I've been watching the congressional debates over the debt with a certain amount of bemusement (disbelief, actually), wondering just what they were doing. I understand that the Democrats have their agenda, the Republicans have theirs, and the Tea Party is running around, tipping cows because they can.
Don't get me wrong, I agree that something has to be done about the mess in Washington, the bottomless purse. When I came to Japan in 1990, the budget deficit was at around $150 billion, dropping to $290 billion in '92. But by 2000 it was a $236 billion surplus. Not enough to erase the national debt, but a fair chunk of change.
Then came 9-11, sweeping tax cuts in 2002, and 2 horrendously expensive wars. By 2004, the deficit was back to $490 billion, yoyoed a little, and by the time Obama took office, our yearly deficit was once again running at $407 billion.* Then came the Fanni Mae meltdown and the banking/mortgage crisis.
With me so far?
Now the Senate decides to play idiot and accomplish nothing over weeks of debate. Defend your position and try to get as good a deal as possible, I understand. That's what you're paid for. But not even attempt to deal, to negotiate a least detestable option for both sides, basically to not do their damn jobs? And to ignore all the advice from economists, even warnings from S&P itself?
"Gee, why did big, bad S&P downgrade our credit rating?" Besides the obvious factor of the debt being roughly 6 times this years revenues (think the banks would give me a loan, if I owed six times what I can make, and with no hope of paying it off?), S&P stated in their report that the political climate was a major factor in their decision:
"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.
Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria. Nevertheless, we view the U.S. federal government's other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.
"The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently."
And now, the Senate announces that it will be holding hearings over S&P's downgrade of the US's credit rating?
Big brass clankers, indeed.
* all numbers from the FactChecker website, with forays on Wikipedia for budget info