.” This is their attempt to seem nonpartisan--an intentional lack of critical thinking that produces vacuous statements like “balanced approach.” Well, I’ve got news for the authors of this report--strangely enough, balancing the US budget is, apparently, considered partisan and, by some, even considered extremist. Furthermore, their hopes for legislative “efficiency” seem pinned on political consensus in the future, facilitated by single party dominance. I’m not sure whether I should be fearful, encouraged, or amused by such a prospect.
That’s my interpretation of Standard and Poors written assessment. Although, I think some of the points are accurate, there’s a lot they misinterpret and more they avoid altogether. I don’t know who’s taking the bribes over there but the US Government deserved to be downgraded years ago and it’s incredible that its rating is as high as it is, currently.
The report also seems to make a failed attempt at equating spending cuts and increasing revenues. Many have assumed that revenue is code for income tax increases, which isn’t necessarily true. But assuming for a moment it is, we can’t simply screw the job makers and expect this to solve the monstrous budget shortfalls. First, it’s simply not nearly enough money to make up the difference and second, it could very well obliterate economic growth and produce even lower revenues and higher deficits. As another approach take Coca Cola, an entity that’s actually capable of retaining their AAA rating. Do they continually write budgets they can’t afford? Doubtful. When they’re in the red do they make their products significantly higher for the affluent, which are probably their biggest customers? Nope. However, do they cut costs when conditions demand it? Most certainly. It appears that it’s never occurred to our leaders in Washington that if they want to be AAA rated then they should mirror the actions of those that are AAA rated!
Strangely, in every one of the report’s several projections they use a 2.5% growth rate. Not only does this seem a rather arbitrary number, but it also may even be unrealistic at this point. Not to mention, that in scenarios that factor increased income taxes it doesn’t adjust the growth rate to show lower productivity and decreased revenues from higher unemployment. As a matter of fact, it didn’t mention unemployment as a factor at all, which is a huge omission.
Also omitted was any mention of the trillions owed in unfunded liabilities, in addition to what’s considered the national debt. Nor was there any critique, specifically, of how all deficit solutions are unrealistically comprised of decade long deals that could be altered by the next congress in a year or two, making the whole endeavor pointless and uncertain. I guess this stuff is sold to the public as if it’s akin to a mortgage that you and I might have that gets gradually paid down. But when have you ever seen a bank let a customer structure the repayment of their own loan? Never. It’s because there’s no accountability and it would probably end up leading to disaster. It’s like the addict that constantly promises to kick the habit next week, but never reaches the point of making the necessary changes when that time arrives--only to make more promises of future reform. Why can’t congress just budget for the year in front of them and drop this whole charade? And recently a new downturn was realized when the CBO discovered that they had miscalculated the figures concerning the President’s health care entitlement. You mean we’re not going to save money like the administration bragged for months? There’s a shocker! The only fools that bought that pitch are the same ones that believed Gitmo was going to be closed or that the unemployment rate would never surpass 8%.
But I digress. The report does summarize the debt ceiling bill, detailing the amounts to be cut immediately (assuming that includes revenues from loop hole closures) and how Congress plans to cut additional costs down the road. These figures have been widely reported and touted as progress but I recently saw a comparison made by Dave Ramsey that puts the exorbitant figures in perspective:
If the US Government was a family, they would be making $58,000 a year, they
spend $75,000 a year, and are $327,000 in credit card debt. They are currently proposing “big” spending cuts to reduce their spending to $72,000 a year.
These numbers are proportional to the actual amounts of the debt, deficit, and savings hammered out (and not yet hammered out) by our Government. Now, you realize how little this debt ceiling debate actually remedied. The financial illness is lessened to such a small extent that it nearly can’t be felt. It makes one marvel at the haggling that’s taken place over the last few weeks. It’s like a team of doctors arguing about a patient’s toe, when the chart shows massive organ failure. The idea that anyone is calling out another faction as the exclusive cause of the downgrade or taking credit for this pile of near nothingness that’s supposed to pass as worthwhile budget improvements is thoroughly ridiculous.
However, I will say this, the President and his minions in the Senate wanted to raise the debt limit with no reforms whatsoever and if it wasn’t for the Tea Party he might have got away with it. Who could say how low Standard and Poors would have gone under those circumstances. It appears that this report and this government aren’t being truly serious in the face of, perhaps, the largest threat this country has ever seen. The only thing being taken seriously in this whole affair is the endless stream of low-grade rhetoric.
