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Tuesday, October 25, 2016

S&P Is Underestimating How Dangerous Tea Party Republicans Are For The World’s Economy

S&P Is Underestimating How Dangerous Tea Party Republicans Are For The World’s Economy

When Standard & Poor’s downgraded America’s credit rating from AAA to AA+ after 2011’s debt limit crisis, President Obama was apoplectic.

“Our problems are eminently solvable, and we know what we have to do to solve them. With respect to debt, our problem is not confidence in our credit,” he said. “The markets continue to reaffirm our credit as among the world’s safest. Our challenge is the need to tackle our deficits over the long term.”

Since then, America has made incredible progress in tackling its short-term deficit but the issues that caused the initial downgrade have only gotten worse. The problem has never been America’s finances, but rather the emergence of radical politicians willing to gamble with America’s full faith and credit, as S&P noted in a statement this week that reaffirmed their 2011 ruling.

“The current impasse over the continuing resolution and the debt ceiling creates an atmosphere of uncertainty that could affect confidence, investment, and hiring in the U.S.,” the S&P research team explained.

“This sort of political brinksmanship is the dominant reason the rating is no longer ‘AAA,’” they added. But the agency also noted that it wasn’t considering another downgrade.

Not raising the debt limit would be a crisis “if we’re lucky, a historic calamity if we’re not,” says The Atlantic‘s Matthew O’Brien. Even threatening to do it hurts the economy.

Former Obama speechwriter Jon Favreau wrote in The Daily Beast about the speech he was preparing for the president to give in the case of an actual default in 2011. He described the scenario America faced at the time like this:

Without enough cash on hand, the government would be forced to delay indefinitely Social Security checks, the ones our grandparents depend on to put food in their mouths and a roof over their heads. Veterans who served this country would stop receiving the benefits they earned, and the men and women in uniform risking their lives for us wouldn’t get paychecks.

Every company in America that does business with the federal government, of which there are hundreds of thousands, would not see their contracts paid on schedule, an effect that would ripple down to their employees and their families. With each passing day, making our debt payments to businesses and governments around the world would become more and more difficult. When the world stopped seeing the United States as a safe and reliable place to invest, the cost of borrowing money would skyrocket for every single American—whether it’s a home mortgage or a personal credit card. And those high borrowing costs, coupled with billions in delayed income for seniors, soldiers, small-business owners, and their employees, almost surely would send our economy and the world’s into a crisis even deeper and more dramatic than the Great Recession of 2009.

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  • eps62

    Isn’t that tyranny? Can the people do nothing?

    • idamag

      The people should have been smarter at the polls.

      • Daniel Jones

        Idamag, WE WERE smarter. the assholes that did this are the Gerrymandered few and scared fellow-travelers.

        Now the system is locked into a deadly game of chicken and nobody stands to win this ideological war!

        • NCSteve

          The people should have smarter at the polls in 2010. Somehow, Americans never seem to learn the importance of “redistricting year” until its too late.

      • ozmorphus

        The people were racist at the polls and now they are going to pay for it.

  • John Pigg

    Hmmm… Is S&P underestimating the negative consequences, or are they simply not trying to get sued again by the Federal Government?

    • charleo1

      Well, that becomes a problem. Especially if the other big two were not sued.
      Because if I’m not mistaken, both Moody, and Fitch over rated the CDOs,
      (collateralized debt obligations.) as well. And all three played a huge role
      in the selling of these risky, and extremely complicated financial instruments.
      Their triple A ratings opened up the market to State pension funds, and
      other privately held trust funds, even foreign countries. That have strict regulations on the kinds of investments they are allowed to make. The more
      basic problem these rating agencies have, is they are funded by the very
      entities, who’s products they are rating. It’s as if a beauty contest was held,
      and all the judges were family members of one of the contestants, and she
      won! That said, the situation that has developed over the debt ceiling.
      Where raising the debt limit is used as a bargaining chip. and default is threatened every six months, or so. Must, and will at some point, erode
      the confidence in government issued notes, and interest rates will rise.
      An incredibly stupid, and self inflicted circumstance, that would cost the
      Country, and the economy trillions in added borrowing costs. And thus limit
      growth, slow job creation, increase mortgage, and credit card rates.
      The dollar itself, the world’s reserve currency, would be hammered. So the
      cost of oil, and other commodities sold on the world market, could increase
      substantially for Americans, and American businesses. All this, and just
      about every other nasty economic consequence, we might imagine.
      So, how could Obama or any President, reach any other conclusion?
      One, that he had made an error, and set a dangerous precedent in bargaining over raising the debt ceiling, with the entire economy held hostage, and in the balance. And two, not to make that mistake twice.

      • sigrid28

        The beauty contest analogy is terrific, charleo1. The built-in human weakness of all of our systems of judgment, including the courts, has to do with overcoming the tension between the need for laws to make revenge less chaotic than the “lex talonis”–an eye for an eye–and clan rule, whereby everything operates on the basis of nepotism and cronyism.

        • charleo1

          Well, just a bit of humorous analogy. But the idea of putting
          the rating agencies in the pocket of the Wall Street firms, has
          a lot to do with how the Right Wing views regulations, and
          oversight. With the GOP, it always feels as if there were
          some, “fix,” that favored the Con, built right into the deal.
          Always with a failure to see the inherent value of regulation,
          in weeding out the dishonest, and increasing trust in the
          system. For if everything could be a fraud, what impact
          does that have on people’s willingness to invest?
          For example. Take the popular, and growing business of
          parasailing in the State of Florida. After two very serious
          incidents in which there were fatalities involving safety
          issues, and calls for regulating such things as caused the
          deaths. Proper harnessing, and weather conditions played
          roles in both cases. But, the State Legislators refused on the same grounds they always use. Namely, an aversion to what they see as govn’t interference into private business. Even
          as legitimate, and responsible parasailing businesses,
          supported the safety regulations. As these less responsible
          people were hurting the public’s overall impression of the
          activity. And beginning to see it as somewhat dangerous.
          So, very much like the empathy gene is absent in GOP
          think. So, they see no problem in some of the public getting
          hurt, as a way to weed out the bad actors. In other words,
          buyer beware. Naturally, I disagree.

      • omgamike

        Except that the deficit has been coming down for each of the last four years. All the fear-mongering is going on over the national debt, the by far the largest portion of Obama inherited from W. The only real solution is to grow our way out of the problem. But that will take a lot of political will power because a lot of things will have to be done that will cause a lot of pain, domestically and globally. Like investing in repairing our infrastructure, modernizing the electrical grid, stopping outsourcing and finding a way to bring back our businesses. Close down all corporate welfare, raise taxes at least back to the levels during the Clinton administration. Crack down on fraud and waste throughout our government. Radically scale back our military — close down the majority of overseas bases, forbid sole sour contracts, etc. A lot of painful decisions.

  • sigrid28

    S&P itself has recently been censured for failing to avoid self-interest in making its evaluations. This problem arises because the very entities that S&P evaluates are dues paying members, as I understand it. Sorry to say, even the S&P can be paid off, apparently.

    • S.J. Jolly

      The real biggest threat to our economic system might be greed — self interest pushed to the point that it capsizes the system.

  • disqus_fsqeoY3FsG

    Rep. Paul Ryan (R-WI) said last week that the House GOP plans to use the debt limit again to demand concessions. “I think it will fold into the debt ceiling fight. I think that’s inevitable, and preferable in my opinion,” he said. “I like combining all of our leverage, which is sequester and the debt limit.”
    This is the man whose numbers never add up correctly and we are suppose to put “The full faith and credit of the United States economy and trust him that it will not harm our Economic recovery and not have an affect on the World’s Economy?

  • Allan Richardson

    I once lost a job because my company was stiffed by the Army on a periodic payment on a contract, for reasons not related to budgeting (the Army was supposed to run a progress test and make the next payment, but THEY were not ready to run the test, so they missed the payment). Ironically, my BOSS was laid off along with me. Later, I learned that this small, private company was undercapitalized and thus did not have the reserves to survive the loss of one payment. The loss of a continued string of payments would cause even a much larger company to lay off employees.