Posted by MataHarley on 6 August, 2011 at 1:19 pm. 114 comments already!

Late yesterday, the judge (the S&P) issued a verdict on the status of the case involving the US economy, and exonerating the accused defendants (the Tea Party) of all charges leveled by the plaintiffs (the WH, both parties of Congress, and the media). Said accusations? That any repercussions of the debt ceilings debate – aka national credit ratings, general Armageddon, and all ensuing fallout – were primarily the responsibility … aka *blame*… of the grassroots, unorganized and unofficial movement referred to, generically, as the “Tea Party”. These accusations, without founding in any logical other than political demonization, were based on supposed influence on Congressional members, attempting to use the need for a debt ceiling increase, as the correct moment for also negotiating a path to fiscal responsibility.

Needless to say, fiscally minded tea party types were not rewarded with any action by Congress to control spending… gifted with only a patchwork promise to spend $2 trillion less than the projected $9 trillion over the next decade. So it becomes the height of irony that anyone can suggest the tea party had any significant effect on the negotiations. Instead, it came down to the age old party battles… the Dems wanting to raise taxes and ignore Medicare and Social Security reform, and the GOP wanting to cut spending, not raise taxes, and also ignore Medicare and Social Security reform.

Neither of these positions accurately reflect the Tea Party’s insistence that we can no longer ignore the entitlements, that no amount of tax increases will muster up to snuff for continued Congressional spending, and that attempting to draw more blood from the taxpayer turnips in this recession is foolhardy. Additionally, fiscal conservatives are fully aware that the size of government… hopefully worthless and effectual thousands of federal agencies and not our Constitutionally mandated military… needed to be reduced in size, streamlined in efficiency, or just outright eliminated.

Were any of these points even acknowledged, let alone addressed, in the political farce that played out before our eyes these past weeks? Of course not. And perhaps the one plan that may have had a shot at achieving what was necessary – the Connie Mack “Penny Plan” – has received little press or attention from the bigwigs who hold the nation’s fate in their less than adept hands. A plan that even liberal Lanny Davis said was worthy of a another look.

Unlike our current debt ceiling system, it’s very responsible in the process to consider budget when raising the national credit card limit. And the US debt ceiling process is unusual compared to other developed countries, “…since the U.S. debt ceiling process moves independently of the general budgeting process.”

That the authority to borrow remains so disconnected to budgetary constraints and considerations, as well as economic growth, in America is, IMHO, seriously flawed in and of itself. Other countries address their debt ceilings in ways that draw more attention to out of control fiscal spending. But the American way is, in some ways, backwards. First Congress spends, then ups the debt ceiling to pay for their spending….

As a Feb 2011 GAO study on the US debt ceiling, as compared to other nations process, notes:

The United States is unusual among the countries we reviewed in using the authorization of additional borrowing authority as an occasion to draw attention to past fiscal policy decisions. Other countries that we reviewed generally use fiscal rules or targets to increase attention to or control over fiscal policy decisions that lead to an increase in debt. Fiscal rules generally refer to permanent or multiyear constraints on fiscal policy through simple numerical limits on budgetary aggregates. For example, Switzerland has adopted a constitutional “debt brake” that places a limit on expenditures that is equal to the expected revenue for the year adjusted to reflect the country’s place in the current business cycle. Differences between estimated and actual numbers are recorded in a separate account that must by law be reduced if it reaches a certain level. Germany has adopted a “golden rule” limiting net borrowing to the amount of investment spending. Germany also approved a constitutional amendment in 2009 requiring that structural deficits not exceed 0.35 percent of gross domestic product (GDP)—or very close to balance.


The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay bills incurred. The decisions that create the need to borrow are made separately from—and generally earlier than—the decision about the debt limit. Debates surrounding the debt limit may raise awareness about the federal government’s current debt trajectory and also provide Congress with an opportunity to debate the fiscal policy decisions driving that trajectory. However, since this debate generally occurs after tax and spending decisions have been enacted into law, Congress has a narrower range of options to effect an immediate change to fiscal policy decisions and hence to federal debt.

Aside from this disconnect between spending first, then increasing the national credit card limit, it was also disingenuous of any of the negotiating parties… Obama, or either party leaders in Congress… to assume confidence that raising the debt ceiling, without considering the out of control spending, would be sufficient to maintain a good credit rating by the global agencies.

As I had mentioned in my July 14th rant against this political farce the WH and both political parties were subjecting us to, our national credit ratings were never based just on whether a debt ceiling was raised, but what measures the elected ones were going to take to get the out of control spending and debt under control down line.

Even Moody’s had warned the WH and Congress that the credit ratings outlook did not rest solely on simply raising the debt ceiling. Therefore it was no surprise to anyone paying attention that the Standard & Poor rating agency, as predicted, lowered the US credit rating from AAA to AA+ on Friday. Apparently, the only ones *not* paying attention were those with the power to negotiate.

What was the most telling point was S&P specifically noted that the guilt lies with the WH, and both political parties of Congress… the only authorities that had the power to:

1: address entitlements reform, but didn’t… and
2: fell way short of reining in spending and debt with the minimal S&P felt necessary.

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process.

We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Standard & Poor (S&P)… …. is one of the most widely followed indices of large-cap American stocks when monitoring the markets, and one of the quintessential organizations known for their global credit rating prowess. They had delayed their opinion following the debt ceiling lackluster finale. But what is most interesting is that they felt it was fruitless to even wait to see what the so called “super” committee would come up with for additional remedies to reign in spending, and attempt to extract yet more revenue to support their spending habits from a private sector mired in stagnant economic growth.

Needless to say, all the guilty parties – Congress, both parties – are using the predictable event of credit deterioration to escalate the fingerpointing for political purposes. For the Democrats, Senate Leader Harry Reid insists the S&P was proof positive they were right in insisting for higher taxes. Not to be outdone, House Speaker returns fire, saying it was the fault of the Democrats, refusing to halt the spending binge.

Of course, it didn’t bode well for Boehner that it was only days before where he claimed he got 98% of what he wanted out of the deal… Obviously what Boehner “wanted” was never going to be enough to maintain the US credit rating, despite multiple warnings from sundry agents.

With conservative leaders like this, what’s a taxpayer to do? How can it be that we mere, dumb citizens knew that the deal was never enough, and these high paid elected ones did not? It was also disconcerting that GOP hopefuls, for the most part, either hid in the closet or headed for the hills… afraid to take a leadership position of any note.

Then comes along Obama, livid with S&P at daring to lower the US credit rating at such a delicate time in his political career. It didn’t take long before he sent out his mouthpieces to challenge S&P’s analysis itself… and obviously happened upon an Obama supporter who claims the agency’s analysis was flawed, but was sticking to it’s guns….

…. All off the record, of course. How extremely convenient. Just enough to float a rumor, and hope for public scrutiny and humiliation for S&P. What Alinsky Rules for Radicals number was that again?

S&P’s John Chambers made the talking heads rounds, pointing out that the WH indignation and attempts made not an iota of difference because it still came down to the very same facts….that the GDP to debt ratio will rise over the next decade because Congress… all parties… refuse to address what is needed.

John Chambers, head of sovereign ratings for S&P, skirted the criticism in a CNN interview Friday night.
“It doesn’t make a material difference — it doesn’t change the fact that your debt-to-GDP ratio … will continue to rise over the next decade,” he told “AC360.”

In July, S&P placed the United States’ rating on “CreditWatch with negative implications” as the debt ceiling debate devolved into partisan bickering.

To avoid a downgrade, S&P said the United States needed to not only raise the debt ceiling, but also develop a “credible” plan to tackle the nation’s long-term debt. Chambers said the slowness at raising the debt ceiling and the political infighting led to the move.

“That is what put things over the brink,” he said.

In announcing the downgrade, S&P cited “political risks, rising debt burden; outlook negative.”

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” the agency said.

Every word spoken exonerates the Tea Party and fiscal conservatives demand that Congress address the national spending and debt problem… all of which revolves primarily around entitlements that are taking the nation over the fiscal cliff. It turns out the grassroots movement was correct, and the elected ones were those who thought they could pull a fast one.

Now they can only shoot political bullets at each other for their folly. Small consolation for the real losers, as I originally predicted in mid July…. the American taxpayers of all political affiliations.

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