Debt Man Walking

So you think the 70s were bad, huh?

In case you haven’t heard, S&P rating company downgraded the U.S. credit rating for the first time in history from it’s esteemed AAA rating to an AA+ (I would have taken either of those grades on a research paper any day.) The downgrade came one day after the Dow Industrial Average plunged 512 points. And Monday the Dow plunged a whopping 634 points. (While stocks may have been up some yesterday, the positive days have still not surpassed the overall negative. Indeed, of all that was gained yesterday more was lost today.)

Stock averages on August 4, 2011


Stock averages on August 8, 2011

Now these stock averages are not the cause of the S&P downgrade, they are the result. (Yes, the first chart is before the downgrade, but a downgrade has been imminent and trust has been wearing thin for quite some time.) So if these drops are the result of lost trust, and credit rating downgrades, what’s the cause? Spending.

Congress passed a rise in the debt ceiling, and some fake minuscule budget cuts. This “Satan sandwich” was far from encouraging to investors and hardly rebuilt American prosperity like Obama has been “promising” for the last 2 1/2 years. It was a non-solution to a non existent problem. (Indeed, we were not going to default, we didn’t when the Democrats failed to pass a budget last year and it is impossible for us not to pay our obligations when they come up. It’s not like China would get California if we didn’t pay our debt. The government just has to find a way, and fast, to pay the debt; whether that be taxes, inflation or something else.)

If raising the debt ceiling would have solved all our problems (as it was implied) then S&P wouldn’t have downgraded us. The fact that S&P downgraded us is empirical proof that raising the debt ceiling was not the solution and that the spending cuts were not enough. In S&P’s own words:

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.

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed…. [A]s 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.” –Standard and Poor’s Global Credit Portal, RatingsDirect, August 5, 2011

The message is clear. Your policy stinks, Washington.

It’s about time Washington was held accountable for their spinelessness. Although our beloved president is trying to deny the reality that S&P has actually downgraded the U.S. and has insisted, “Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we have always been and always will be a triple-A country.” Nice little statement, but what are you going to do about the downgrade? Well, if Obama listened to Michael Moore he would imprison the head of S&P and other credit rating companies on the grounds that they created the crash in 2008 and won’t hesitate to do it again.

At least the Obama administration didn’t take that line of action. Instead the White House has claimed that it is really the Republican Congressmen who are at fault because, “the path to getting there took too long and was at times too divisive.” Indeed, Obama himself has argued that there was too much, “insistence on drawing lines in the sand” — a “refusal to put what’s best for the country ahead of self-interest, or party, or ideology.” But, Mr. President, if the citizens elected Congressmen because of their ideology or party, aren’t you saying the citizens are ignorant as to how to run their country and should instead leave it up to people like you? And aren’t you suggesting that our Congressmen set aside ideology — or principal — before they vote on law? But how are they to decide without ideology or principal?

Regardless of all of the arguments presented by the administration, one painful fact still stands uncontested: S&P didn’t say that they downgraded our credit rating because we didn’t act soon enough, they downgraded us because what we did was not enough. It was not a matter of time but substance. What Congress did was harmful and spineless, and didn’t stop the real problem — spending. A problem that was solidified when we spent more than half of the rise in the debt ceiling in one day. That’s why we were downgraded.

The Republicans are not blameless though. It’s just that Obama blames them for the wrong thing. What was eventually decided was a “compromise” of real raises in the debt ceiling for non-existent cuts in the budget. But this was not compromise, this was capitulation. The Democrats never proposed a plan of their own, they just sat in the peanut gallery and criticized Republican plans. The Republicans adjusted and adjusted their ideas until it was something neither party could live with — and passed it.

What a load of silly fools we elected. It’s a shame they reflect those who elected them.

Of course, now that S&P has downgraded us, some are worried that now we will default. Former Federal Reserve Chairman Alan Greenspan supports my argumentation here that the U.S. cannot default. The problem is, his solution is to print money. Granted, this works (when the Fed prints money it, obviously, increases the amount of money in circulation while the debt of the government remains fixed. Thus, the more money you print, the easier it is to pay the debt off.) but it ends up ruining the economy in the process.

What’s wrong with spending cuts? Like the $105 million in aid to Africa the president has only just approved. Or what about all that aid that we give to countries we owe money too? Like India, Russia, etc. What about Cowboy Poetry, NPR, PBS, and all the other things we fund that are not obligations? What about Medicare, Medicaid, Social Security and other unnecessary entitlement programs? And now Obama is talking about getting more money for bridges, roads and airports to “create jobs.” You want to create jobs? Give people a chance and let them run the country themselves — that’s how you create jobs. There’s a myriad of programs in the government, programs I’m sure some of our Congressmen don’t even know about. What’s the big deal? Why can’t we just cut all this? Who needs it?

Politicians, that’s who. Raising the debt ceiling doesn’t stop anything, it postpones the problem for another Congress to deal with when they’re out of office. That’s why we have entitlements, aid, Cowboy Poetry, NPR and PBS — it all sounds good before you have to pay for it. We should stop electing politicians and start electing Americans. The hard part is that you don’t always know who the phonies are. You don’t always know when they just want to serve their country and when they just want to enter the next stage of their power trip. Maybe a rigorous exam ought to be required?

You know the old saying, “Those who cannot remember the past are condemned to repeat it.” By Wednesday of last week we had experienced the worst nine-day stock fall since February, 1978. Jimmy Carter, the man held responsible for that, and a whole lot more, was removed from the office of president and replaced with Ronald Reagan. Well, we already have a president about as bad as Carter… Maybe, even though we remember this part of history, we can repeat it anyway.

All these things to be done, all these problems to be faced. And what does Obama say?


Back in 2009 Obama said, “Look, I’m at the start of my administration. One nice thing about the situation I find myself in is that I will be held accountable….If I don’t have this done in three years, then there’s going to be a one-term proposition.” As one can expect from a politician, he changed his mind last week and said, “When I said ‘change we can believe in’ I didn’t say ‘change we can believe in tomorrow.’ Not change we can believe in next week. We knew this was going to take time because we’ve got this big, messy, tough democracy and that’s a great thing about America is that there are all these contentious ideas that are out there and we’ve got to make our case.”


President Obama is really a debt man walking now. As he carries the political burdens of market crashes, increased government spending, health care, and now the first credit downgrade in history, the only thing he will be able to offer at election time is rhetoric. As Bret Stephens with the Wall Street Journal said, “He makes predictions that prove false. He makes promises he cannot honor. He raises expectations he cannot meet. He reneges on commitments made in private. He surrenders positions staked in public. He is absent from issues in which he has a duty to be involved. He is overbearing when he ought to be absent.” Come November 4, to the political gallows of a failed president. A debt man walking.

Although, all of this isn’t the worst news out there. Donald Trump may run after all.

-Ben

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