Standard & Poor’s has lowered the country’s AAA rating for the first time since 1917. Symbolically this is a black-eye for the creditworthiness and what was the stellar reputation of the U.S.A as the safest place to invest your assets. Moody’s nor Fitch, the two other major rating agencies did not downgrade. The proposed $2.3 bio in spending cuts was not enough to satisfy S&P. Had it not been for the extremism of the new anti-tax Republicans and their stupid pledge-making band of Tea Party radicals, we would have no trouble adding another trillion in tax revenues over 10 years by merely closing the tax loopholes for multinational corporations arriving closer to that $4 trillion S&P was looking for.
In their statement S&P noted: “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.”
Hello Tea Party members!! Is there anyone home? It sounds as if S&P like everyone else on the planet – well except that for the rich, U.S. multinational corporations, Fox News, and right-wing multi-millionaire talk radio hosts – agree that a BALANCED approach to deficit reduction that combines spending cuts with “revenue-raising measures” is the only acceptable and fair way of reducing the deficit.
Indeed S&P confirmed that view: “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+’.
What that means is that their current long-term rating outlook is negative but the rating could be further reduced to AA if revenues aren’t included in the mix to reduce the deficit. To avoid a further downgrade and improve the outlook from negative to stable S&P noted:
“Our revised upside scenario–which, other things being equal, would be consistent with the outlook on the ‘AA+’ long-term rating being revised to stable–retains these same macroeconomic assumptions. In addition, it incorporates $950 BILLION OF NEW REVENUES ON THE ASSUMPTION THAT THE 2001 AND 2003 TAX CUTS FOR HIGH EARNERS LAPSE FROM 2013 ONWARDS, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.”
One of the biggest questions after the downgrade was what impact it would have on already nervous investors and to every day Americans. Some knee-jerk selling is expected when stock trading resumes Monday but the Dow already fell 699 points this week as many investors anticipated a downgrade. One fear in the market has been that a downgrade would scare buyers away from U.S. debt however it’s only ONE agency that downgraded a ½ notch (the rating wasn’t reduced to “junk” status which was threatened had the country defaulted) so U.S. Treasuries will still likely be viewed as one of the safest investments. Any rise in borrowing costs hopefully will be minimal BUT further downgrades will most certainly lead to higher borrowing rates for consumers, since the rates on mortgages and other loans are pegged to the yield on Treasury securities.
At the end of the day, S&P is sending a loud and clear message to the American people. From the very first day the Tea Party arrived in Washington there has been nothing except political dysfunction gripping the country. The “spending cuts only” stubbornness of the Republican Party forced on them by this new band of extremists making foolish pledges to corporate interests is poisonous for the country. Americans far and wide need to vote out every single one of these right-wing ideologues immediately for the long-term health of this country.