Standard and Poors Downgrade and the Need to Further Reign in Spending...

by: Les Carpenter
Rational Nation USA
Birthplace of Independent Conservatism
Liberty -vs- Tyranny

The debt ceiling/deficit reduction debate/crises is concluded. The result? Our nation avoided defaulting on its obligations. A good thing. That and the Congress & President now have the green light to spend a couple trillion plus more over the next year and a half. Not a good thing.

Of course the special "super commission" is supposed to come up with an additional trillion and a half in spending cuts. Cuts both the Congress and the President will have to approve or the triggers dems fear will kick in and automatic spending cuts will occur.

That's the plan at this point anyway. We'll see.

The forthcoming debate over how to handle the details of "the deal" will be every bit as rancorous as the debt ceiling/deficit reduction debate just concluded. Such is American politics. We can all be relatively certain given recent history that the American people are likely to come out on the short end of the stick. Again.

After all the various gyrations, equivocations, posturing, hyperbole, and the ever present brinksmanship, we finally struck a deal. While we avoided default our nation's AAA rating was downgraded to AA+ by Standard and Poors, with the warning our rating may be downgraded to AA in the next couple years if the Congress and the President fail to find further cuts or increased revenues.

The Hill - Standard & Poor's laments the possibility cuts to entitlement programs won't materialize and the decreasing likelihood of new tax revenues.

The decision by Standard & Poor's to downgrade the U.S. credit rating to "AA+" at once laments the possibility that cuts to entitlement programs will not materialize and the decreasing likelihood of new tax revenues. But it appears to give more weight to the need for more spending cuts, as it warns that a further credit rating downgrade is in the cards if the U.S. does not trim spending.

In contrast, while the report indicates that new tax revenues would help mitigate the debt crisis, failing to find these revenues does not immediately put the U.S. at risk of another downgrade.

Specifically, the report warns directly that a further downgrade to "AA" status could occur within the next two years if there is "less reduction in spending" than what was agreed in the debt ceiling agreement. S&P said one factor that could lead to this second downgrade is if the minimum $1.2 trillion in spending cuts under the debt ceiling agreement does not occur.

But S&P sees the continuation of the Bush tax cuts in 2001 and 2003 as something that could still allow the U.S. to maintain its new "AA+" rating.

While this difference would seem to put a greater emphasis on spending cuts, the report more broadly seems to value both spending cuts and tax revenues as a way out of the debt crisis. S&P said it takes no position on the "mix of spending and revenue measures" needed to put the U.S. back on a path to its historic "AAA" rating, a sign that it believes both are needed in some measure.

It also laments Congress's failure to find a way forward on either prescription as part of the debt ceiling agreement. {Continue Reading}

It is clear that Standard and Poors recognizes the most desirable path to fiscal sanity, and thus stability rests in further spending cuts. There is a reason for this.

This nation has been living beyond its means for a long while, going back to the seventies. Deficit spending has somehow crept into the American economic lexicon as an acceptable way of doing the government's business. Perhaps this is because Americans, possibly due to the relative prosperity of the fifties and the sixties grew to feel they were "entitled" to prosperity as a given. Thus the increasing array of social welfare programs ushered in by LBJ, and continuing on in succeeding administrations.

Or maybe it is due to the flawed economic principles of John Maynard Keynes being readily accepted by politicians who were only to willing to pander to their constituents every social whim and a MIC that continued to grow ever larger and more costly.

The need for spending cuts are real, and the proper and rational way to proceed is to cut spending across an array of programs. From bureaucratic excess, to eliminating duplicity and overlap, to costly and unnecessary regulations that hurt American competitiveness, to reigning in the MIC, to reforming entitlement programs, to scraping ObamaCare and instituting market driven healthcare along the lines of the Swiss healthcare model, to reducing the number of tax brackets to three and eliminating loopholes just to name a few.

After all this is accomplished perhaps then, and only then should further increases in looting American's income be considered. That folks is the point Standard and Poors is attempting to make in a politically viable and acceptable way.

Via: Memeorandum