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Opinion: S&P Downgrade Overdue Punishment for Political Idiocy

Sunday, August 07, 2011 - 10:03 PM

On CNN this weekend, Fareed Zakaria wove together a monologue on the budget deficits, debt and credit rating that cut to the heart of the issue. People are complaining up and down about the S&P downgrading our federal credit rating, which is likely to cost us hundreds of billions in increased debt payments and will damage our economy to an extent that can't be known until later.

But many of them have been saying the exact same things that the S&P gave as their reasoning behind the credit downgrade. People don't want to accept the reality of the situation that we're in.

The fact of the matter is, the S&P's analysis is absolutely sound. Zakaria explains by saying that our leaders in Washington have demonstrated that our political system is broken and the ideological zealots refuse to budge on issues that are required to be worked on if we want to start shrinking our deficits, much less eventually start paying down actual debt. Taxes are too low, and we need to slow the growth of entitlement spending.

Without both of those things happening, among other issues like cutting military spending, our deficits will continue to get worse. And since the right is hell-bent on stopping any tax increases, and the left is hell-bent on stopping any cuts to entitlement programs, there is no indication whatsoever that our leaders in Washington are likely to come up with a deal that would actually address long term debt.

Zakaria outlines this, and related issues here:


 

Economists, fiscally focused advocacy groups, think tanks and pundits have been saying this for years, yet now people want to attack the messenger for recognizing the obvious. The economic pain that economists have been saying would eventually come, if we kept following a fiscally irresponsible path, are now here.

They have been allowed to become so severe, that they can no longer entirely be kicked down the line, as the politicians have been doing for decades. The Magical Thinking that the politicians have been feeding the American people, that we can get more from the government than we collectively give in taxes, is now being exposed for the fraud that it is.

If nothing major changes, we can expect the other credit rating agencies to eventually see the writing on the wall, push past the political pressure to not do so, and downgrade the federal credit rating as well. Why wouldn't they?

Why would you not ask for more interest from a debtor that can't even balance budgets when the economy is in good shape? If nothing major changes, and that happens, all of the minor cuts they've agreed to so far will be wiped out by the increase in the interest payments on the growing debt.

The two major parties have been pitting their ideological magical thinking against compound interest for years. I don't know what can be said to people who buy those lines, over what Einstein said was the most powerful force in the universe.

Politicians may lie, but the numbers don't. Without the sort of actions the Gang of Six was pushing, which the Fiscal Commission originally was for and the President came on board with later in the game, this is the future we're looking at.

Solomon Kleinsmith is a nonprofit worker, serial social entrepreneur and strident centrist independent blogger from Omaha, Nebraska. His website, Rise of the Center, is the fastest growing blog targeting centrist independents and moderates.

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Comments [4]

Solomon Kleinsmith from Omaha, NE

"Taxing the rich will not solve the debt problem, but another $800 billion or so a year coming in will help avoid future downgrades, as well as promote fairness."

You're in la la land if you think taxes could be raised high enough to get even halfway to $800 billion in new taxes a year. Most of the rich have almost all of their net worth sitting in investments. You can only tax it when it moves and becomes liquid.

Only about six percent of the households in the country make more than $150k a year. That's just under 7 million people. They're already taxed very high, and you want to try and get $115k from each of them?

Or perhaps you'd like to stick to those making over $200k... thats about 3.3 million households, who you think we should try and take $242K from a year.

Or perhaps just those making over $250k, a whopping 1.7 million people. That takes $464k a year.

This isn't even voodoo math, this is hollow earth stuff.

Aug. 09 2011 02:58 PM
sajea from Manhattan

Is anyone going to speak to the issue of "why" the nation and the world is paying any attention to S and P's determinations. They blew it with the 2008 crisis and Lehman Brothers. What is wrong with American media these days. It seems to roll right over that point and continues to raise alarms.

Aug. 08 2011 10:20 AM


"... which is likely to cost us hundreds of billions in increased debt payments ..."

"... Why would you not ask for more interest from a debtor that can't even balance budgets ..."

Sir;

Your assertions can be tracked quite nicely, thank you, through the price of US securities.

Watch and see if you are correct.

Aug. 08 2011 10:14 AM
rem mills from Westfield, N.J.


The rich mainly caused the S&P downgrade. They used their Tea Bagger stooges in Congress to make sure the wealthy will not have to pay their fair share of taxes. Taxing the rich will not solve the debt problem, but another $800 billion or so a year coming in will help avoid future downgrades, as well as promote fairness.

Now the government and Fox Spews, the Republican sound and silliness machine, tell us this downgrade only has technical implications. This assurance reminds me of the joke about the captain of the Titanic after they hit the iceberg announcing to the passengers, "Don't worry, folks, we just stopped to pick up a little ice."

Now loyal Americans will have to pay more for their mortgages, car and student loans, and credit cards. Business will find it more difficult and expensive to get credit to hire new workers. We are heading into a double dip recession or perhaps a depression that will make the 30's look like a play party.

Because of the arrogance and selfishness of the rich, we have lost the full faith and credit of the United States. The rich are mainly involved with multi-national corporations. They are not loyal to our country. They want to third worldify us

r

Aug. 08 2011 12:26 AM

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