It has happened, as I more than half suspected it would. The United States' AAA credit rating has been downgraded to AA+. Why did this happen? Because the debt limit bill that both Republicans and Democrats agreed to did not sufficiently address our massive debt problem.
That's right. John Boehner agreed to this bill, as did most Republicans. Obama, Reid, and many other Democrats also supported it. The thing is, they were convinced that reaching A deal, ANY deal, would solve the problem. In reality, only a GOOD deal would have forestalled a credit downgrade, but a good deal was never seriously considered.
http://www.forbes.com/feeds/ap/2011/08/05/general-us-us-debt-rating_8605451.html
Credit rating agency Standard & Poor's on Friday downgraded the United States' credit rating first time in the history of the ratings.
The credit rating agency said that it is cutting the country's top AAA rating by one notch to AA-plus. The credit agency said that it is making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation.
Did you catch that? The deal was ineffective, so they downgraded our credit. And what, do you think, is the reaction from our dearly beloved El Presidente?
A source familiar with the discussions said that the Obama administration feels the S&P's analysis contained "deep and fundamental flaws."
That's right, nothing is EVER Obama's fault, somebody else is always screwing things up.
But, as bad as this is, there is worse to come. You see, S&P said there is a distinct possibility that they will FURTHER downgrade our credit within the next two years.
S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade to AA would occur if the agency sees less reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period.
And since, in my opinion, one or more of these is almost guaranteed, we will see a further downgrade of our credit rating... unless Congress comes to their senses and stops writing blank checks for unlimited borrowing.
This will have consequences. Along with a lower credit rating comes the increased possibility of higher interest rates. Maybe not immediately, but a lower credit rating means they are a distinct possibility.
Ladies and gentlemen, the politicians decided that if they cut ANY DEAL then they'd be fine. They're learning now that, as most adults already know, expectations usually crumble when slammed by a harsh dose of reality.
This debt limit deal sucks, is bad for the country, and this is merely THE FIRST adverse consequence we will experience.
Thank you, Democrats and Republicans alike, for once more screwing our country in the name of partisan advantage.
UPDATE: Here are more details on the reasoning behind the downgrade.
http://blogs.ajc.com/jamie-dupree-washington-insider/2011/08/05/sp-downgrade/
Friday, August 5, 2011
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I don't claim to be an economist. I'm just an old coot who believes in staying out of debt as much as feasible and paying my bills when they are due. That said, I have a few remarks about this financial mess our nation is in.
ReplyDeleteFirst of all, this mess was brought on us by Democrats and Republicans alike, so this isn't a partisan issue.
In my humble opinion, this snowball began to roll down the hill long ago when the Ponzi scheme known as Social Security was instituted by President FDR. It began rolling more rapidly with the advent of President LBJ's "The Great Society". All of these programs resulted in what are now called "entitlements" which have become so costly that paying for them has become nearly impossible and the funds diverted to them means that many needed infrastructure improvements can't be paid for. The cost of paying for entitlements is no longer sustainable, especially in a time of financial difficulty when business is slack and we have so many unemployed and underemployed who no longer pay taxes to help provide needed revenue to pay for government projects and programs.
Entitlements must be addressed, no matter how many people are affected and no matter how loudly they scream.
What government should also do is to get out of the way and let the marketplace operate as it should, as a free market. If it did, businesses would create private sector jobs and by doing so improve the overall economy and the lives of thousands of citizens.
Congress and the administration know nothing more about economics than I do. We need leaders who have studied in the school of Austrian Economics, passed the tests, graduated, and will apply what they learned to government policies.