If you paid any amount of attention to the national news early this month, you probably heard quite a bit about the debacle in Washington: the raising of the federal government’s debt limit and the subsequent credit downgrade by rating agency Standard & Poor’s. Breaking with years of tradition and political common sense S&P downgraded the safety of the federal government’s debt from AAA to AA+.
The action on the part of S&P did something that, just a week before, pundits across the spectrum had said was impossible. Namely, it united both sides of our nation’s legislative branch in reviling the rating agency.
From critiquing the moral character of the executives to claims of high treason, no stone was left unturned when it came to politicians’ reactions to the decision. Members of each party did also take time out of their busy schedules to blame the downgrade on the bullheadedness of the opposing party — they are politicians after all. President Barack Obama has ignored calls for the immediate arrest of S&P’s CEO and is instead willing to wait on the results of retaliatory investigations by both the SEC and the Senate Banking Committee.
Before anyone begins announcing the final death rattle of the American Empire, it is important to note that, even in the field of finance, S&P’s opinion is not the opinion of the majority. The other two nationally recognized rating agencies have both kept their AAA evaluations of the nation’s public debt, representing their confidence in the continuance of the nation’s long-standing policy to pay its debts.
The market at large also disagreed with S&P, as the price of treasury bonds rose in the days immediately following the announcement.
While not the popular opinion, the S&P opinion is still a legitimate one. It highlights the dire situation that our national political scene has backed itself into.
It has become evident that modern politics is not about advocating for a better future, so much as always being diametrically opposed to anything that can be construed as a “win” for the other side. This results in legislative battles being dragged out for so long that they begin to present an active risk to the welfare of the nation.
S&P highlights this lack of political predictability, along with numerous revenue and spending problems that the government has been facing since the recession began. S&P is not making the case that the U.S. government is no longer a safe investment, merely that, if things continue unchanged, the threat of the government defaulting on your investment in them will continue to grow.
The S&P opinion is a rational reaction to the previous decade’s fiscal policy. Spending has shot through the roof, but taxes have not. It does not take a genius to realize that eventually the situation will become untenable, and some hard choices will have to be made about who gets paid and who is left up the creek without a paddle.
Until this month there had been nothing short of complete confidence that our legislators would be able to solve the situation in a way acceptable to everyone. Now that notion is slowly starting to change.
David Holmes can be reached at [email protected]
