U.S. loses AAA credit rating

U.S. loses AAA credit rating. Standard & Poor’s was severely critical of the American political process in its press release announcing the lowering the US credit rating to AA+. Further, Standard and Poor’s put the U.S. on notice that the long term rating could be lowered to AA within two years if spending reductions are less than the agreed to amount, or new financial pressures result in higher general government debt.

Standard and Poor’s but the blame squarely on the dysfunctional American political system.
Here is part of their announcement:

“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 policy making uncertainty, consistent with our criteria…”

They also said, “The political brinksmanship of recent months highlights what we see as America's governance and policy making 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. 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…”

In other words its time for the Democrats and Republicans to act like adults and not children and produce a workable solution to the American debt problem. Here is the complete Standard and Poor's report.

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The Debt Ceiling Deal

Image via WikipediaThe American political system was put to the test during the recent debt ceiling crisis. This crisis exposed to the entire world the willingness of some American Republicans (Tea Party) to bring the world to the brink of financial disaster by defaulting on government bonds and other government commitments in order to avoid eliminating the Bush tax cuts or any form of increased taxation for the rich which would have provided a balanced approach to deficit-reduction.

The Deal,in summary form , over the next decade increases the debt ceiling by $900 billion along with spending cuts of $917 billion for a net $17 million. $1.5 trillion in further deficit reductions must be approved by Congress before December 23rd. These reductions are to come from a 12-member congressional committee, equally composed of Republicans and Democrats. However, there will be a similar-sized increase in the debt ceiling. If the committee fails to reach agreement or its proposal is rejected, $1.2 trillion in spending cuts will be triggered.

Let’s look at the reality, the likelihood of the committee of 12 Republicans and Democrats coming up with a deal that will be supported by both parties is almost nonexistent. The Republicans will remain adamant against any tax increases and the Democrats will protect their social programs such as Medicare and Medicaid. All that has really happened is a possible two year delay before the debt ceiling war is renewed. The American political system remains as partisan and dysfunctional as before this crisis began
.
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