by John Hawkins | August 5, 2011 10:34 pm
Over the last couple of years, Treasury Secretary Tim Geither has been reassuring Americans who are worried about the Obama Administration’s out-of-control spending that there’s no danger that we’ll EVER lose our AAA rating.
Peter Barnes “Is there a risk that the United States could lose its AAA credit rating? Yes or no?”
Geithner’s response: “No risk of that.”
“No risk?” Barnes asked.
“No risk,” Geithner said.
Of course, many people are probably thinking: “What do you expect from a guy who can’t even figure out Turbo Tax?”
Anyway, S&P dropped the hammer today, essentially because it thinks our debt is starting to spiral out-of-control and it sees no appetite to deal with the problem either by cutting spending or raising taxes.
We lowered our long-term rating on the U.S. because we believe that 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. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.
…Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key
to long-term fiscal sustainability.
… In our view, the difficulty in framing a consensus on fiscal policy weakens the government’s ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher, the needed medium-term fiscal adjustment potentially greater, and the inflection point on the U.S. population’s demographics and other age-related spending drivers closer at hand (see “Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even
More Green, Now,” June 21, 2011).
Standard & Poor’s takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.’s finances on a sustainable footing.
…The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction–independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners–lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government’s debt dynamics, the long-term rating could stabilize at ‘AA+’.
Translation: The United States is spending much more money than we have, no end is in sight, and we’re either going to have to cut back on spending, raise more revenue with tax increases, or do both.
Of course, this is probably a great time to note that if the Democrats hadn’t blocked Cut, Cap, and Balance, we’d still have our AAA rating today. The Democrats called pushing that bill extreme, “hostage taking,” terrorism — when it fact, it was just the bare minimum we needed to do to be financially responsible. Democrats might counter that Barack Obama had a “plan” that might have saved our AAA rating, too, but the problem was that it didn’t exist. If you say it did, show me the text and the CBO score….save yourself some time, because that information doesn’t exist.
Most people don’t quite realize it, because there are no falling buildings, no clash of arms, and no people throwing themselves out of windows, but this is one of the worst days in American history. It’s a negative tipping point brought on by the Democratic Party liberals’ belief that they can spend as much money as they want, for as long as they want, without ever having to pay it back. Unless something changes, it’s entirely possible that the country may never recover from their foolishness.
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