Ed Driscoll

Was it over when Ben Bernanke Bombed Pearl Harbor?

“Wall Street shares slump as S&P downgrades US debt outlook,” the Grauniad reports, adding, “Ratings agency cuts long-term outlook from stable to negative for first time since Pearl Harbor attack 70 years ago:”

Shares fell heavily on Wall Street on Monday after a leading ratings agency fanned fears of Europe’s debt crisis spreading across the Atlantic by issuing a strong warning about America’s failure to tackle its budget deficit.

In a move seen by Wall Street as a “shot across the bows” of bickering politicians in Washington, Standard and Poor’s (S&P) said it was cutting the outlook on the US’s long-term rating from stable to negative for the first time since the attack on Pearl Harbor 70 years ago.

In other news warmed over from the FDR era, “Gov’t handouts exceed taxes as percentage of average household income for first time since 1936,” Ed Morrissey writes:

We should note a couple of points from these trend lines.  First, the amount of government support to households has steadily increased over the past 70 years.  Up to 1965, that level was around 6%.  Within a decade, it doubled to 12% and then increased on a much gentler slope through the 1980s, 1990s, and through the Bush years.  Clinton-era welfare reform actually reduced it, but only slightly, and only temporarily — and it started trending slightly upward through the Bush 43 administration.  Remember that when people paint the Bush era as some sort of heartless turn from safety-net spending.

On the other hand, look at the tax receipts.  We often hear that taxes are at some sort of historic low, but that’s absurd on its face.  Prior to the crash, taxes took up 20% of household income, about the same level as during the previous 25 years, with the exception of a bubble during the Clinton years.  That level is almost twice what taxes took out of household income during World War II, for instance, and even with the tumble over the last three years, it’s still well above what the government took prior to Medicare’s passage during LBJ’s Great Society.

The clear problem in this chart isn’t that the red line has moved downward into historically low territory; it’s that the blue line has kept moving up into historically high territory.  The long-term solution isn’t to raise taxes, but to wean the American public off of its historic dependence on welfare and social spending.

Note the chart that accompanies Ed’s post:

After all of this spending, Michael Walsh dubs Standard & Poor’s warning “a bracing dose of reality therapy” in the latest edition of the New York Post:

The outlook on the country maintaining its long-term AAA credit rating is now officially “negative”: “We believe there is a material risk that US policymakers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013,” reported S&P. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

Translation: Unless Congress and the White House stop the fiscal shenanigans and get serious about cutting both the deficit (the year-to-year shortfall, now over $1 trillion) and the national debt (above $14 trillion and soaring), the “full faith and credit” of the United States is in danger of becoming an international joke.

So much fiscal doom and gloom might lead you to ask, “Was There Ever a Default on U.S. Treasury Debt?” And in a post that also flashes back to the FDR-era, the American Enterprise Institute is glad that you did:

As the bailouts in the current bust inexorably mount, financed in rapidly increasing U.S. government debt, one might wonder whether a default on Treasury debt is imaginable. In the course of history, did the U.S. ever default on its debt?Well, yes: The United States quite clearly and overtly defaulted on its debt as an expediency in 1933, the first year of Franklin Roosevelt’s presidency. This was an intentional repudiation of its obligations, supported by a resolution of Congress and later upheld by the Supreme Court.

Could it happen again? Never say never:

If you had asked me at a New Year’s Eve party in 2006 what I thought the odds were of the U.S. government taking a controlling interest in the largest bank, the largest car company, and the largest insurance company in America, I would probably have laughed at you. Yet within 36 months, this is exactly what had happened.

My friends who are more liberal than I probably should not make the analogous mistake of imagining that benefit reductions that seem absurd politically right now might come to seem less absurd, and surprisingly quickly.

If you think about it, any real solution to the federal deficit problem is currently politically impossible; yet we know mathematically that, barring a productivity miracle, the situation cannot persist indefinitely. Therefore, we know that some change that currently seems politically impossible is all-but-certain to happen sooner or later. I have no idea what change will become politically feasible in the future, but then again, I don’t think anybody else does either, because it is not written in the stars — it will depend on some combination of events and political leadership.

In the meantime, you know what all this means, right? Time for Paul Krugman to call once again for cranking up fiscal spending to recreate what he dubbed last year, “the miracle of the 1940s” — or as it’s also known, a little number we like to call World War II.