By Ernest Corea*
WASHINGTON DC (IDN) – Reports of stocks plummeting and investor confidence diminishing dominated news cycles even as President Barack Obama attempted to reassure fellow-Americans – and the world – that their confidence in the country’s continuing strength would endure.
Speaking directly to the White House press corps and projecting his remarks to broader publics, Obama asserted that “markets will rise and fall, but this is the United States of America, and no matter what some agency may say, we always have been and always will be a triple-A country.”
That was on the afternoon of Monday, August 8, the first full working day after financial watchdog Standard and Poor’s (S&P) decision the previous Friday(August 5) to downgrade its “long term sovereign credit rating on the USA to AA+ from AAA.” S&P followed up its initial action by downgrading the country’s two government-supported lending agencies, Fannie Mae and Freddie Mac.
The decision was immediately assailed. S&P’s competence, knowledge, and good faith were questioned. Its policy makers were called amateurish, stupid, and worse. Their decision was said to be based on false assumptions that invalidated their conclusions.
To begin with, the U.S. was nowhere near defaulting on its debt when S&P reached its decision, and the president had options he could legitimately pursue – including his powers under the 14th amendment to the constitution which deals with the nation’s debt – if other processes failed. Thus, the fundamental rationale for a downgrade did not exist.
The initial draft of their report containing the downgrade decision showed that S&P’s financial experts needed to go to the bottom of the class and learn some basic math: it contained a $2 trillion error. No small bananas, that.
When the error was pointed out, S&P cheerfully deleted the figure but went ahead with its decision based on that error. S&P was also roundly criticized for moving against the U.S. almost immediately after it had taken some important steps towards putting its financial house in order whereas the agency had done nothing to eliminate the dreck pushed by big business houses on unsuspecting investors. Those investments caused the recession to begin with.
Robert Kuttner, co-founder and co-editor of The American Prospect, wrote: “You have to hand it to Standard and Poor’s. Forget their two-trillion dollar math error. The whole idea that these people are evaluating the creditworthiness of the United States is just loony. These are the same people who brought us the crisis, by blessing junk sub-prime loans as AAA securities. And they did so because they were paid as consultants by the same financial scoundrels who created the securities. The last job they deserve is arbiter of the security of Treasury bonds.”
Analysts argued, too, that S&P had mixed political considerations with financial assessments when making their decision. S&P did comment caustically on American politics. It said: “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.”
Obama acknowledged, however, that there was much on the political front to cause concern: “….we didn’t need a rating agency to tell us that the gridlock in Washington over the last several months has not been constructive, to say the least. We knew from the outset that a prolonged debate over the debt ceiling – a debate where the threat of default was used as a bargaining chip – could do enormous damage to our economy and the world’s. That threat, coming after a string of economic disruptions in Europe, Japan and the Middle East, has now roiled the markets and dampened consumer confidence and slowed the pace of recovery.”
Obama said he hoped the downgrade would give US politicians “a renewed sense of urgency” in grappling with the U.S. deficit and debt. He urged both political parties to shed their partisanship and commit themselves to seeking solutions to problems that just had to be resolved.
“It is not a lack of plans or policies that is the problem,” he said. “It is a lack of political will in Washington, an insistence on drawing lines in the sand. That is what we need to change.”
A state of turbulence prevailed in the “market,” however, and when the day’s trading ended the Dow Jones industrial average had dropped over 600 points, which was said to be “its steepest point loss in a single day since December 2008.” Declines were reported elsewhere, as well, with investors showing nervous reactions to what was going on in the U.S. The turmoil rolled over into Asia and Europe.
Meanwhile, gold, which is seen as a safe investment in times of economic uncertainty, jumped to a new record high of $1,697 an ounce. The price of oil dropped, by contrast, with producers concerned that weak growth in consuming countries would result in reduced demand. And, in a “vote of confidence” as it were, many U.S. investors moved to investments in U.S. Treasury bonds.
S&P’s decision to downgrade the U.S. rating was reached after previously noting their concerns that Congress and the White House could not agree on raising the debt-ceiling while also pursuing a practical plan to reduce debt.
The authorisation required for the country to raise its debt ceiling in response to financial reality used to be a routine process, which did not cause past Republican negotiators to develop visceral, aggression-causing stress.
The debt ceiling was raised 18 times during the presidency of Ronald Reagan (an average of once every five months), four times during the Clinton presidency, and seven times during the eight-years of George W. Bush. Obama’s presidency has seen the debt ceiling raised twice before, in 2009 and 2010.
This time, however, the nation’s political leaders went right to the edge of a political abyss before they decided to adopt a bipartisan agreement that could have been crafted right at the beginning of what developed into an ugly, partisan process.
The main provision of the agreement, as described by the White House, authorised the president to increase the debt limit by at least $2.1 trillion, eliminating the need for further increases until 2013; enacted 10-year discretionary spending caps generating nearly $1 trillion in deficit reduction, balanced between defence and non-defence spending; agreed to establish a bipartisan committee (six Democrats, six Republicans) to identify an additional $1.5 trillion in deficit reduction, including from entitlements and tax reform. The committee is required to submit legislation by November 23, 2011, and. Congress is required to vote on the committee’s recommendations by December 23, 2011.
A fact sheet outlining and explaining the details of the agreement may be accessed at http://www.whitehouse.gov/fact-sheet-victory-bipartisan-compromise-economy-american-people?utm_source=080111&utm_medium=blog&utm_campaign=daily.
Meanwhile, the partisanship that marred negotiations over the debt ceiling and dismayed much of the world has metamorphosed into – yes, unfortunately – partisan bickering over the S&P actions.
Republicans have been quick to blame Obama and Secretary of the Treasury Tim Geithner for S&P’s actions, and have done so in the kind of obstructionist terms they continuously direct at “anything Obama.” They have also demanded that Geithner be fired. By way of response, Geithner has announced that he will not desert his position, and Obama has accepted the assurance with what appears to be a sense of relief.
Democrats have accused Republicans of causing the problems, as a consequence of their capitulation to the views as stated or surmised of the Tea Party. It was, in fact, suggested that Republicans had not drunk tea but smoked it. Senator John Kerry, chairman of the Senate Foreign Relations Committee flatly described the situation as a “Tea Party downgrading.”
Kerry added that a bipartisan group of senators were willing to accept “a mix of reductions and reforms in Social Security, Medicare, Medicaid but also recognized that we needed to do some revenue.”
Angry political exchanges, with Republicans being the most vituperative and negative, take place at a time when there is considerable evidence to show that intransigence – which was mainly by the Republicans – during the debt ceiling negotiations has revolted the public. Polls demonstrate that a majority of Americans want job creation to take precedence over efforts to cut spending.
The most recent New York Times/CBS News poll found that a whopping “82 percent of Americans now disapprove of the way Congress is handling its job – the most since The Times first began asking the question in 1977, and even more than after another political stalemate led to a shutdown of the federal government in 1995.
“More than four out of five people surveyed said that the recent debt ceiling debate was more about gaining political advantage than about doing what is best for the country. Nearly three-quarters said that the debate had harmed the image of the United States in the rest of the world.”
Why would Congressional politicians continue to engage in partisan attacks even when they know that this is contrary to public expectations? To seek an answer, let’s consider this: in the earliest stages of the Obama presidency, Senator Mitch McMconnell, the Republicans’ leader in the Senate said that his single most important goal was to ensure that “Obama is a one-term president.” He reconfirmed this view during a recent televised interview. “Every active Republican in the country” shared this goal, he asserted. Is that what all the ugly politicking is about?
When the Republicans have chosen their presidential candidate and political battle is joined it would clearly be the objective of each candidate to do his/her damndest to defeat the other.
But when Mitchell publicly espoused his goal of eliminating Obama’s presidency at the end of his first term, the 2012 presidential was far down the road. At that time, both parties should have made collaboration and cooperation in the interests of good governance on behalf of the people who elected them their “single most important goal.”
That’s how democracy works. Mitchell should know that and no doubt he does. Why then did he in association with “every active Republican in the country” want to derail Obama’s candidacy for a second term long before they knew how his presidency might develop, who his opponent might be and whether s/he is acceptable to them? Is there a hidden agenda here? Just asking. (IDN-InDepthNews/10.08.2011)
Copyright © 2010 IDN-InDepthNews | Analysis That Matters
*The writer has served as Sri Lanka’s ambassador to Canada, Cuba, Mexico, and the USA. He was Chairman of the Commonwealth Select Committee on the media and development, Editor of the Ceylon ‘Daily News’ and the Ceylon ‘Observer’, and was for a time Features Editor and Foreign Affairs columnist of the Singapore ‘Straits Times’. He is Global Editor of IDN-InDepthNews and a member of its editorial board as well as President of the Media Task Force of Global Cooperation Council.
This article appears in the writer’s regular column ‘Consider This’ in July-August 2011 issue of Global Perspectives (www.global-perspectives.info), a monthly magazine for international cooperation, produced by Global Cooperation Council – a non-governmental organisation campaigning for genuine cooperation and fair globalization – in partnership with IDN-InDepthNews.
Ernest Corea’s previous IDN articles:
Farmers and Scientists as Partners against Hunger
Osama’s Gone, Questions For Pakistan Remain
Gaddafi Challenged To Impose Genuine Ceasefire
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