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The Rosett Report

The Upside of the Downgrade

August 6th, 2011 - 1:21 am

The good news — and yes, this part really is good news — is that Standard & Poor’s has finally reduced the spending bacchanal of the U.S. government to a sound bite that anyone can understand: S&P has downgraded America’s sovereign credit rating.

There are plenty of nuances, to be sure. Not everyone agrees with S&P. The U.S. Treasury is attacking S&P’s arithmetic, and haggling over the impact of two trillion dollars, here or there, give or take. Analysts are explaining that S&P did not downgrade America’s short-term credit rating. It’s just long-term U.S. credit, which, after 70 years on its AAA pedestal, has now been knocked down to AA+. There’s lots of debate over just how much difference S&P’s rating downgrade will make to the markets, because mighty though S&P may be, its influence is a function of its ability to accurately assess things already going on. In other words, shooting the messenger, as the White House apparently hoped to do, does not change the reality the messenger was trying to convey.

Nor has S&P stumbled upon extraordinary information of which the world was unaware. The problem is not S&P. The problem is U.S. government spending and borrowing so profligate that American debt now tops annual GDP. The deeper problem, driving all this, is that American politics has become a realm in which the response to every difficulty of the human condition is for government to amass more power and dole out more money. The presumption of the U.S. government by now is that Americans cannot be trusted to arrange for their own medical care, pay for their own tuition, save for their old age, or “create or save” their own jobs. Big Brother will do that for them, even if the resulting rise of the dole and erosion of the private sector means 9.1% unemployment, almost 50 million Americans using food stamps, a stalled economy, soaring public debt, and now, a long-term credit rating lower than that of Australia, Hong Kong or France.

All the debate and Tea-Partying to date has made some difference. But it has not yet prevailed to change the profligate and power-hungry dynamic in Washington.There have been plenty of wake-up calls these past few years, but too often they have been smothered by Washington’s vast political fog. Among ordinary Americans, who has time to keep track of  the trillions spent, the endless expanding government programs, or the to-and-fro over deficits variously projected over the next decade?

The virtue of the S&P downgrade is that it serves as a simple bottom line. For a long, long time, the U.S. government earned itself a triple-A credit rating. It’s gone. Downgraded. Maybe, just maybe, that’s exactly the sound bite Americans need to hear, to concentrate voters’ minds on how to get that AAA rating back.

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