Saturday, August 06, 2011

Why S&P Downgraded the US Government's Credit Rating

S&P's statement:
"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges."
One's credit rating is based both on one's assets AND whether one is able to manage money reliably. Congress has just demonstrated that they as an institution are unable to do that.

The consequence of poor money management is lower credit rating and the consequence of that is higher risk to lenders and correspondingly higher interest rates. Which means that this folly in Congress redounds to the benefit of creditors of the United States, those who own treasury bonds, bills, and notes. They will collect, and we will pay, higher interest rates indefinitely as treasury auction after treasury auction is shadowed by the lowered credit rating.

A large fraction of the federal government's debt is owned by the Chinese and Japanese governments and by corporations in those countries. So the debacle in Congress and its result will result in still larger transfers of wealth from the United States to our creditors Back East than before.

Higher interest payments on the debt because of the lowered credit rating are an unfunded new obligation of the government. They will add to future deficits and thus increase future debt and the interest on it.

One would like to say, as most who write about this likely will, that everyone in Washington is to blame. That there is plenty of blame to go around. That Congress is to blame. Or Obama. That both parties are equally culpable.

But the facts are otherwise. Any recollection of what happened is that almost everyone offered to compromise. The Democrats offered to compromise. The Republican leadership offered to compromise. President Obama tried to arrange a compromise. The one group, and it turned out to be a decisive one, that repeatedly refused to compromise was the Tea Party faction of the Republican party.

Congress has been negotiating budget compromises since 1790, and it has always more or less worked. Clearly what changed, the new thing in Washington, was the election of a cohort of right-wing radicals to Congress in the 2010 elections.

When asked how it happened, it would be easy to shake one's head and mutter something about "gun-toting morons in the fly-over states", or "The country is turning right right now. But it will swing back."

The fact is that people in the middle of the country were no brighter ten or twenty years ago, and no less enamored of their guns then. And the notion of a pendulum swinging back and forth requires one to believe that things happen for no reason, that there is no such thing as cause-and-effect.

But there are reasons why things happen. I strongly suspect that the decision in Citizens United v. FEC in January 2010 and the rise of the Tea Party are not coincidental. In Citizens United the Supreme Court held that money is speech and that corporations have the same First Amendment rights to free speech as human beings. They made the saying, "Money talks" into a maxim of constitutional law.

Since then corporations have been legally able to contribute unlimitedly to political campaigns. And they have. Since Citizens United, large sums have been put into political campaigns that could not legally have been contributed before. Judging by the results in the 2010 elections, that new money has been going primarily to right-wing candidates and causes.

That created the Tea Party and the Tea Party created the budget impasse in Congress, and that is on its way to create higher interest on the national debt, larger deficits on account of the higher interest, increased debt overall, and increased transfers of trillions of dollars from the United States to China and Japan.

The moral here is that the situation we see today will not soon go away. The obvious riposte of the voters to the Tea Party for their intransigence in 2011 is to turn them out in 2012. It won't happen. The Supreme Court is right. Money does talk. And it will talk at least as loudly in 2012 as it did in 2010.

The right-wing intransigents in Congress are not going away. Their numbers and influence will not be diminished in the foreseeable future. If anything they may grow in power.

What do we get in return for these harms to the nation? We get free speech for corporations.



  1. Jasmin5:54 AM

    Good riddance to the christian/jewish fascist hegemony of America.

    Al mout li Amreeka

  2. Jasmin5:57 AM

    Not the people, they system of government that creates people like you. Perhaps the end of capitalism will usher a new era. I complain of the governance and the root of the problem, you complain about the people, the difference between a thinker and a racist, or a moderate and an extremist.

  3. Christie/Jasmin's incoherent gibbering about apparently nothing at all reminds me of a permanent grievance I have had against the Bank of Japan since 1989.

    The Berlin Wall had just fallen and the Soviet Union had dissolved.

    Later in the year there was a panic on Wall Street in which the market fell further both absolutely and proportionately than it had even in the Crash of '29.

    The great question was whether the Tokyo stock market would also panic and crash when it opened the following morning. If it did, there was no question that the European exchanges would all tank at least as badly when they opened the following day.

    It raised the very real possibility that capitalism would collapse. If it did, it would be in the same year that communism had collapsed, on the 200th anniversary of the French Revolution.

    I was beside myself with excitement, hoping for a new era in human affairs, a new beginning for humanity. It could have meant at last an end not only to the Cold War but to both systems to the contest. It could have meant an end to the system of national economies, it could have meant anything. No one knew.

    Sadly it was not to be. In the morning the Bank of Japan intervened in the market buying every security offered at the same price it had closed at the day before, no questions asked. Which prevented the market from sinking.

    The Tokyo stock exchange was saved, which prevented the European exchanges from crashing. The next day Wall Street began to recover. I was crushed. I have hated the Bank of Japan ever since.