Initial reaction dealt mostly with the $2t error by S&P, something that should make the company blush a bit. But since math wasn’t the basis for their decision, I’m pretty sure there wasn’t much blushing in Toronto.
Reaction from the punditocracy ranged. Paul Krugman at the New York Times called it “outrage” because S&P was one of those who screwed up the Credit Default Swap stuff that led to our current global economic meltdown in the first place, not to mention the $2t mistake. Robert Reich echoes that sentiment. On the other hand Ezra Klein at the Washington Post believes the decision is pretty reasonable considering the political climate. The Economist, no liberal bastion, called the action a political downgrade, in one of the best articles I read all weekend. This was reiterated yesterday by Rachel Maddow on Meet the Press.
Now, nearly three days since the action, worldwide markets are down about 2%. That’s not surprising considering everything involved. In fact, none of this is particularly surprising. Quite frankly, as long as political leaders are more interested in winning the day instead of strengthening our economy and turning around our unemployment numbers, we can expect another downgrade soon.
Why? Because political leaders are bought in to their strategy of destabilizing our politics rather than solving the problem. All of this is about elections not patriotism. This is the “political brinksmanship” that S&P was talking about.
Despite the potential damage all of this manufactured drama may have caused, Senate Minority Leader Mitch McConnell announced it would “happen all over again” the next time the limit needs to be raised. This pronouncement, made before S&P issued it’s downgrade, is likely one of the very things that led the S&P to make it’s ratings change. McConnell, following a long-held practice of talking out of both sides of his mouth, has, in the past, stated we needed to “impress S&P” all while ignoring any and all compromise offers. I think they showed just how impressed they were through their actions.
Our largest foreign creditor, China, is none too happy. Nor are the people who hold the lion’s share of US debt, US citizens, 82% of whom disaprove of the job Congress is doing. We have a right to be angry. Despite the stronger than expected unemployment numbers last week, there’s a real fear that we’re staring down the barrel of a double dip recession.
While the political brinksmanship that led us here isn’t actually, you know, solving problems that regular Americans face, it is likely helping the political fortunes of those who have long sought political gain rather than national prosperity. The hard truth is, most folks don’t understand their own credit ratings, much less the factors involved in determining a credit rating for a country. They know that paying on time is good, and paying late is bad, and not paying at all is REALLY bad, but that’s about it. So when the time comes to actually hold those accountable that helped create this problem, well, how that plays out individually will be determined more by their personal world views rather than what S&P actually said. This is borne out in the reaction statements by political leaders around Washington and across the country, many of whom seem to have doubled down on the brinksmanship rather than make a generalized call for a real solution.
I’m pretty sure that, no matter what your worldview, you push the button in the voting booth for the person you think would do the best job at working to solve the problems you face, whatever those problems are. This can make the political calculus difficult to calculate on a district by district basis, but I’m pretty sure no one, including Tea Partiers, think that downgrading the US credit rating is good for the country, but I could be wrong about that.
I agree that we currently have significant structural deficiencies as it relates to our debt situation, politics being just one of these. The single greatest deficiency is that our national debt has been allowed to balloon over 250% in the past 10 years from $5.6t to over $14t. This was done, largely by a Republican Congress with a Republican President from 2002 to 2009. Don’t believe me? Here’s the chart from the New York Times:As you can see, the Bush Tax Cuts, and wars in Afghanistan and Iraq make up the lion’s share of the debt over the 8 years of the Bush White House. $3.3t of all debt spending is directly attributable to those two areas, accounting for nearly 64% of all the debt incurred during that period.
Further, the debt incurred by the Obama Administration, while on pace to surpass Bush over an 8 year period, could have been essentially erased had the Bush Tax Cuts not been extended at the end of last year. This is still an option and something that legislators should consider carefully.
Chances are, they won’t. Repealing the Bush Tax Cuts would make up about $285b in revenue a year. This additional revenue, over two years, would essentially cut Obama’s deficit spending by 1/3. However, Republicans in the House and Senate have no appetite for additional revenue, which is pure madness. All they want are cuts to anything other than Defense. This is not only unsustainable, but also just plain stupid.
Last week, while I was on vacation, Bruce VanWyngarden at the Memphis Flyer published a graph showing a rise in Food Stamp usage since 2007. Any cuts are, by necessity, going to hurt those people most, causing more and greater financial problems for ordinary people down the road, and essentially cutting revenue for the government going forward as these financial problems ripple through the economy. It would start a chain reaction that will likely make any recovery even more distant than it already is.
Recovery should be the focus of all of our legislators, regardless of party. That doesn’t seem to be the case. Winning the day and at the same time making the “other side” look bad is the focus. As long as that is the focus, no problems will be addressed, and the pain will continue its slow burn across the country.
In order to recover, we have to address the jobs issue. This is something that has been repeated over and over again by folks on both sides of the aisle. There is general agreement that we need jobs, the argument is over how to produce those jobs. One way to do this is to rewrite the Corporate tax code that encourages companies to keep more jobs stateside. Current corporate tax code encourages offshoring, something Democrats would do well to hammer over the coming months. This is not a “tax hike” per se, because it merely incentivizes domestic jobs growth. It would only be a tax hike for those companies who chose to continue sending work overseas.
This is actually a conservative strategy. Back in 1986, Ronald Reagan presided over one of the largest tax hikes in US history, pledging that “everybody and every corporation pay their fair share.” Since that time, new loopholes have found their way into the tax code, a problem that falls squarely on the shoulders of legislators of both parties.
Using this strategy will likely lead to additional revenues both from individuals and corporations as companies shift their strategy from offshoring to domestic growth, and individuals start working, and by extension paying taxes again. From my perspective it’s a win-win.
Of course there are plenty of other things that could be done. Will they be? Probably not.
As long as there are enough people hell bent on making the political environment toxic for our President, and in the process, toxic for our citizens, nothing good will come of anything that is passed in the Congress. So while we may have structural deficiencies in our revenues and spending, the single largest structural deficiency is that we’ve put politics above prosperity.
S&P was right to downgrade us under these circumstances. Until our leaders start working to solve problems for all of us, instead of create problems for their political opponents, no one will gain anything, and another downgrade is imminent.
If you don’t think a credit downgrade would have been bad, look at your creditcard statement, down there by the interest rate, and add 10 points to whatever you’re paying now. Would it have been that bad? Who knows? For my money the threat of a 1 point increase is enough to get me moving. In congress, where everything’s monopoly money and partisanship isn’t just a word, but a warm up for the most boring WWE event ever, not so much.
What’s most interesting is not the tripe that we’re being sold about this event stateside, but rather, what’s being said by our neighbors worldwide about our most recent temper tantrum.
“What America is currently exhibiting is the worst kind of absurd theatrics and the whole world is being held hostage… Most importantly, the Republicans have turned a dispute over a technicality into a religious war, which no longer has any relation to a reasonable dispute between the elected government and the opposition,”…
“One could now ask why is the U.S. debt treated any better than a country like Portugal, which has about the same levels of deficit and debt,”…
“The American politicians supposed to lead the most powerful nation in the world are becoming a laughing stock,” (via The Atlantic Wire)
The stern talking too’s are ineffective. Timeout isn’t working. We need a spanking. Instead, it seems like we’re just giving the kids the candy they want for a quick fix to stop the meltdown of the moment, knowing full well the next meltdown is just right around the corner. In fact, we scheduled it to be right around the corner.
I haven’t read the bill. I don’t know the full details of the deal. I don’t want to know the details right now. I know that my Congressman, Steve Cohen spoke and voted against the deal, because, as he said, it was a Trojan Horse. Based on my general understanding of the deal, I think he’s right on target with that statement.
In fact, the whole debate about raising the debt limit, something that should really be nothing more than a simple procedural vote, and has been nothing more than that the other 74 times it’s happened, is full of distortions, overheated rhetoric, and downright lies, all in service of breaking a series of protections that have been around for decades, and that everyone who has ever had a job has both paid into, and will stand to ultimately benefit from, Social Security.
But I’ll get to that in a minute.
To give you an idea of just how overblown this whole scenario has been I’d like you to watch the following ad that has been airing for about three weeks on cable news. As you watch, I want you to listen to what is being said very carefully. Don’t listen for the content specifically, because it’s got plenty of distortions, listen for the intended impact on the viewer.
Junkie, addict, spending, borrowing, China, $.42 on the dollar, foreign… All of these words are included for a determined psychological and emotional impact. It doesn’t matter if it’s right or wrong, in fact, it hasn’t mattered in our politics the way they’ve been practiced in the country for some time. What matters is if the intended emotional crescendo can be achieved through this messaging. This is the stuff that Frank Luntz lives for.
I couldn’t find any information on who funds these guys, so I don’t know who to direct my ire to, but I know this, it’s all distortion, lies, and an artful use of rhetoric to hide some reality, and that reality is that our nation’s debt isn’t beholden to foreign interest, but rather us.Look at the chart to the left. This is a visual description of who owns US debt, including all foreign and domestic holders. Take a look at what these colors represent: US individuals and Institutions, Social Security, Civil Service Retirement, Military retirement. These four groups hold the lion’s share of US debt. In fact, they hold some 68.1% of US debt. Had the deal to raise the debt ceiling not been reached, crappy deal though it may be, these are 70% of the people we would have defaulted on. We would have defaulted on ourselves.
It’s bizarre that we live in a world where we’re so disconnected from the things that we should know about that we can have people on the one hand that want their Medicare protected, and yet, want the government to get out of their Medicare. This is something we saw over and over again in the Tea Party protests of 2009 and 10. Folks with so little understanding of what they’re actually asking for that they don’t even know where the money comes from. These are the people who, while still a small minority of Congress, are driving the debate today. It’s madness.
Take out a recent check stub and look for FICA. 15.3% of your income every pay period goes to FICA, which is also known as Social Security. I’ve been working for some 25 years now, paying FICA, 15.3% of which comes out of my pocket, the other 15.3% comes from my employer (if you’re self-employed you pay all of it). This is your money, that you’ve been paying in since you started working. At this point, all of us, not matter how much or how little we make, have invested. If now, or in some near or distant future the US were to default, Americans, as the holders of 68.1% of US debt, would be the ones to feel the most pain. Not China, Japan, the UK, Brazil, “Oil Exporters” or any other nation.
We would feel that pain in the long term through increased borrowing costs. We would feel that pain in the short term through a check not making it to the bank. But make no mistake, we would feel the pain.
Do we need to have a national conversation about taxation and spending? About what we want our government to do and what we want then to stay out of? Sure, but it has to be an honest conversation, not the bull we’re seeing now. We need to ask about our national priorities. We need to question why GE, Exxon, and other multi-national corporations pay less in federal taxes than a median family with the median income. We need to ask why these free riders are allowed to get away with this.
On this one count, we actually SHOULD invoke an idea from Ronald Reagan, that every corporation pay its fair share. The statutory tax rate may be 35%. That’s the number Republicans want to drill in your head. But the effective tax rate is much lower, and is likely next to nothing if you’re a huge multi-national corporation. The US has the fourth lowest effective tax rate for corporations. Lower than countries with far better employment numbers than us, despite the global economic downturn.
Why is this the case? Well, partially because our tax system gives credits to companies that send their jobs overseas, something the Obama administration tried to end about a year ago. Instead, Congress voted to keep these tax credits and extend the Bush tax cuts for the wealthy, which alone led national debt expansion from $5.6t in 2001 to over $10t at the end of the Bush Administration.
The long and the short of it is, our priorities are all screwed up. Any discussion of the debt and deficit that only looks at one side of the balance sheet, in this case spending, is both dishonest and wrongheaded. What’s more, it’s a decision to ignore promises we made to our very own people for the benefit of individuals and groups who have more than they know what to do with.
This assisted stupidity has been the shovel that we’ve dug this hole with. You would think we’d be ready to start putting some of that dirt back in the hole. Instead, we’re divvying up the dirt to those who need it least, and using the shovel as a weapon against those who need the most help.