One of the most frustrating things about Obama's playing the role of The Great Conciliator is his belief that we should 'look forward, not back', that there should be no accountability for those who have failed or committed fraud. Leaving aside notions of justice (which these days is best for one's sanity), this idiotic belief allows the incompetent and the malfeasant to continue their harmful activities. Case in point: the financial rating agencies. These are the bozos who went along with Wall Street's alchemy wherein shitty loans were magically turned into AAA securities (the highest rating).
The head of Standard and Poor's warned that S&P might downgrade U.S. Treasuries if the debt limit ceiling isn't increased. Fair enough: they're in the business of figuring out if investments will pay out.
But this statement made my head explode:
Chambers added in the interview that even if the parties agree to raise the debt ceiling, it may not be enough to avert a downgrade. Chambers said the country must implement a plan to reduce the annual budget deficit by roughly $4 trillion over 10 years, which makes the debt manageable over the long term.
The White House and Congress have discussed a plan that big, but negotiations have more recently centered on a smaller deal, at $2 trillion or less.
"That could still lead to a downgrade," Chambers said.
First of all, who elected these assholes? I don't remember seeing their names on any ballot. That aside, it's utter idiocy. We are mired in unemployment, industrial capacity is idling, and corporations and banks are hoarding cash. If they're making this statement based on future inflation rates (which isn't what they claim to do), they're idiots. If they believe that the U.S. government won't make good on the bonds (even if there's a delay), they're even dumber.
Now, you might say, "Well, there are lots of assholes. Isn't Chambers just another asshole?" Well, he is an asshole, but S&P is a very important asshole. Why? Because many institutional investors, such as pension funds, are required to hold certain amounts of AAA securities, including U.S. securities. If U.S. securities are downgraded, these investors will have to sell them, further undermining the value of U.S. securities, and increasing borrowing costs.
This is essentially corporate extortion designed to force a policy outcome. Apparently, a two trillion dollar reduction in government spending--which will lead to a commensurate decrease in aggregate private sector holdings--isn't enough (translation: households--you--are going to be poorer through unemployment and rising personal debt). We are being blackmailed for even more cutsm since S&P is claiming they might downgrade the rating of U.S. Treasuries, even though there is no viable means of default (provided the debt ceiling is raised).
Oddly enough, when the ratings agencies were questioned about the ratings of housing loan bundles, they claimed they just offered 'opinions':
If the various federal agencies had come down on these guys like a ton of bricks--fines and jail time--they would be a lot more circumspect. Instead, they know they can get away with anything--including being to the right of the Republican base economically.
This isn't just horrible meddling in terms of economic outcomes, but a confirmation that the political system is a wholly owned subsidiary of the banking system. The owned include President Obama, and most of the Democrats in Congress.
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We need to either find someone willing to prosecute S&P and the other ratings agencies, the way the AG of NY is with the banks or start a movement to nationalize the ratings agencies. The right wing is constantly yelling about the scourge of the left, let's show them what "The Left" can actually be.
Of course S&P is correct in the large sense, we need to start closing the gap between what we spend and what we take in. At minimum we need a government that shows it understand that part of the job is raising revenue to pay the bills. Cutting taxes, and starting wars at the same time should have triggered immediate downgrade consideration when they happened, that the downgrade is being talked about now reeks of an attempt to push blame on to Obama. On the other hand, the total craziness the legislature has now devolved into wasn't clear even a year ago.
I wish I knew more about economics and how these ratings agencies are affecting the current Eurozone crisis. Seems like a chicken-or-egg situation, working out if the rating downgrades for Greece, Ireland, Spain and Portugal are causing the immediate crises (the crunches forcing bailouts) or merely highlighting them (obviously the root causes of the crisis are not in their control, e.g. it does appear that Greece lied to get into the Euro in the first place).
No, the S&P is not correct in the "large sense". We do not need to start closing the gap, certainly not in this fiscal environment. While cutting taxes and starting wars at the same time was not a good use of the nation's finances, the real problem is mis-directed financing. We are not on the gold standard any more. Read up on Modern Monetary Theory, there are plenty of links to it on this blog. Kyensian theory too argues that the deficit and debt are not primary concerns at this moment. The only "theory" that does is the discredited Supply Side idiocy. It failed in the 20s, it failed in the 2000s, there is no reason to take it seriously.
While I agree with your conclusion that slashing all spending Republican style isn't going to be helpful, I must take issue with some of your previous comments. S&P/Moody's et al should certainly be looking at a downgrade for the US, for a very good reason that you seemed to believe irrelevant; "If they believe that the U.S. government won't make good on the bonds (even if there's a delay)..." The US is by no means looking at bankruptcy, but the political mire could conceivably cause the sort of liquidity issue you glossed over. It's not full blown default, but if creditors aren't being paid on time then why would the US in any way deserve AAA status?
Except that reducing the US's rating isn't all they're doing. They're trying to dictate policy for political reasons and threatening the entire economy if they don't get their way. This is blackmail and they should be prosecuted for it.
Chambers said the country must implement a plan to reduce the annual budget deficit by roughly $4 trillion over 10 years
That's a threat. Do it our way or get downgraded. Despite the fact that the size of the deficit and debt have nothing at all to do with the ability of the US to pay their creditors on time. They're saying they might downgrade the rating even if there's no disruption of payments at all.
I'm almost hoping there's no deal and the debt ceiling isn't raised. It might force the government to either declare the debt ceiling unconstitutional (the best result) or cause the treasury to "tear up" the debt it holds (a good result). Unfortunately, there's also the chance they're not bright or brave enough to do either of those things and will end up damaging the nation as a result.