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August 9, 2011
What took the S&P downgrade so long?
After the downgrade of U.S. sovereign debt by the rating agency Standard and Poor's, there came a concerted effort to blame it all on the little old Tea Party. Sen. John Kerry, David Axelrod and other progressives went on the Sunday morning talk shows and railed about the "Tea Part Downgrade."
Such "playing to the peanut gallery" is pathetic, simply because the Tea Party didn't get what it wants, which is immediate and substantial budget cuts. The budget cuts for FY2012 don't even amount to one percent of this year's spending. One percent would be $37B, give or take a billion.
Democrats have also been smearing Standard and Poor's, and that does have some merit. The rating agencies missed the collapse of Enron, the real estate bubble, etc.
What S&P should be criticized for is their criteria for rating U.S. debt. They wanted a $4T deal rather than the $2T deal Congress struck; they wanted some "grand bargain." But the main thing they should have been looking for were the cuts in FY2012, which begins Oct. 1. Next year's budget is the only thing this Congress can control. S&P did the right thing but for the wrong reasons.
However, the salient criticism of the ratings agencies is that they didn't downgrade U.S. debt much earlier, and I'll even put a date on it: Oct. 1, 2010.
The ratings agencies should have downgraded U.S. debt last October because that's when the U.S. entered a third year of trillion-dollar deficits -- and when Congress hadn't even produced a budget. When the Democrats controlled everything, they couldn't bring themselves to perform the constitutionally mandated chore of passing a budget. For this entire fiscal year, we've been operating on CRs, continuing resolutions. That's no way to run a country. So last year is when S&P, Moody's and all the others should have acted.
Of course, had the ratings agencies downgraded the U.S. right before an election, it would have produced even more howls. How dare they. But Oct. 1, 2010 was when America entered uncharted waters in the debt ocean. (There be dragons here.)
The media's performance in the debt ceiling debates and in its aftermath has been scandalous. On Sunday, former Fed head Alan Greenspan appeared on NBC's Meet the Press and reminded the panelists that talk of "default" isn't accurate because America can "print" money. Then the panelists went right ahead with their "default" talking points. Moderator David Gregory should have corrected them immediately.
Greenspan sidled up to the real issue in our madcap race to Hell: America will be able to pay back the money we've borrowed, but it won't be worth anything. Eventually, the bill for all this printing of money will come due, and it will be a currency destroyed by inflation.
If Republicans had controlled Congress and had produced trillion-dollar deficits, you can be assured Democrats would be hailing the Tea Party as the salt of the earth, the finest Americans ever. Indeed, Democrats would be Tea Partiers.
The reason for a downgrade isn't because of the wrangling over a hike in the debt ceiling, but because of debt itself, and the failure of Congress to do what's needed to curb it.
Now that we've finally got the long-expected downgrade while threats of additional downgrades loom, Americans should be asking themselves what Congress is going to do to get our pristine AAA rating back as soon as we can. Which means, what is Congress going to do about the debt?
Monday, NRO ran a nifty little article by Deroy Murdock on the debt, the downgrade, and what to do. Murdock began with this: "God Bless Standard & Poor's!"
Right. I just wish S&P had acted 10 months sooner.
Jon N. Hall is a programmer/analyst from Kansas City.
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