According to Politico, today the risk of a downgrade by S&P is what’s scaring the White House and Congress the most, not default.
It’s not the default that strikes the most fear in the White House and Congress these days. It’s the downgrade.
[. . .]
What really haunts the administration is the very real prospect, stoked two weeks ago by Standard & Poor’s, that Barack Obama could go down in history as the president who presided over his country’s loss of its gold-plated, triple-A bond rating. Financial analysts say such a move would hit Americans with more than $100 billion a year in higher borrowing costs, but it’s not just that. It would be a psychic blow to a nation that already looks over its shoulder at rising economic powers like China and wonders, what’s gone wrong? And it would give the president’s Republican rivals a ready-made line of attack that he’s dragging the country in the wrong direction.
While I agree about the potential consequences of a downgrade (it would be expensive), I’m not sure I agree that it’s what the White House and Congress are really worried about. If it were, both sides would be actively trying to address the problems that could lead to a downgrade. It’s not like they don’t know what S&P is looking for in a deal. In fact, S&P’s David Beers was interviewed by Larry Kudlow last night, and after reaffirming that there was a 50 percent possibility of a downgrade if the U.S. doesn’t get its act together, he explained once again what S&P is looking for:
Well, given the continuing political gridlock, I guess what we’re looking for is some [deal] which we think will make a difference over the medium term in slowing the — or if not reversing the rising trajectory of government debt, as, for example, a percentage of GDP.
He specifically added that he would like to see a plan that stabilizes our debt in the short term with a prospect of seeing it fall in the near future. As I have been pointing out for months now, the debt-ceiling debate matters only as a way to focus our attention on the nation’s long-run fiscal outlook, which needs to be dealt with today or at least in the next few months.
Anyone who has looked at the CBO baseline (a rosy projection that assumes that everything passed into law ends up happening) knows that even if lawmakers allow the Bush tax cuts to expire and the AMT to hit as many people as it is scheduled to hit without a patch, and enforce all the savings included in the health-care bill, the debt-to-GDP ratio is still projected to go up quite dramatically.
And this is why I am not sure that lawmakers’ professed concern about a downgrade is genuine. If it were, both sides would be less reluctant to talk about reforming entitlement spending — which is the source of the spending explosion in upcoming years and will remain a problem even if we let the Bush tax cuts expire. If the White House and Congress are so worried about a downgrade, why don’t they stress the need to finally have a conversation about reforming Medicare, Social Security, and Medicaid? I assume that the threat of a downgrade gives lawmakers on both sides some political coverage to talk about fixes like moving the eligibility age for both Medicare and Social Security — which is where the biggest savings are.
Also, while I can see why some might see it as stubborn to refuse to discuss any measures that may increase tax revenue, I can’t see how the absolute refusal to talk about anything that looks like or is a benefit cut isn’t just as stubborn, if not more so considering the downgrade threat. We are not going to address our long-term debt problems without making changes to health-care and retirement spending. We just aren’t. Being worried about a downgrade should mean being willing to talk about reforming entitlements.
I know that many people will argue that politics is what gets in the way of doing what we need to do to avoid a downgrade. I would like to remind them that S&P has also made it clear that politics does get in the way of keeping our AAA rating. So what are we waiting for?
Update: A business reporter at Bloomberg I was just talking with this afternoon told me that lawmakers probably aren’t too worried about a downgrade because “they have done their homework and understand that it would be costly but not devastating and certainly not a run on Treasuries.” Your thoughts?
We're borrowing trillions of dollars to *make payments* on past debt. With no end in sight. We are nearly *defaulting* arguing over a measly 1 billion in real cuts. Sounds like less than a top rating to me. Deservedly so.
Reply to this commentLinkReport AbuseThey don't want a downgrade. But they also don't want to cut spending or raise taxes. They don't want to do anything unpopular - just keep making voters happy and maintain their perks and power. That's what politicians do, and the difference between those with an R or a D after their name is relatively small. Unfortunately reality isn't cooperating anymore.
Reply to this commentLinkReport Abuse"..the difference between those with an R or a D after their name is relatively small."
That may have been true in the past, but to claim that there's no difference between Republicans and Democrats since 2008 is not accurate. Republicans have actually put forth plans that would have been considered a political suicide in the past; and to some those plans are still political suicide. The Dem strategy is to pretend that there is no fiscal crisis and to demagogue Republican plans without offering any alternative other than the status quo of spend, spend, spend and tax, tax, tax.
Reply to this commentLinkReport AbuseWhile I agree with you in spirit, I agree with Gersen in this respect:
We are being told, once again, to go-along to get-along. The only way I will start to believe that the GOP is a true second-party is when the GOP starts dancing with the girl that brung 'em.
Bill Kristol is right for the wrong reason. The GOP has to make a choice: Do what the GOP has always done (which has led us to this precipice) or walk down to the Potomac with a copy of Obama's 2012 budget, and throw it in the river.
They need more Tea Party and less Grand Old Party. If they can't find their inner Patrick Henry, then we elected the wrong people in November.
Reply to this commentLinkReport AbuseI'd like to believe the R's are better, but consider:
The R plan, as of this morning, was $1 trillion in borrowing over the next six months in exchange for $1 billion in spending cuts for 2012. Possibly that's the best they could do with a D Senate and White House but remember what happened when R's controlled all three in 2000-2006: a spending blowout. Not as big as the subsequent D spending, but still irresponsibility on a massive scale.
The D's are speeding for the fiscal cliff at $170 million per hour while the R's want us to slow down to $169 million.
Reply to this commentLinkReport AbuseAll the more reason to do the Boehner bill. S&P might downgrade even if there is a debt ceiling deal, so best not to confuse the public by letting Obama blame a downgrade on default.
Reply to this commentLinkReport AbuseOf course, a nice side-note would be for the ratings agencies to be eliminated entirely. They were highly complicit in the financial meltdown to begin with.
Reply to this commentLinkReport AbuseThe rating agencies are a joke and now they are trying to join in on the orgy or misleading commentary. Sub prime paper is fine, but a country whose debt is in a currency that it can print at will, well that might default.
Someone explain a scenario where bond holders will not get paid, even if the dollars they are paid in are inflated?
Reply to this commentLinkReport AbusePeople almost always ignore deeply unpleasant truths.
The problem with the debt, and it is funny has hell that I feel like I have to point this out, is that there is only one way to do something about it: CUT, CUT, CUT. You cannot borrow your way out of debt. You cannot tax your way out of debt if you wish to have any hope at all of trying to grow your way out of debt.
There is no trickery that will cut the debt. There are no gimmicks or smoke and mirrors plans that will cut the debt. There are no "well, these cuts happen 10 years from now when nobody who voted for them is around anymore" plans that will cut the debt. You cannot cut debt that you do not yet owe. You can only cut debt that you hold, and the only way to cut debt that you currently hold is to cut spending so that you do not add onto the debt and can also pay for all that debt. And since 60%+ of our spending is entitlements, that means cutting entitlements.
There is no way around it, over it, or in Obama's case beneath it. That is why elected officials are not talking about it, and that is why nobody is doing anything about it. The debt means austerity. The debt means Greece and France and Britain. It means riots and burning cars. It means angry geezers figuring out that, no, they most certainly did not "pay in"...they were lied to like everyone else. Debt means loss of political power, smaller government, more freedom - and none of them want this in the least.
And now the bill is coming due, and they should be very, very afraid of what an angry America might decide to do to them.
Reply to this commentLinkReport Abuseno. It's not coming due. They're kicking it down the road again.
Even so called conservatives are looking us in the face and saying when we owe 1400 billions that a cut of 20 billions is a significant step.
Reply to this commentLinkReport AbuseAnd as you know - if we don't kick it down the road - there will be no road. Obama and his ilk could very easily maintain this charade through a second term.
Remember this about most national politicans, and these days dems in particular:
All they care about is what is in it for them. They care not one bit for anyone they claim to need to help. They want power and wealth. The hot breath of the country's debt isn't quite hot enough for them to change their ways.
They want more than anything to never change their ways - payoff their cronies and skim their piece off the top first.
That's reality. The public will follow them because until just recently no one in either party was telling the truth, and when a few members of the newer better (but still need to watch like a hawk) GOP suggested we need to start addressing it - Chuck Schumer makes ads throwing grannies off of cliffs.
Your choice. Want to have a chance or just throw it away.
Reply to this commentLinkReport AbuseWhat are we waiting for? Well, the Democrats are waiting, and hoping, that public opinion will swing their way. Obama and the Dems are also waiting for the Republicans to blink and support tax hikes that can be hung around the neck of the GOP. The Republicans are waiting, and hoping, that the Dems will face reality and admit that the country faces an impending financial implosion. Unfortunately, Obama and the Dems prefer to demagogue the issue. Likewise, some short-sighted Republicans prefer to blow everything up if they can not get their way; if that happens, conservative control of Congress and the White House may not be possible in 2013, thus ensuring at least another 4 years of can-kicking. The country doesn't have the luxury of borrowing trillions of dollars for the next 4 years, thus Republicans need to do whatever is required in order to ensure that Obama and the Dems 'own' the deficits, the debt and the pathetic economy, so that real reform can occur in 2013.
Reply to this commentLinkReport AbuseOne explanation of the Democrats' in Congress and of the President's behavior is exactly consistent with fear of a downgrade. They have all but acquiessed to spending cuts. They simply need to appear to be dragged kicking and screaming into them.
Reply to this commentLinkReport AbuseThey aren't worried about a downgrade, they are worried about *being blamed* for a downgrade. As long as they think they can smear the other guy with it, they are fine with it. Needless to say this is stupid on stilts, but no one is it written that politicians aren't utter rogues all the way down. And they are.
Reply to this commentLinkReport AbuseThat reporter you mention in the last paragraph...he's indicative of why I hold journalists in low regard. I feel fairly certain that he thinks he knows what he's talking about...but he and the politicians are getting their knowledge from sources that are proven incorrect on just about everything. The emperor has no clothes.
Reply to this commentLinkReport AbuseJust like most things in life, an AAA rating has to be earned. If entitlement-addicted Americans refuse to work for it, the a downgrade is fully deserved.
Obama is still popular with more than 40% of rating, and voters still blame Bush more. With electorate stupid like this, perhaps they deserve 4 more years of socialist rule under Obama, Reid and Pelosi, and a B or C rating for the US Treasury come 2016.
Reply to this commentLinkReport Abuse"If the White House and Congress are so worried about a downgrade, why don’t they stress the need to finally have a conversation about reforming Medicare, Social Security, and Medicaid? I assume that the threat of a downgrade gives lawmakers on both sides some political coverage to talk about fixes like moving the eligibility age for both Medicare and Social Security — which is where the biggest savings are."
Is this a serious question?
They're politicians. They spend their entire careers denying reality hoping *something* will save them at the last minute and they won't be blamed.
Reply to this commentLinkReport AbuseIf the ratings agencies don't downgrade US debt, they will lost whatever credibility they have left. They probably should have downgraded already.
As some have pointed out, the problem isn't the default or the downgrade it is THE DEBT & DEFICIT. The rest is just political fallout from a ponzi scheme that looks like it is about to collapse.
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