“I inherited….a AAA credit rating…”

For the first time in U.S. History, our financial standing in the world has been downgraded. Our credit rating was given the boot by Standard and Poor’s, (“S&P”) after repeated warnings of the possibility.  Our AAA credit rating, since its establishment in 1917, has endured World War I, the Great Depression, FDR’s big-spending presidency,  World War II, the Cold War, The Korean War, the Vietnam War, the Jimmy Carter presidency….and the list goes on. But here we are, two and a half years into Barack Obama’s presidency, and we’ve been demoted.

When an individual’s credit score is downgraded by the credit bureaus, it doesn’t take rocket science to figure out why it occurred. Except in the occasional (though becoming more common) case of identity theft, a dip in one’s established credit score is reflective of their spending habits and thus unpredictability of that person’s debt. It’s simple.

There’s a few ways to tackle that credit issue, as an individual. Either you cut your spending, live within your means, and funnel your savings towards paying down your debt, or you get yourself a second income, or a better paying job to funnel more money toward the debt. In terms of our government those choices become the following: cutting spending, or raising taxes.  Let’s be real, here, however. When has a tax increase ever generated this elusive, massive revenue? As I’ve previously discussed in this blog, (see Reaganomics=Obamanomics?), raising taxes, ESPECIALLY during such economic times as these, does not bolster economic health. In fact, it is when the tax burden is lowered does the economy not only prosper, but the total amount of revenue raised by the government is far more than under the higher tax rates! Remember to think of it this way:  10% of 200,000 is a great deal more than 20% of 50,000.

President Obama stated that the U.S. lost its AAA credit rating because analysts “doubted our political system’s ability to act,” and Congress must respond with a debt plan that includes taxes as well as budget cuts. This of course after the administration tried to pin faulty math as the problem; that is, that S&P just didn’t know how to add, and THAT was why we were downgraded. That it was all a matter of mathematical error. When that didn’t work, his party resorted to the increasingly popular resort of “The TEA PARTY DID IT! It’s all their fault. All their political bickering, partisanship, and unwillingness to ACT and achieve fiscal nirvana by simply allowing Washington to tax those horrible rich is what showed S&P we aren’t serious about our debt.”

So, what does S&P have to say about it all?

“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. . . 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.”

In other words, we were downgraded because of our ballooning national debt and lack of plan to deal with it! While the President and his party would have us believe that S&P’s mention of revenue increases means “new taxes or ELSE,” keep in mind that right out of the gate S&P brings up “containing the growth in public spending” as the primary basis for the downgrade. New revenue is brought out a few times throughout the rationale report as a possible part of the solution. If I may be so bold as to disagree with S&P here, new revenue’s inclusion at ALL is simply bad fiscal policy. We do not not need business discouragement here!

Back to our dear leader for a moment- he’s right about one thing. Hang on, hang on, put your eyeballs back in their sockets! He said that S&P got wary of the inability to move forward in Washington. But whose fault is that? Which party, even though they held majorities in both the House and the Senate long before November 2010, couldn’t pass a budget? Which party rejected numerous budget plans brought to the floor, while offering no real solutions of their own? HIS party! Barack Obama himself, for all his pontificating, could not seem to put his thoughts to paper during the debate. If anyone can’t play nice, it’s the Democrats. I realize that “compromise” as defined by you, Mr. President, simply means “my way, or the highway.” Sure doesn’t sound like “getting the job done” to me.

One thought on ““I inherited….a AAA credit rating…”

  1. This is a great post. There seems to be many politicians and decision makers on both sides that seem to have forgotten how to live within their means. Isn’t it amazing, though, that the government can go about not paying their debts right away but when it comes to the public paying their taxes, pushing that off is not an option?

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