Political Parties versus Fiscal Responsibility: Standard and Poor’s Reacts First

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Standard and Poor’s Global Credit Portal essentially lowered the United States Rating from AAA to AA1/2 due to three major factors that are negative.  One, Political Risks, second, Rising Debt, and Third the Negative Outlook.  All of these factors were not considered nor addressed when the budget and debt ceiling debate was being haggled.

Standard and Poor’s Overview

  • 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.
  • More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
  • Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.
  •  The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

It appears that Congress and the President received a bitter pill on August the 5th.  It was and continues to be of their own making. The Director’s Blog, provides the Congressional Budgets Office outlook for 2011 long term. About 70% of the Gross Domestic Product (GDP) will be the federal deficit. The CBO has grim and bad news for Congress and the President. The current system of tax and spend is unsustainable. Our outlays with continued deficits will severely hamper the government’s ability to pay its debts.

The Democrats want to maintain social services, Republicans do not want taxes, you cannot have both. The budget deal and raising of the debt ceiling was cowardly and dangerous and all parties to include the president knew it.

The proposed scenario from the CBO is raise taxes substantially as a percentage of GDP and decrease spending significantly from projected levels.  It is necessary to make the corrections now so that the future is more robust and sustainable.

It is my hope that a light of wisdom comes on somewhere, but at the moment it is still the blind leading the blind.  Senator Reid, did say, that the S&P action showed that  Democrats preferred policy approach was the right one. He was speaking of balancing cuts with taxes.  I am a skeptic only because the devil is in the details.

Representative Boehner, commented that Democrats needed to stop tinkering around the edges. Rep. Boehner also says that the S&P noted that reforming and preserving our entitlement programs is the key to our fiscal sustainability. Rep. Boehner, neglected to put this in proper context because it also dealt with raising taxes.  His entire comment does not properly address what the S&P suggested.

I shall not point fingers into anyones eyes..Politics is the second oldest profession, it is about me, ideology, and reading and speaking with forked tongue.  Standards and Poor’s got everyones attention. The presidential wannabes are spouting off about solutions and not having the foggiest idea what they would have done.

Let us hope that they seriously look at the budget and carve and not cleave.  Raise taxes on corporations and businesses so that the individual American does not have to carry the burden.