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    The Week

    The U.S. credit downgrade: Who's to blame?

    The Week – Mon, Aug 8, 2011

    Standard and Poor's strips the federal government of its AAA status, and a fingerpointing epidemic breaks out in Washington

    Standard and Poor's controversial announcement on Friday that it would downgrade the U.S. government's credit rating — from AAA to AA+ — shook up global financial markets. As soon as American markets opened Monday morning, the Dow Jones Industrial Average plunged more than 200 points. And predictably, the first credit downgrade in U.S. history ignited a heated blame game in Washington. S&P said it lowered the rating because Congress and the White House had failed to come up with a credible plan to get the national debt under control. Sen. John Kerry (D-Mass.) branded the move the "Tea Party downgrade," while conservatives blamed President Obama's "reckless spending." Whose fault is it really? Here, five possible culprits:

    1. The Tea Party
    During the debt-ceiling battle, Tea Party leaders made it clear they were willing to let the nation default on its debts and "cause a full-fledged economic disaster" if they didn't get all the spending cuts they wanted, says Charles Johnson at Little Green Footballs. They held the U.S. economy hostage while demanding massive cuts and no new revenues, and that made the federal government look so unreliable and dangerous that Tea Party Republicans effectively forced "the first U.S. credit downgrade in history, and that's not too shabby. Maybe next time, the apocalypse."

    2. President Obama and Democrats
    The Left is in full spin mode to hide the downgrade's obvious cause — the "massive two-year binge of deficit spending embarked on by President Obama, Nancy Pelosi, and Harry Reid," says Robert Stacy McCain at The Other McCain. During the debt-ceiling debate, instead of dealing honestly with the debt problem, Obama insisted Republicans were trying to "steal Granny's Social Security check" so the rich could keep their corporate jets. "Democrats don't want to fix the problem, they want to score political points against Republicans."

    3. President Obama and House Speaker John Boehner
    "The bond rating drop unequivocally is a direct result of the Barack Obama-John Boehner national-debt deal," says Gregg Easterbrook at Reuters. The last-minute agreement is "as phony as a three-dollar-bill," with no real effort to reduce our ballooning debt. Everybody knows we can't balance our finances without trimming Social Security and other entitlement programs, and raising taxes. But "both parties, and both the White House and Congress, are more interested in blowing smoke than in firm action."

    4. Standard and Poor's
    The analysts at S&P are supposed to base their decisions on an "honest appraisal" of the nation's financial health, says Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi, as quoted by Bloomberg. Instead, they got entangled in the partisan political fight over the national debt, sticking to the downgrade even after the government pointed out an error in S&P's calculations that caused a massive $2 trillion overestimation of next decade's debt. "The U.S. is not out of money, it has the financial resources to make good on its debt, and it should not have been downgraded."

    5. Every politician in Washington
    "Ultimately, S&P didn't only downgrade the U.S. credit rating. It downgraded the whole political system," says Jonathan Allen at Politico. Democrats would only consider minor changes to entitlement programs; Republicans flatly ruled out new revenues without which there is no solution. "In the eyes of the raters, both parties punted the tough decisions"

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    2,193 comments

    • John
      John  •  9 mths ago
      Want a good credit report? Simple. Don't buy what you can't afford. If you want it that bad - SAVE for it and pay cash.
      • Laura
        Laura 9 mths ago
        I agree with your philosophy though I realized last year when trying to refinance my home, that hurt me. I hadn't had a loan in ages (paid cash for my last new car) so hurt my credit score.
      • Joe
        Joe 9 mths ago
        That's actually no correct. If you paid for everything cash and never took out credit you would not have a good credit report. On the contrary, you want a good credit report you have to keep using your credit and paying it back on time. You don't want to max out your credit but keeping a 1/3 balance to your actually helps your credit report.
      • Joe
        Joe 9 mths ago
        BTW, if everyone saved for everything and only paid cash our economy would be dead. That would mean no houses, no electronics, no cars industry, no vacations, basically we would be a communist country where only the very rich could afford anything, What we don't want is for people to over extend themselves.
    • CharlesY
      CharlesY  •  9 mths ago
      The lowering from AAA has nothing to do with blame. It has to do with the government not willing to live within its means. Politicians refusing to give up their pet projects and ideologies for the greater good, led to yet another bad bill being passed. There is still time to reverse the course Americas is on but it going to take new blood in Washington to do it.
      • Michael
        Michael 9 mths ago
        To live within our means, we need to lower our spending but also need to increase our revenues. If you've got a family of 10 kids and are working 1 job, you and your wife better get 2nd jobs as well as stop having more kids. Raising taxes for the richest top 2% was necessary (especially since everyone else was sacrificing) but those fn teabaggers insisted on protecting their constituents, using the debt celiing as a bargaining chip -- which never should have been done in the first place.
      • Henry Juhala
        Henry Juhala 9 mths ago
        Here is what S&P said about revenues. NOTE the number of times it comments specifically on our lack of plans to raise REVENUES from tax increases or to let the Bush TAX CUTS of 2001 and 2003 expire. Yet it was specifically the GOP and the tea party who refused to allow Obama to include any revenue increases - either tax increases on the or let the Bush tax cuts expire.

        For your ease, I highlighted REVENUES and TAX CUTS by capitalizing them. Due to space restrictions major parts of the S&P statement is not included.
        =====

        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.

        The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new REVENUES have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

        The act calls for as much as $2.4 trillion of reductions in expenditure growth over the 10 years through 2021. These cuts will be implemented in two steps: the $917 billion agreed to initially, followed by an additional $1.5 trillion that the newly formed Congressional Joint Select Committee on Deficit Reduction is supposed to recommend by November 2011. THE ACT CONTAINS NO MEASURES TO RAISE TAXES or otherwise enhance REVENUES, though the committee could recommend them.

        Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 TAX cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise REVENUES, a position we believe Congress reinforced by passing the act.

        Our revised upside scenario–which, other things being equal, we view as consistent with the outlook on the ‘AA+’ long-term rating being revised to stable–retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new REVENUES on the assumption that the 2001 and 2003 TAX CUTS for high earners lapse from 2013 onwards, as the Administration is advocating.

        ….if the recommendations of the Congressional Joint Select Committee on Deficit Reduction–independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 TAX CUTS for high earners–lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government’s debt dynamics, the long-term rating could stabilize at ‘A
      • MadMax8600
        MadMax8600 9 mths ago
        The top 1% already pay 40% of the taxes. The top 10% already pay 70% of the taxes. This is not a revenue issue, this is a spending issue. If we tax 100% of every household that makes 1,000,000 or more that will raise enough revenue to cover gov't spending for 1 year. That's it. If you seize every asset, penny, nickle, dime, house, car, jet, etc from every single person on the Forbes 400 wealthiest people list, you get enough revenue to cover spending for around 240 days.

        The class warfare lie that the rich don't pay their fair share is a myth. No amount of tax increases will make a dent in the debt or deficit. This is a spending problem.
    • bob
      bob  •  9 mths ago
      Perhaps we're looking at this wrong. If we have bad credit, we have to slow down on our borrowing automatically. isn't that what everybody wants (I mean normal people.).
      • Billy
        Billy 9 mths ago
        We don't have bad credit. It is still the next highest.
      • Jack
        Jack 9 mths ago
        show me a sane (normal) politcian
      • Kay
        Kay 9 mths ago
        So you spent trillions of dollars we didn't have and I did too?!  No it was the government not the people you idiot!
    • Frank
      Frank  •  9 mths ago
      It is almost laughable to watch the media and politicians trying to blame our economic crisis on political decisions made in the past few weeks. The truth is that our problems have been building for years, under both political parties, because of GREED. A very wise man once wrote, "The love of money is the root of all evil". For you liberals out there, notice he did NOT say "money" is the root of all evil.If you look at our society, from Wall Street to professional sports to college athletics to politics, there is one common thread. It always comes down to money, and who controls the biggest amount. Obama said (as did Carter) that we need to sacrifice to improve things. He also said the "rich" need to give up more of what they have to help the poor. When he attacks the wealthy as being the cause of our problems, he is simply trying to continue the democratic strategy of class-division and fear. The truth is that a rich person is not the problem, but a person who will do anything to be rich is. It has taken this country years of careless policies in Washington to create this problem. It will take years to fix it, but only if the politicians on both sides are willing to do what needs to be done.
      • RichardinMD
        RichardinMD 9 mths ago
        someone who gets it.
      • Lee
        Lee 9 mths ago
        Nicely put.
      • Hope
        Hope 9 mths ago
        Agreed, but we have to focus on solving problems today, yesterday is over. We had a chance to change the spending trend you identify with implementing a real cut in our current over spending and our President just couldn't do it. He couldn't change. And he deserves to go down in the history books as the President who lost us our AAA credit rating. It's called accountability.

        And yes, rich people aren't rich because poor people are poor. And poor people aren't poor because rich people are rich. Think about it.
    • 1America
      1America  •  9 mths ago
      When we are done FIXING blame, can we start FIXING the problem?

      I'm ready.
    • Obamas Blue Lips
      Obamas Blue Lips  •  9 mths ago
      A noble man will accept credit when due and blame with the same grace.
    • alfie
      alfie  •  9 mths ago
      Social Security does not need massive changes to keep it going. Raising the retiement age and doing a means test will go along way to keep SS solvent. It already is funded at 100% through 2037, and would be fully funded farther if money had not been "borrowed" from the trust and never payed back. Medicare needs more serious help, but that too can be done if congress is willing to do the hard work.
    • Jeff in Maine
      Jeff in Maine  •  9 mths ago
      "If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year, & are $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget & debt, reduced to a level that we can understand." - Dave Ramsey...

      ...Regardless of which side of the political isle you're from, we can all agree that we're spending too much! S&P warned that a downgrade was coming if we didn't get a grip on our debt...How is it the that the tea party philosophy of reducing spending first is to blame?
    • e w
      e w  •  9 mths ago
      Past and current Presidents and Congress are to blame; both parties.
      The overspending has been going on for decades, and the politicians have been looting our economy for cronies and special interests, and corrupt foreign governments, and for useless wars and "rebuilding" countries---lining the pockets of Cheney's cronies at Haliburton, among others.
      They fall all over themselves trying to point fingers at others, but they're all a bunch of crooks.
      We need to take back our government.
      Just today there was a news item that they're going to send $100 million to Somalia!
      We can't afford to play Santa Claus to the rest of the world anymore; our politicians have wrecked our economy.
    • Sutton Impact
      Sutton Impact  •  9 mths ago
      More and more Moochers and Looters, less and less Producers. Who is John Galt?
    • Gail
      Gail  •  9 mths ago
      Why does the MEDIA and POLITICIANS keep calling Social Security and Medicare ENTITLEMENT PROGRAMS!! They are most assuredly are NOT, hundreds of millions of American workers have paid into those funds with every single paycheck of their working lives since 1935 when President Roosevelt enacted these programs (SS, Medicare and Unemployment). The politicians then stole OUR money to fund their pork projects and left their worthless IOU's and now sugar coat it by calling it "entitlements" to cover their back sides. How about WE The People make the crooks liqidate their private SS plan and roll it into ours to pay back what they STOLE!
    • SmellThis
      SmellThis  •  9 mths ago
      Flat tax! Everyone pays the same percentage. No loop holes, no write-offs. Simple. It will raise revenue and you could get rid of 75% of the IRS (a spending cut).
    • Voltaire
      Voltaire  •  9 mths ago
      Social security is not an entitlement. I have been paying in for decades. It is social insurance that I was required to pay for. Stop the moronic chant and calling it an entitlement.
    • Shawn
      Shawn  •  9 mths ago
      Why do people keep calling Social Security an entitlement program? People paid into it for decades! It's also not true that everyone knows they have to cut Social Security. Social Security would be fine if they didn't keep syphoning money off of it for other projects. They need a law that the funds going into Social Security remain untouched for spending other than Social Security. Take the cuts from other programs that don't have direct funding coming out of peoples paychecks specifically for that spending like Social Security does.
    • Robert H
      Robert H  •  9 mths ago
      6. The American people. You live in a democracy. You get to pick your politicians. You get to hold them to account. You get to chose representatives that reflect what you want. Point fingers however you want - in reality the real fault is with THE AMERICAN VOTERS.
    • Anonymous
      Anonymous  •  9 mths ago
      Obama, Congress and Senate - ALL OF WASHINGTON D.C.
    • brad h
      brad h  •  9 mths ago
      This should really be called S&P's downgrade of Barrack Obama and Congress leadership.
    • RAMIRO G
      RAMIRO G  •  9 mths ago
      I think it was the way the idiotic politicians handle the problem . The "my moma can beat your moma " way they went about it .
    • bunkerhillsilly
      bunkerhillsilly  •  9 mths ago
      As an American,A Veteran, I would like to thank our Government for destroying what once was a beacon to other nations.You have managed with your bitterness,your pettiness,your egos to take our country,and trample it into the ground.Your choosing to continue to fund wars that will never be "won",you refusal to fairly tax the rich/corporations,your inability to work through problems,get what you were elected to do -done,has crumbled the spirit,the backbone,and the meaning of A UNITED STATE- you have shown that greed trumps the citizen,that posturing trumps the aged,the poor,children,etc. You as a collective body should be ashamed to call your self Americans,as you stand for nothing this nation was built upon.
    • tomcat
      tomcat  •  9 mths ago
      Embedded in the S&P report is the really serious problem we face.
      US Treasuries didn't get downgraded because we're Broke, US Treasuries got downgraded because we're STUPID.

      We will never be like Greece because we can't pay, but we could end up like Greece because we can't govern ourselves effectively. The inability to manage our economy and our obligations is far more dangerous than their size.
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