Scream if you want to go faster...

Standard & Poor: Heck Of a Job, Obama
The outlook for U.S. debt is not good.
--by John Hayward
April 18, 2011

If you've noticed a bit of a dip in the stock market today, one of the reasons is the new report from Standard & Poor's debt rating service, which downgraded the outlook for United States government debt from "Stable" to "Negative."

This isn't an actual downgrading of our debt rating – you'll know right away when that happens, because you’ll see toads, blood, and stockbrokers raining outside your window. Rather, it's meant as a warning – to both investors and the U.S. government. It means there is a one-in-three chance the United States will lose its AAA credit rating in the next two years.

Although S&P believe America's economic strengths "currently outweigh what we consider to be the U.S.'s meaningful economic and fiscal risks and large external debtor position," they have begun to doubt those strengths will "full offset the credit risks over the next two years." They're worried about our high level of debt, and while they appreciate the beginning of a serious conversation between the parties about deficit reduction, they "see the path to agreement as challenging because the gap between the parties remains wide." They probably were not reassured when President Obama threw a temper tantrum on stage at George Washington University and insisted that uncontrolled government spending is the key to patriotism.

Naturally, the clueless crowd at the White House – the people who brought you a "new normal" of high unemployment and soaring gas prices – dismissed the report as so much balloon juice. Austan Goolsbee, chairman of the Council of Economic Advisers, is quoted by MSNBC as saying Standard & Poor is "making a political judgment, and it's one we don’t agree with." Oh, good, so our credit rating is safe as long as Austan Goolsbee protects us by sneering at the "political judgment" of the guys who actually issue that credit rating.

The loss of our AAA credit rating would deal profound damage to an already rickety federal budget. We're paying hundreds of billions in interest every year on over $14 trillion of debt. A lower credit rating would raise the interest on that debt by billions of dollars, as well as making foreign buyers less eager to purchase American dollars. If the government responded by printing more money, it could trigger the kind of hyperinflation spiral that ends with hundred-dollar loaves of bread. No one should be under any illusions about the ability of the current Administration to resist the temptation of printing money to escape a fiscal crisis.

Liberal Democrats won't pay a moment's heed to the dire warnings from Standard & Poor. Instead, they'll draw the exact opposite of the proper conclusion, and use the report as a club to beat anyone who resists raising the debt ceiling next month. They should read S&P's statement more carefully. The analysts don't think our problem is that we're not borrowing enough money.

America, and its liberal elite, will learn the meaning of the word "unsustainable" when Standard & Poor chooses to advise the investors of the world to stop sustaining them. That decision will not be subject to the approval of Barack Obama or any of his advisors.

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From the S&P report:

"On April 13, President Barack Obama laid out his Administration’s medium-term fiscal consolidation plan, aimed at reducing the cumulative unified federal deficit by US$4 trillion in 12 years or less. A key component of the Administration’s strategy is to work with Congressional leaders over the next two months to develop a commonly agreed upon program to reach this target..."

What really leaped out at me was the text I emphasized. I thought Obama produced a new budget? But this report appears to back up what others have been saying... there is no plan. Obama went out, and in a petulant, classless speech told everyone what he wants to see in "his" new budget, but now it's up to the "Gang of Six" in the senate to come to an agreement-- they appear to be holding all the cards.

Talk has been, if the US doesn't increase oil production soon we're looking at $5 a gallon gasoline. If the conflicts in Libya, Tunisia, Egypt, Bahrain, Yemen, Syria, etc., spill over into Saudi Arabia, we're looking at further decreases in oil production.

Can we afford to await clean renewable technologies to save us from the very likely events that could cripple our economy? No, even if we start drilling tomorrow morning we wouldn't have oil filling barrels for at least a year, but every moment we wait for clean technologies to save our environmentally conscious souls the specter of economic disaster looms closer.

Sometimes what we want has to take a back seat to what we really need. If only our president understood this.

More from the S&P report:

"Key members in the U.S. House of Representatives have also advocated fiscal tightening of a similar magnitude, US$4.4 trillion, during the coming 10 years, but via different methods. House Budget Committee Chairman Paul Ryan’s plan seeks to balance the federal budget by 2040, in part by cutting non-defense spending. The plan also includes significantly reducing the scope of Medicare and Medicaid, while bringing top individual and corporate tax rates lower than those under the 2001 and 2003 tax cuts.

"We view President Obama’s and Congressman Ryan’s proposals as the starting point of a process aimed at broader engagement, which could result in substantial and lasting U.S. government fiscal consolidation. That said, we see the path to agreement as challenging because the gap between the parties remains wide. We believe there is a significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections. If so, the first budget proposal that could include related measures would be Budget 2014 (for the fiscal year beginning Oct. 1, 2013), and we believe a delay beyond that time is possible."

Can the US economy wait until after the 2012 elections? If democrats retain the senate and Obama the White House, we're at a stalemate, and the problem worsens. Both parties are intractable in their ideologies.

I find it interesting that Standard & Poor sees BOTH plans as a foundation for a good start, and that good things "could result." The problem, again, is two diametrically opposed political forces which will work their positions to the detriment of the country. It's not about the future of this nation-- except as lip-service --for either, but for one more than the other. What it's really about is the consolidation of political power.

[Naturally I believe there's less of this in the republican party, but who reading this is surprised to hear it?]

If Obama loses-- as many expect --and democrats retain power in the senate, and republicans in the house, there's a greater chance of moving fiscal sanity forward. But from where I sit, the biggest obstacle to genuine, responsible, fiscal change is the democrat-led senate.

This country is barreling pell-mell toward an uncertain future, and one party appears hell-bent on maintaining a status quo that is no longer sustainable. Scream if you want to go faster. Make hay while you can. Rock till you drop... Or bite the bullet, and step back from the edge.

The choice should be apparent to all. But apparently it's not.