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Standard And Poor’s Goes Tea Party

Big headlines for a Friday night: “U.S. Loses Top Credit Rating!” Yes, as most now know, Standard & Poor’s went ahead with its warnings of the past weeks and downgraded the sovereign debt of the United States government from its pristine triple-A to a still stellar but one notch less so AA+. And after a miserable week in global equity markets that was almost as ugly as it gets, a week that began with the conclusion of a universally reviled debt-ceiling deal, the late-night downgrade was the fitting end.

The symbolism is undeniable. This is the first downgrade in history, as commentators rushed to remind us. But of course, that history goes back only to the late 1930s, when the ratings agencies began to hold sway. And S&P is the only one of the major three—Fitch, Moody’s, and S&P—to downgrade. So this was big bad news, a bad coda to a bad week, but only as news and not as a trenchant analysis of the creditworthiness of the United States or its ability to meet its debt obligations going forward.

Let’s be clear: Congress and the White House did not cover themselves with glory during the debt debate throughout July. The United States has a stalled economy and a large amount of debt. But on so many levels, this downgrade is absurd.

First there is the question of math. When S&P informed the White House of its intention to downgrade on Friday afternoon, the Treasury Department took issue with S&P’s math and claimed that their assessment of the trends of the U.S. debt burden and its ratio to GDP was off by trillions of dollars. No matter. After a brief review, the wizards at S&P went ahead and removed an A.

A news ticker reads “Standard & Poor’s downgrades US credit rating from AAA to AA+” in Times Square on August 5, 2011 in New York City., Andrew Burton / Getty Images

Second, what’s with the fetish for a so-called proper ratio of debt-to-GDP. Academic economists have done no favors here. Carmen Reinhart and Kenneth Rogoff have become the go-to economists for their work showing how countries that reach a 90% ratio slide into recession and see slowing growth well before. The U.S. current level according to S&P is 74% and will rise to 85% by 2021. The explanation of the downgrade closely tracks this academic logic.

I have no criticism of an academic theory about how nations function economically. But when debatable theories become the underpinnings of decisions by unelected individuals who run organizations with significant sway (sway ceded to them by governments throughout the 20th century), then we have a problem. We have a problem when that argument gives short shrift to the debt-servicing burden. The current interest rate that the U.S. government pays to service its massive debts is hovering around 2.5%, which makes interest payments as a percentage of GDP as low as they have been since the mid-1970s.

Servicing the debt does not enter into the analysis, yet that and current interest rates make all the difference. Dismissing that counterargument, warning that rates will of course rise (yet even if they double, that will still leave the U.S. more than able to meet its obligations), and drawing on theories about the “right” level of debt puts S&P in a strange bedfellow alliance with the Tea Party.

The people who run the ratings agencies are welcome to their analysis, as is the Tea Party. But if Rogoff and Reinhart or the Tea Party announced that they were downgrading U.S. sovereign debt, they would be laughed for their audacity. Yet when it is one of the anointed ratings agencies, there is this sudden need to genuflect.

This is largely because covenant after covenant in both SEC rulings and institutional money management (pensions especially) dictate that many types of capital can only be invested in credit-worthy instruments as determined by Moody’s, S&P and Fitch. The downgrade doesn’t remotely begin to threaten the “investment grade” status of U.S. debt, and there is little reason to suspect that borrowing costs will go up as a result. Still, the reason we are in this situation of having to genuflect to S&P is because an entire structure of credit and investments, and the issuance and purchase of bonds above all, has been built on the shaky and questionable foundation of the ratings agencies.

The worst part of the downgrade is this: S&P spent considerable time in the body of their explanation about debt and GDP and growth. But they didn’t lead with that. That wasn’t the kicker. No, this was: “the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.” The company assailed the Washington culture of “brinkmanship” so in display during the debt ceiling fiasco, and used that as the primary reason to take us down a notch.

Excuse me, but since when is a pristine political process a key ingredient to good credit? Are we supposed to have civil politics in order to maintain the rating? Are we supposed to have some mythic Scandinavian concord? Washington has usually been a mess, and arguably more now than ever. Nonetheless, the great distortion of the debt-ceiling imbroglio was that failure to do a deal would have led to a default. It would have led to a partial and then increasing complete shut down of the government, which would have soon enough forced a resolution. At no point would there have been insufficient tax revenue to meet the $20 billion of so in monthly interest payments on the debt, unless the crisis had gone on for months and months, which barring collective national psychosis simply could not have happened.

So S&P doesn’t feel comfortable that the American political process is conducive to dealing with long-term debt issues and so issued a downgrade. Yet S&P is a ratings agency, not a political arbiter. Olympic judges rule on athletic aptitude, not the politics of the athletes (usually). There is not a scintilla of evidence that the political process has yet impeded the ability of the United States to meet its debt obligations, even with the debt ceiling brinkmanship. The political process may indeed be contributing to the morass of the American economy, but the larger causes are the challenges of emerging economic centers and changing patterns of global commerce. Those are long-term issues that have little bearing on current ability to manage debts.

Finally, as a symbol that the United States is sliding off the rails, the downgrade is potent. It’s hard to argue with the reality that America is in a challenging moment that looks and feels a lot like decline. Whether that proves false and a new dawn awaits, we’ll find out soon enough. But the actions of S&P are part of problem and not just an independent verification that one exists.

These agencies have been elevated to heights that should not ascend; they have been chronically wrong and late in the past; and their rationale for a downgrade sounds more like a prim distaste for a dysfunctional political process that a reasoned assessment of the ability of the United States to discharge its obligations. No defense can be offered of our current political system or near-term economic prospects. But S&P—already on overreach as “neutral” judge of American creditworthiness—has no special standing to rule on the political system, and using that as a cudgel to prove their own power is a destructive act.

 

By: Zachary Karabell, The Daily Beast, August 6, 2011

August 7, 2011 Posted by | Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Economy, Federal Budget, GOP, Politics, Republicans, Right Wing, Teaparty | , , , , , , , , , , , , , , | Leave a comment

Speaker Boehner’s Folly Leads To Standard And Poor’s Downgrade Of US Debt

I’m no expert, but I don’t think S&P downgrading its rating of US debt will, as such, have any really big practical implications other than becoming the next political football. If you look at S&P’s definition of the AA rating, after all, it says:

“An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.”

Scared yet? Me neither.

The issue today continues to be what it was a week ago. For years now, if you look at a projection from CBO or OMB it shows a spending curve that steadily accelerates. It accelerates because the government currently pays for health care for old people and for poor people, and because the cost of health care services has been accelerating.

Consequently, for a long time now it’s been clear that in the future either the US has to stop paying for old people’s health care, or else raise more revenue in taxes, or else reduce the growth in the price of health care services. And for a long time now it’s been unclear what combination of those strategies will be adopted. But people have generally had confidence that some combination of them would be adopted.

Once upon a time earlier in the Obama administration, I asked a senior official how he thought this would ever get resolved. A deal, everyone agreed, had to be bipartisan. But to be bipartisan, it would have to include tax increases. But Republicans wouldn’t vote for tax increases. He told me that of course that made sense, but at some point pressure from bond markets would be unbearable and Republicans would come to the table.

Broadly speaking, that’s the thing that most people generally believed would happen. What we saw with the debt ceiling was a mini-test of that theory, and the theory failed. “No new revenues” wasn’t just a GOP bargaining position, it turned out to be something they were really committed to even in the face of an imminent financial crisis. You can see why that would dent confidence in the long-term fiscal trajectory of the country.

The person who looks bad here, in my view, is John Boehner. President Obama wanted to do a “grand bargain.” The Gang of Six Senators wanted to do a “grand bargain.” And it looked for a moment like Speaker Boehner was going to be part of a grand bargain. But ultimately he decided that he didn’t want to sign a deal that would fracture his caucus, so the grand bargain talks fell apart. And yet the little bargain that did eventually pass the House ultimately couldn’t pass with Republican votes alone. So what did Boehner really achieve? If he was ultimately destined to strike a deal with the White House that needed Democratic votes to pass the House, why not go for the grand bargain? According to Boehner “When you look at this final agreement that we came to with the white House, I got 98 percent of what I wanted. I’m pretty happy.”

How happy is he now?

 

By: Matthew Yglesias, Think Progress, August 5, 2011

August 6, 2011 Posted by | Congress, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Debt Crisis, Economic Recovery, Economy, GOP, Government, Health Care, Ideologues, Ideology, Lawmakers, Middle Class, Politics, President Obama, Republicans, Right Wing, Tax Loopholes, Taxes, Teaparty | , , , , , , , , , , | Leave a comment

The Tea Fragger Party: Remember Their Names

Fragging: “To intentionally kill or wound (one’s superior officer, etc.), esp. with a hand grenade.”

Take names. Remember them. The behavior of certain Republicans who call themselves Tea Party conservatives makes them the most destructive posse of misguided “patriots” we’ve seen in recent memory.

If the nation defaults on its financial obligations, the blame belongs to the Tea Party Republicans who fragged their own leader, John Boehner. They had victory in their hands and couldn’t bring themselves to support his debt-ceiling plan, which, if not perfect, was more than anyone could have imagined just a few months ago. No new taxes, significant spending cuts, a temporary debt-ceiling solution with the possibility of more spending cuts down the line as well as action on their beloved balanced-budget amendment to the Constitution.

These people wouldn’t recognize a hot fudge sundae if the cherry started talking to them.

The tick-tock of the debt-ceiling debate is too long for this space, but the bottom line is that the Tea Party got too full of itself with help from certain characters whose names you’ll want to remember when things go south. They include, among others, media personalities who need no further recognition; a handful of media-created “leaders,” including Tea Party Nation founder Judson Phillips and Tea Party Patriots co-founders Jenny Beth Martin and Mark Meckler (both Phillips and Martin declared bankruptcy, yet they’re advising Tea Party Republicans on debt?); a handful of outside groups that love to hurl ad hominems such as “elite” and “inside the Beltway” when talking about people like Boehner when they are, in fact, the elite (FreedomWorks, Heritage Action, Club for Growth, National Taxpayers Union, Americans for Prosperity); and elected leaders such as Minnesota Rep. Michele Bachmann, Ohio Rep. Jim Jordan, head of the Republican Study Committee, and South Carolina Sen. Jim DeMint, who grandstand and make political assertions and promises that are sheer fantasy.

Meanwhile, freshman House members were targeted and pressured by some of the aforementioned groups to vote against Boehner’s plan. South Carolina’s contingent was so troubled that members repaired to the chapel Thursday to pray and emerged promising to vote no. Why? Not because Jesus told them to but because they’re scared to death that DeMint will “primary” them — find someone in their own party to challenge them.

Where did they get an idea like that? Look no further than Sarah Palin’s Facebook page, where she warned freshmen about contested primaries and urged them to “remember us ‘little people’ who believed in them, donated to their campaigns, spent hours tirelessly volunteering for them, and trusted them with our votes.” Her close: “P.S. Everyone I talk to still believes in contested primaries.” While they’re at it, they also should remember that Palin came to the Tea Party long after the invitations went out. The woman knows where to hitch a wagon.

Unfortunately for the country, which is poised to lose its place as the world’s most-trusted treasury and suffer economic repercussions we can ill afford, the stakes in this political game are too high to be in the hands of Tea Partyers who mistakenly think they have a mandate. Their sweep in the 2010 election was the exclusive result of anti-Obama sentiment and the sense that the president, in creating a health-care plan instead of focusing on jobs, had overplayed his hand. Invariably, as political pendulums swing, the victors become the very thing they sought to defeat.

Who’s overplaying their hand now?

It must be said that the Tea Party has not been monolithic — and the true grass-roots shouldn’t be conflated with leaders who disastrously signed on to the so-called “Cut, Cap and Balance” pledge. What is it with Republicans and their silly pledges? Didn’t they get enough Scouting? This pledge now has them hog-tied to a promise they can’t keep — the balanced-budget amendment. As many as a third desperately want a pardon from that commitment, according to sources close to the action.

Hubris is no one’s friend, and irony is a nag. The Tea Partyers who wanted to oust Barack Obama have greatly enhanced his chances for reelection by undermining their own leader and damaging the country in the process. The debt ceiling may have been raised and the crisis averted by the time this column appears, but that event should not erase the memory of what transpired. The Tea Party was a movement that changed the conversation in Washington, but it has steeped too long and has become toxic.

It’s time to toss it out.

 

By: Kathleen Parker, Opinion Writer, The Washington Post, July 29, 2011

August 1, 2011 Posted by | Class Warfare, Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Democrats, Economic Recovery, Economy, Elections, GOP, Government, Ideologues, Ideology, Journalists, Lawmakers, Lobbyists, Media, Middle Class, Politics, President Obama, Press, Public, Pundits, Republicans, Right Wing, Teaparty, Wealthy | , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

The Fight Will Continue: Democrats Will Lose Now But They Can Win Later

Democrats are going to lose this one. The first stage of the emerging deal doesn’t include revenue, doesn’t include stimulus, and lets Republicans pocket a trillion dollars or more in cuts without offering anything to Democrats in return.

The second stage convenes a congressional “Supercommittee” to recommend up to $2 trillion in further cuts, and if their plan doesn’t pass Congress, there’s an enforcement mechanism that begins making automatic, across-the-board cuts to almost all categories of spending. So heads Democrats lose, tails Republicans win.

It’s difficult to see how it could have ended otherwise. Virtually no Democrats are willing to go past Aug. 2 without raising the debt ceiling. Plenty of Republicans are prepared to blow through the deadline. That’s not a dynamic that lends itself to a deal. That’s a dynamic that lends itself to a ransom.

But Democrats will have their turn. On Dec. 31, 2012, three weeks before the end of President Barack Obama’s current term in office, the Bush tax cuts expire. Income tax rates will return to their Clinton-era levels. That amounts to a $3.6 trillion tax increase over 10 years, three or four times the $800 billion to $1.2 trillion in revenue increases that Obama and Speaker John Boehner were kicking around. And all Democrats need to do to secure that deal is…nothing.

This scenario is the inverse of the current debt-ceiling debate, in which inaction will lead to an outcome — a government default — that Democrats can’t stomach and Republicans think they can. There is only one thing that could stand in the way of Democrats passing significant new revenues on the last day of 2012: the Obama administration.

Republicans — and even some Democrats — think that the Obama administration lives to collect revenue. The truth is closer to the opposite. Senior administration aides view the expiration of the Bush tax cuts as less of an opportunity than a chore. About four-fifths of the cuts go to households making less than $250,000 a year, and they don’t want to raise taxes on those folks. They don’t like the politics of the issue, either. It’s an article of faith among Democratic strategists that debates on taxes inevitably favor Republicans, allowing Democrats to be hammered from the right and undermined from the left. White House aides would rather focus on “win the future” issues like infrastructure, education and energy.

The White House’s strategy in the debt-ceiling negotiations has reflected its ambivalence, with Obama trying to extract either as much revenue as Republicans would allow or as little as Democrats would accept. Obama even offered Boehner a deal in which the Bush tax cuts would be extended right now, so Republicans wouldn’t have to fear a subsequent negotiation in which they lacked leverage. Boehner rejected that deal and, in doing, might have saved the safety net.

But the Obama administration doesn’t want to take its second chance. They argue that the economy will still be recovering in 2013, and so it’s not an ideal time for a large tax increase. True. But what happens in 2012 is not simply setting tax policy for 2013. It’s setting tax policy for decades to come.

Health costs are rising and the Baby Boomers are retiring. If taxes don’t rise, none of these commitments are sustainable. And Republicans, in normal times, are perfectly capable of blocking any and all attempts to raise taxes. For Democrats, the expiration of the Bush tax cuts presents a unique opportunity in which GOP intransigence will mean more new revenues rather than no new revenues.

The alternative has been on clear display in recent months. Republicans can’t necessarily sell the country on big cuts in federal programs, but they can make them necessary. All they need to do is hold the line aganst taxes, allow deficits will continue to mount, and then use forcing events like the debt ceiling or the budget to demand huge spending cuts. A world in which the two parties can’t agree on tax increases but can agree on spending cuts is one in which the government eventually shrinks dramatically. Republicans understand this. Do Democrats?

A year ago, I was less concerned about the Bush tax cuts. I assumed, as did many in Washington, that the Republicans’ antipathy to taxes was a negotiating stance. Eventually, we would strike a “grand bargain” that would reduce spending and raise revenue substantially. The past few months have proved me wrong.

Republicans have shown, that they will block any and all tax increases, no matter what incentives they are offered in return and no matter how dire the consequences of their refusal. Next year’s deadline offers Democrats their only chance to negotiate from a superior strategic position. Republicans will still be able to refuse to raise taxes. But if they do, it won’t matter. The only way they can succeed in keeping taxes from rising is if the Obama administration and the Democrats stand shoulder-to-shoulder with them to extend the Bush tax cuts.

By: Ezra Klein, The Washington Post, July 31, 2011

August 1, 2011 Posted by | Class Warfare, Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Democrats, Economic Recovery, Economy, Elections, GOP, Government, Health Care Costs, Ideologues, Ideology, Lawmakers, Middle Class, Politics, President Obama, Public, Republicans, Right Wing, Tax Increases, Tax Loopholes, Taxes, Teaparty | , , , , , , , , , , | Leave a comment

Extortion Politics: A New Form Of Governing

Josh Marshall made an interesting point in passing yesterday, asking whether conservative Republicans could achieve massive spending cuts through “old-fashioned majority votes.” Josh answered his own question: “Of course not.” The cuts on the table were only made possible by Republicans “threatening the health” of the United States.

I think this arguably one of the more important realizations to take away from the current political landscape. Republicans aren’t just radicalized, aren’t just pursuing an extreme agenda, and aren’t just allergic to compromise. The congressional GOP is also changing the very nature of governing in ways with no modern precedent.

Welcome to the normalization of extortion politics.

Consider, for example, the Republican decision to reject any and all nominees to the Consumer Financial Protection Bureau, regardless of merit, unless and until Democrats accepted changes to the agency’s structure. Traditionally, if the GOP wanted to alter the powers of the CFPB, it would write legislation, send it to committee, bring it to the floor, send it to the other chamber, etc. But that takes time and effort, and in a divided government, this “old fashioned” approach to policymaking probably wouldn’t produce the desired result.

Instead, we see the latest in a series of extortion strategies: Republicans will force Democrats to accept changes to the agency, or Republicans won’t allow the agency to function. Jonathan Cohn wrote a good piece on this a couple of weeks ago, noting the frequency with which this strategy is utilized.

Republican threats to block nominees to the consumer board are at peace with their opposition to Don Berwick, Obama’s first choice to run the Center for Medicare and Medicaid Services; to Peter Diamond, whom Obama tapped to sit on the Federal Reserve Board; and most recently to John Bryson, Obama’s nominee to take over the Commerce Department. It’s nothing short of a power grab by the Republican Party — an effort to achieve, through the confirmation process, what they could not achieve through legislation. And it seems unprecedented, at least in modern times.

Republicans effectively tell the administration, over and over again, that the normal system of American governance can continue … just as soon as Democrats agree to policy changes the GOP can’t otherwise pass.

The traditional American model would tell Republicans to win an election. If that doesn’t work, Republicans should work with rivals to pass legislation that moves them closer to their goal. In 2011, the GOP has decided these old-school norms are of no value. Why bother with them when Republicans can force through policy changes by way of a series of hostage strategies? Why should the legislative branch use its powers through legislative action when extortion is more effective?

It’s offensive when it comes to nominees like CFPB nominee Richard Cordray, but using the full faith and credit of the United States to force through desired policy changes takes this dynamic to a very different level. And since it’s working, this will be repeated and establishes a new precedent.

Indeed, it’s a reminder that of all the qualities Republicans lack — wisdom, humility, shame, integrity — it’s their nonexistent appreciation for limits that’s arguably the scariest.

By: Steve Benen, Contributing Writer, Washington Monthly-Political Animal, July 31, 2011

August 1, 2011 Posted by | Class Warfare, Congress, Conservatives, Consumers, Democracy, Democrats, Elections, GOP, Government, Ideologues, Ideology, Lawmakers, Politics, Republicans, Right Wing, Teaparty, Voters | , , , , , , , , , , , , | Leave a comment

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