By Robert Romano – AA is now Barack Obama’s scarlet letter. He is the first President to preside over a downgrade of our full faith and credit, and it is owed to no less than Obama’s $1 trillion annual expansion of the now $14.5 trillion national debt, which will top 100 percent of the $15 trillion Gross Domestic Product in perhaps days.
But the failure is also shared by Republican leaders in Congress, who did not insist on the only plan that might have prevented S&P’s downgrade: “Cut, Cap and Balance.” In the end, only 22 House Republicans were courageous enough to stand in the way of the Boehner plan that resulted in the debt deal — and for the disgrace we now all share as a nation.
This outcome was entirely avoidable.
Prior to the debt deal, the agency had demanded $4 trillion of deficit-reduction, really a modest goal considering the pace at which the debt is growing.
Said S&P, “We expect the debt trajectory to continue increasing in the medium term if a medium-term fiscal consolidation plan of $4 trillion is not agreed upon. If Congress and the Administration reach an agreement of about $4 trillion, and if we to conclude that such an agreement would be enacted and maintained throughout the decade, we could, other things unchanged, affirm the ‘AAA’ long-term rating and A-1+ short-term ratings on the U.S.”
Alas, Congress did not listen. “Cut, Cap, and Balance” was the only plan to pass either chamber of Congress that exceeded the S&P threshold.
And instead of using the S&P threat as a hammer to insist on “Cut, Cap, and Balance,” House Republican leadership, not a day after it passed, was already considering Plan B. This failure virtually guaranteed the downgrade.
Lest there was any doubt over the cause of the downgrade, S&P made it clear in their most recent report: “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.”
Also, the downgrade reflected “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.”
So, because of opposition to reducing borrowing in Washington, and Obama’s insistence on raising taxes, S&P is estimating leaders of both parties will be unable to make progress in the short run to slow down the growth of the debt as a percent of the economy.
That will not stop the salons from blaming the tea party for the downgrade. But the fact is, the only party in Washington that rejected the insufficient debt deal that paved the way for AA was the tea party. At the end of the day, they were the only ones who were insisting on a solution instead of a deal to our creditworthiness crisis. They were the only ones who demanded the budget be balanced. They were the only ones who pointed to the S&P warning and advised policymakers to exceed the $4 trillion minimum threshold for savings.
The tea party was right.
Everyone else just has egg all over their faces, including U.S. Treasury Secretary Timothy “AA” Geithner, who recently as this spring promised the nation was at “no risk” of a credit downgrade. What a disgrace.
Now, everyone will have to pay the price, in the form of higher interest rates for all kinds of debt: mortgage, credit cards, student loans, state and municipal debt. It will mean higher insurance rates. It will weaken the dollar and threaten its status as the world’s reserve currency.
It could have been avoided. The problem we face is not that we’re taxing too little, it is that we’re spending too much. The only intransigence of substance is Washington’s refusal to stop borrowing at a pace faster than the economy. Since 2001, the economy has grown by 46 percent, but the debt has grown by 146 percent.
Ultimately, responsibility for the downgrade lies with Obama. He is the one who wanted to borrow and print trillions of dollars for “stimulus”. He is the one who refuses to cut spending. Blaming the tea party for our fiscal crisis is like blaming a wife for defending herself against getting beaten.
Robert Romano is the Senior Editor of Americans for Limited Government.
