The new meme on the left, helpfully demarcated on social media sites like Twitter via such catchphrases as #TeaPartyDowngrade, #HeckuvaJobTeaParty, and the trending #TeabaggersArePoopyheads, is that Standard & Poors’ downgrade of the U.S. long-term credit rating is due to the Tea Party’s push for spending cuts in the debt ceiling battle.
Never mind that S&P, Moody’s, and Fitch are the same agencies that thought Democrats’ Community Reinvestment Act and government-mandated subprime housing loans were a peachy idea; maintained top ratings for most securities backed by subprime mortgages; and thus contributed to the meltdown.
Never mind that S&P, headed by English lit major John Chambers, made a $2 trillion error calculating the U.S.’s debt-to-GDP ratio over time, then rewrote its justification for the downgrade to fit its already formulated decision.
Never mind that in the past five years, betting against S&P’s recommendations would have given you a better return on your investment than betting for them.
To the extent that one trusts S&P, its report gives a decidedly different impression of their reasons for the downgrade than those claimed by the left.
The report cites “difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about… a broader fiscal consolidation plan that stabilizes the government’s debt dynamics…” S&P is obviously trying to be nonpartisan and spread the blame around. It would help if they displayed less vagueness about where responsibility lies for the U.S.’s financial problems. But I read that last bit as clearly highlighting Congress’s refusal to cut spending on items that make a real dent in our budget, which is largely the fault of Democrats, at least this time around.
S&P notes: “We could lower the long-term rating to ‘AA’ within the next two years if we see less reduction in spending than agreed to, higher interest rates, or new fiscal pressures…” There is nothing in there about future debt ceiling inflexibility, extremist conservative posturing, or the intransigence of jihadist Tea Partiers.
The report continues: “[W]e 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.”
Any liberals looking at this stopped reading that last paragraph after they got to “prolonged controversy over raising the statutory debt ceiling.” The Tea Party held America hostage—S&P said so!
In fact, the agency stated that the prolonged debt ceiling debate was of concern, because the gap between the parties foretells difficulty in reining in entitlement spending.
Let’s see: which party favors reducing entitlement spending, and which is reflexively, dogmatically opposed to it? If the two parties face gridlock on the entitlement cuts S&P is eager to see, which party is therefore more at fault for Congress’s failure to cut entitlement spending? Why, I believe that would be the Democrats!
As for the claim that S&P was upset because Congress didn’t raise taxes, the agency explicitly took no position on what combination of spending cuts and/or tax increases, if any, should be adopted.
One very specific request S&P did indicate, however, is that an ideal deficit reduction deal should cut about $4 trillion over the next decade. The plan Congress agreed to cuts $2.4 trillion.
So Tea Partiers were pushing for bigger cuts than Democrats and even House Republican leaders were willing to consider, and S&P wanted cuts twice as big as those Congress agreed on. How is it again that pushing for cuts was the Tea Party’s mortal sin?
The only other crime for which the Tea Party might be to blame in S&P’s eyes is “brinkmanship” in using the debt ceiling as a negotiating tool to bring down spending. But if a good chunk of the reason for S&P’s downgrade was the U.S.’s refusal to rein in entitlement spending, and Democrats are congenitally opposed to all entitlement cuts, then what other bargaining chip did Republicans have to work with besides the debt ceiling?
Anyway, it is logically impossible for S&P to have downgraded the U.S. out of fear that the debt ceiling standoff would result in our creditors not being paid. The U.S. spends less than 10% of its revenue servicing our debt. We failed to raise our debt ceiling in time on nine occasions in the past, and our debtors always got their interest payments. How could there have been even a remote chance we would have defaulted?
If S&P really thought the U.S. was at risk of default, then they owe the American people an explanation of how exactly this might have happened. An S&P downgrade, if any, should have taken place entirely because of our enormous debt, not our debt ceiling. The fact that S&P refuses to make it clear which one is the cause for their downgrade shreds any credibility they have.
S&P’s downgrade is either entirely the fault of Democrats who refuse to cut entitlement spending or pass a budget, or S&P’s willful obfuscation of the difference between raising our debt ceiling and servicing our debt. Either way, the Tea Party is utterly blameless.
- YA THINK? S&P bond rater: It’s the debt, stupid; Update: S&P official: Another downgrade will com… (pajamasmedia.com)
- S&P: Our new lord and master? (cbsnews.com)
- U.S. Treasuries are still safe! Sorta (money.cnn.com)
- Jonathan Miller: Credit Downgrade for Dummies (huffingtonpost.com)
- Taking on tea partiers – Axelrod on the ‘tea party downgrade’ (politico.com)