WASHINGTON – Standard & Poor’s–one of the world’s three principal rating agencies–has downgraded the U.S. credit rating, for the first time in the nation’s history, declaring that the “political brinksmanship” in the debate over the normally routine process of raising the country’s debt ceiling had made the federal government’s ability to manage its finances “less stable, less effective and less predictable.”
“It’s always possible the rating will come back, but we don’t think it’s coming back anytime soon,” said David Beers, head of S&P’s sovereign debt rating unit.
The rating was lowered one notch below AAA–with Canada, France, Germany and the United Kingdom–now to AA+, along with New Zealand and Belgium, just above Bermuda, Spain and Qatar.
The U.S. debt ceiling–the limit of the government’s borrowing authority–has been raised more than 100 times since it was instituted in 1917, without a contentious budget fight, which involves political, not fiscal decisions. It has been raised 39 times since 1981 when Ronald Reagan was president, including 18 times by Mr. Reagan, seven times by President George W. Bush, and three times by his father President George H.W. Bush. The debt ceiling was raised at least five times by President Bill Clinton, and it has now been raised three times by President Barack Obama, but never just hours before the country was to default on debts which have already been incurred by past governments.
Democratic officials–even those who voted for the debt-limit increase which was condemned by Congressional Black Caucus (CBC) Chairman Rep. Emmanuel Cleaver (D-Mo.) as a “sugar-coated Satan sandwich”–condemned House Republican, Tea Party loyalists, who were accused of holding the entire nation “hostage,” and then “threatening to shoot the hostage,” because they refused a more sizeable 10-year, deficit-reduction agreement which would have included tax increases for the wealthiest individuals and for corporations whose profits are skyrocketing.
Former presidential candidate and current U.S. Senator John Kerry (D-Mass.), blamed the Tea Party. “I believe this is, without question, the ‘Tea Party downgrade,’ ” Mr. Kerry said on NBC’s “Meet The Press” Aug. 7. “This is the Tea Party downgrade because a minority of people in the House of Representatives countered even the will of many Republicans in the United States Senate who were prepared to do a bigger deal” of at least $4 trillion that included a mix of reductions, entitlement reforms and revenue enhancement. A larger debt-ceiling agreement and evidence that Republicans and Democrats can agree on budget reforms might have prevented the downgrade, S&P said.
The downgrade was “about the difficulty of all sides in finding, you know, a consensus around fiscal policy choices, now and in the future,” Mr. Beers said on “Fox News Sunday” Aug. 7.
“The American people need the Republicans to stop their reckless and irresponsible political games that led to this unfortunate downgrade,” Assistant House Democratic leader and CBC member James Clyburn (D-S.C.) said in a statement. “They have repeatedly walked away from the negotiating table whenever the two sides got close to a balanced blend of both spending cuts and revenue raisers. Congress needs to work together across party lines to develop policies that will create jobs, grow the economy and provide opportunities for working people while we put in place a common sense plan to get our nation’s books in order.”
Other Democrats and independent economists condemned both the right-wing Tea Party faction of the House and the White House which conceded to what they decry as a “raw deal”–the deficit ceiling agreement.
“As we’ve inched through the year, it’s become clear that it’s that minority element, the Tea Party element of the Republican Party, that’s really driving the majority in the Congress, and they were willing to go to a showdown,” Rep. Donna Edwards (D-Md.), a member of both the CBC and the House Progressive Caucus told Pacifica Radio’s “Democracy Now!”
“Now, where, you know, I’ve encouraged the White House and the president, at least publicly, is that I do think that we need to begin to play some hardball with these folks, because now they feel even more emboldened” to demand even harsher budget cuts, while continuing to insist that the government not increase its revenue, Rep. Edwards said. That tactic is described as “starving the beast,” that is reducing the amount of money available in the treasury, in order to eliminate resulting “unaffordable” social programs benefiting poor and working-class people, which Republicans oppose.
Still other progressive political leaders condemned the economic system itself. “I find it interesting to see S&P so vigilant now in downgrading the U.S. credit rating,” Sen. Bernie Sanders (I-Vt.) said in a statement Aug. 6. “Where were they four years ago when they, and other credit rating agencies, helped cause this horrendous recession by providing AAA ratings to worthless sub-prime mortgage securities on behalf of Wall Street investment firms? Where were they last December when Congress and the White House drove up the national debt by $700 billion by extending Bush’s tax breaks for the rich?” Mr. Sanders demanded.
Ironically, after the major right-wing victory in December 2010, when the Democratic majorities in both the House and Senate failed to rescind $700 billion worth of Bush-era tax cuts for the rich, the Republican ideologues who took control of the House in January staked out the debt ceiling debate as a “hidden” opportunity to rein in federal government spending.
“I’m asking you to look at a potential increase in the debt limit as a leverage moment when the White House and President Obama will have to deal with us,” Rep. Eric Cantor (R-Va.), House Majority Leader told a closed-door retreat of the incoming GOP Caucus at a Baltimore hotel, according to The Washington Post. “Either we stick together and demonstrate that we’re a team that will fight for and stand by our principles, or we will lose that leverage.”
Republicans went on to win another budget-slashing, no-new-taxes, victory in April, when President Obama conceded to GOP demands to avert a government shutdown, by agreeing to cut $33 billion, thereby permitting 800,000 federal workers to remain at their jobs. Then, in the debt-ceiling confrontation, they won from 90 percent (according to Sen. Sanders) to 98 percent (according to Speaker of the House John Boehner, a Republican from Ohio) of what they demanded from the White House and from Democrats who control the Senate.
Some progressive economists now predict that the recession will worsen, unemployment will remain high–thus jeopardizing President Obama’s chance for reelection in 2012–the government’s income tax revenue will decline, and ironically, the deficits will increase in the years ahead.
All such “doomsday” scenarios fit into the overall GOP plan of insuring that Mr. Obama is a one-term president, and that the overall economy worsens, while the fortunes of the wealthy continue to improve, at the expense of the other 90 percent of the U.S. population–the triumph of “greed,” according to one economist.
By the late 1980s, a movement that had begun 15 years earlier had found traction, according to Prof. Jeff Madrick, a former New York Times economic columnist, now an economist at The Cooper-Union, and the author of The Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present.
“Government was the problem,” Dr. Madrick told Pacifica Radio’s “Letters and Politics,” Aug. 4. “Big deficits arouse passions in America. The upshot was Americans turned against government. The Democrats, for the most part caved in,” he said, marking 1978 as the year the “tax revolt” really gained traction in this country.
There will be budget battles ahead in the near future, and more triumphs for the right-wing unless Democrats and the White House, “play hardball,” in the words of Rep. Edwards. In December, the federal government will face another government shutdown when new appropriations bills and a new budget will be required.
Obama surrenders on debt ceiling deal (FCN, 08-11-2011)