On Friday, Standard & Poor's kept its word and downgraded the U.S. credit rating for the first time in history — from AAA to AA+. The action came because the debt bill passed last week is not considered stringent enough to stabilize the debt crisis. Treasury Secretary Tim Geithner (left) has already railed against the credit agency, saying it has shown “terrible judgment” in its decision, but some are using the rating downgrade to call for Geithner’s resignation, a move that Geithner had already been considering. At the behest of President Obama, however, Geithner has decided to stay for now.
Standard and Poor’s was blunt in its assessment of America’s deteriorating financial condition when it announced Friday night that it was cutting its credit rating on United States’ Treasury securities from AAA to the second-tier AA+, with a negative outlook.
Moody’s announcement on Tuesday that it would retain its AAA rating of U.S. government sovereign debt as a result of the debt-limit agreement came with a warning: The government must rein in spending or risk a downgrade anyway. The deal “virtually eliminated the risk of [a] default,” but the agency warned that “Should the new mechanism put in place by the Budget Control Act prove ineffective, this could affect the rating negatively.” Moody’s added that it wanted to see the United States lower its debt-to-GDP ratio, now approaching 100 percent, to around 73 percent by 2015, and then gradually move the ratio lower.
The compromise bill that emerged Sunday night from behind closed doors is being loudly trumpeted in an attempt to persuade recalcitrant conservatives in both houses to vote for something — anything — in time to avoid the August 2 deadline.
Claiming that presidential candidate Ron Paul leads the “economic suicide wing” of the Republican Party, Brent Budowsky, writing for The Hill, says that Paul is the “worst possible role model” for Republicans because he suggested that a default by the government “would be OK.” Budowsky calls Paul a “Banana Republican,” claiming that Paul is taking an extremist position, adding that keeping the debt ceiling in place and putting the government on a diet would “literally crash American and global markets … that would do grave damage to our nation.”
According to no less a source than Forbes magazine, a U.S. default is no longer a question of if. It’s when. In a July 23 article, Forbes’ Addison Wiggin warned readers not to get caught holding U.S. dollars when the United States government defaults — again.
According to President Barack Obama, Franklin D. Roosevelt, long regarded as a free-spending President, was actually “fiscally conservative.” What’s more, said Obama, Roosevelt’s “austerity” hampered the economic recovery being wrought by the New Deal, leading to a downturn in 1937 — a warning to leaders who think now is the time to begin slashing federal spending.
When Standard and Poor’s moved up their timeframe for a downgrade on U.S. sovereign debt from three to five years to just 90 days, Dave Beers, Director of the Sovereign Debt Division explained that the rating of U.S. debt is not on the verge of falling because the debt ceiling debate in Congress hasn't been resolved:
President Obama’s open letter to the American people published yesterday in USA Today challenges them “to do something big and meaningful" and stand behind his efforts to raise the debt ceiling.
This debate [over the debt ceiling] offers the chance to put our economy on stronger footing, and [to] secure a better future for our children. I want to seize that opportunity, and [to] ask Americans of both parties and no party to join me in that effort.
The Constitution and the early organization of the federal executive branch properly limited the scope of government activities to a few areas. Education was left to the states or to individual Americans. The Northwest Ordinances, originally adopted under the Articles of Confederation, did set aside some land for the support of education, but that was minimal and that was all. Energy, which then meant wood, coal, and water power, was entirely in the hands of private citizens and companies. No funds were used to fight a “war on terror” or to spy on other nations or to try to bribe other nations with foreign aid. America participated in no international organizations at all.