It’s hard not to feel a certain contempt for Standard & Poor’s in the wake of its downgrade of American debt. Its sole job as a credit-rating agency is to gauge the creditworthiness of bonds, yet like its competitors, Moody’s and Fitch, it has consistently fallen short. It downgraded Enron days before the company went bankrupt. Its willingness to slap a AAA rating on securitized subprime junk was the foundation upon which the entire financial crisis was built. And now, to show that it’s got some spine, S.& P. decided to downgrade the United States? From a purely economic standpoint, the likelihood of a U.S. default is nil. As my friend Daniel Alpert, a founding managing partner of Westwood Capital, put it: “The size of the U.S. economy, the wealth of its inhabitants and the assets of the sovereign entity itself are unquestionably more than adequate to repay, with interest, all of the $14 trillion or so of the nation’s debt.” He added, “Anyone with a rudimentary understanding of finance and economics can figure that out.” On Monday, with the market collapsing, where did investors rush to put their money? In the one security they still considered safe: U.S. Treasuries.
Joe Nocera
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On the other hand, I also found myself nodding in agreement as I read S.& P.’s analysis. The downgrade, after all, was less about economics than politics. S.& P. was frightened by the same thing that has scared most Americans: the spectacle of an unyielding minority of Tea Party Republicans ready to push the country into default rather than accept even modest tax increases to help bring down the deficit. “The effectiveness, stability, and predictability of American policy-making and political institutions have weakened at a time of ongoing fiscal and economic challenges,” wrote S.& P. in its downgrade report. Who can disagree?
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Has any president in American history left behind as much lasting damage as George W. Bush? In addition to two unfinished wars, he also set us on the path to our current financial mess. The Bush tax cuts, which turned a surplus into a growing deficit, have been disastrous. As James Fallows pointed out in a prescient 2005 article in The Atlantic predicting a meltdown, they reduced tax revenue “to its lowest level as a share of the economy in the modern era.” (In its downgrade report, S.& P. suggested that it did not believe that Congress would let the cuts expire at the end of 2012, as they’re supposed to.) Then, in 2003, Bush pushed through prescription drug coverage for Medicare recipients. David M. Walker, then the comptroller general, described 2003 as “the most reckless fiscal year in the history of the Republic,” adding some $13 trillion in future entitlement costs.
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When did President Obama become such a lousy speech-maker? His remarks on Monday afternoon, aimed at calming the markets, were flat and uninspired — as they have consistently been throughout the debt ceiling crisis. “No matter what some agency may say,” he said, ”we’ve always been and always will be a triple-A country.” Is that really the best he could do? The markets, realizing he had little or nothing to offer, continued their swoon. What is particularly frustrating is that the president seems to have so little to say on the subject of job creation, which should be his most pressing concern. On Monday, Obama mentioned a payroll tax holiday and the extension of unemployment benefits. Both moves would help people in need; neither will do much to create new jobs. I know that there are limits to what any government can do to create jobs. But what one yearns for is a little imagination from this White House. Someone suggested to me recently that the government could create a $50 billion fund for small business, and use it to pay, say, 20 percent of the wages of new hires for two years — first come, first served. Why doesn’t Obama suggest something like that?
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In the end, a downgrade from a ratings agency shouldn’t keep anyone up at night; it’s a sideshow. What should cause some sleepless nights is the never-ending turmoil in Europe. I keep thinking about the moment in 1931 when the failure of an Austrian bank led to a contagion of bank runs, first in Europe and then in the United States, and helped bring about the Depression. Could Europe’s current debt contagion jump the Atlantic again? The possibility strikes me as painfully plausible.
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I keep waiting for one wealthy, well-known figure to stand up and say publicly that he or she is willing to pay more in taxes as part of the shared sacrifice necessary to gain control of the country’s deficit. I know there are wealthy people who’ve had that thought — not just liberals like Warren Buffett, but old-fashioned, rock-ribbed Republicans who are worried about the country’s debt problems. I even have a pretty good idea who some of them are. Come on, folks. Your country needs to hear from you.
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