The Justice Department is investigating whether the nationâs largest credit ratings agency, Standard & Poorâs, improperly rated dozens of mortgage securities in the years leading up to the financial crisis, according to two people interviewed by the government and another briefed on such interviews.
The president is sounding like a fighter these days. He even says he'll be proposing a jobs bill in September -- and if Republicans don't go along he'll fight for it through Election Day (or beyond).
That's a start. But read the small print and all he's talked about so far is extending the payroll tax cut and unemployment benefits (good, but small potatoes), ratifying the Colombia and South Korea free trade agreements (not necessarily a job-creating move), and creating an infrastructure bank.
An infrastructure bank might be helpful, depending on its size.
Which is the real question hovering over the entire putative jobs bill -- its size.
Some of the president's political advisors have been pushing for small-bore initiatives that they believe might have a chance of getting through the Republican just-say-no House. They also figure policy miniatures won't give aspiring GOP candidates more ammunition to tar Obama as a big-government liberal.
But the president is sounding as if he's rejected their advice.
That's good policy and good politics.
Good policy because any jobs bill has to be big enough to give the economy the boost it needs to get out of the gravitational pull of the Great Recession.
Right now all the old booster rockets are gone. The original stimulus is over. The Fed's "quantitative easing" is over.
Combine the budget cuts state and local governments continue to make with the slowdown in consumer spending, the reluctance of businesses to expand or hire, and the magnitude of unemployment and under-employment, and you need a big new booster rocket. I'd estimate the shortfall in aggregate demand to be $300 billion to $500 billion this year alone.
A bold jobs plan is also good politics. With more than 25 million Americans looking for full-time jobs, the wages of people with jobs falling, and an economy on the verge of a double dip, the President has to come out fighting on the side of average people.
Besides, Republicans won't go along with any jobs initiative he proposes -- even a tiny one. Better they reject one that could make a real difference than one that's pitifully small and symbolic.
If Republicans reject it, Obama can build his 2012 campaign around that fight. Maybe he'll even call Republicans on their big lie that smaller government leads to more jobs.
What would a bold jobs bill look like? Here are the ten components I'd recommend (apologies to those of you who have read some of these before):
1. Exempt first $20K of income from payroll taxes for two years. Make up shortfall by raising ceiling on income subject to payroll taxes.
2. Recreate the WPA and Civilian Conservation Corps to put long-term unemployed directly to work.
3. Create an infrastructure bank authorized to borrow $300 billion a year to repair and upgrade the nation's roads, bridges, ports, airports, school buildings, and water and sewer systems.
4. Amend bankruptcy laws to allow distressed homeowners to declare bankruptcy on their primary residence, so they can reorganize their mortgage loans.
5. Allow distressed homeowners to sell a portion of their mortgages to the FHA, which would take a proportionate share of any upside gains when the homes are sold.
6. Provide tax incentive to employers who create net new jobs ($2,500 deduction for every net new job created).
7. Make low-interest loans to cash-starved states and cities, so they don't have to lay off teachers, fire fighters, police officers, and reduce other critical public services.
8. Provide partial unemployment benefits to people who have lost part-time jobs.
9. Enlarge and expand the Earned Income Tax Credit - a wage subsidy for low-wage work.
10. Impose a "severance fee" on any large business that lays off an American worker and outsources the job abroad.
Some of these won't cost the federal government money. Others will be costly in the short term but lead to faster growth.
Remember: Faster growth means a more manageable debt in the long term. Which means the President could tie this (or any other jobs bill of similar magnitude) to an even more ambitious long-term debt-reduction plan than he's already proposed.
A bold jobs bill is good politics and good policy. Let's wait to see what the President actually proposes.
Glenn Beck told his audience that Friedrich Hayek's The Road to Serfdom was the "best thing you can read." The book shot up the Amazon bestseller list instantly as Beck's cult-like followers rushed out to buy it.
Beck was unaware that Hayek's friend, and sometimes sparing partner, John Maynard Keynes, also called it a "grand book" and said he found himself "in agreement with virtually the whole of it; and not only in agreement with it, but in deeply moved agreement." The New York Times said this book, by the Nobel Prize winning economist, is one of the staples of the conservative Tea Party movement.
The Tea Party and Glenn Beck would do well to educate themselves as to Hayek's actual view in his essay, "Why I Am Not a Conservative."
Conservatives concentrate on Hayek's opposition to state socialism, but have little understanding of his radical classical liberal ideas and ignore his opposition to conservatism.
Hayek saw himself as a liberal, in the classical sense of the word. And, while Keynes differed greatly from Hayek's views on economics, Keynes saw himself in the same ideological camp as his friend.
Hayek was "not averse to evolution and change" and said that when "spontaneous change has been smothered by government control, it [liberalism] wants a great deal of change." This, he argued, was in conflict with the "conservative attitude" which was a "fear of change, a timid distrust of the new as such." Hayek said his position "is based on courage and confidence, on a preparedness to let change run its course even if we cannot predict where it will lead."
Conservatives focus on Hayek's distrust of centrally imposed, top-down change. Meagan McArdle, for instance, invoked Hayekian theory to claim, "changing the explicitly gendered nature of marriage... might be accidentally cutting away something that turns out to be a crucial underpinning." This confuses Hayek's opposition to imposed change with opposition to all change. Hayek's view was that for a new social order, or social rules, "To become legitimized... [they] have to obtain the approval of society at large -- not by a formal vote, but by gradually spreading acceptance," much the way that same-sex marriage has gained support. This is particularly true when the change recognizes a "conflict between a given rule and the rest of our moral beliefs." Then we "can justify our rejection of an established rule." For example, when denying same-sex couples the right to marry conflicts with our acceptance of equality of rights before the law, we can justify changing the laws on marriage according to Hayek's insights.
Hayek warned that conservatives, however, "are inclined to use the powers of government to prevent change or to limit its rates to whatever appeals to the more timid mind."
Another difference between Hayek and conservatives is he saw order emerging from voluntary interactions of people, while "Order appears to the conservative as the result of the continuous attention to authority." The conservative, he said "feels safe and content only if he is assured that some higher wisdom watches and supervises change, only if he knows that some authority is charged with keeping the change 'orderly.'"
Hayek believed in the rule of law, with government powers strictly limited to general rules of social order. Contrast this with a conservative who "does not object to coercion or arbitrary power so long as it is used for what he regards as the right purposes. He believes that if government is in the hands of decent men, it ought not be too much restricted by rigid rules." Hayek warned that the conservative is "less concerned with the problem of how the powers of government should be limited than with that of who wields them" and said "he regards himself as entitled to force the value he holds on other people."
Hayek saw conservatives as lacking principles but not "moral conviction." He wrote, "The conservative is indeed usually a man of very strong moral convictions," but "has no political principles which enable him to work with people whose moral values differ from his own for a political order in which both can obey their convictions." Hayek's liberal social order allows people of differing convictions the freedom to pursue their own values. The joking response to conservatives, "If you don't like gay marriage, don't get gay married," actually encapsulates Hayek's view of a liberal society, which allows people of different views the freedom to pursue their own values. Those who oppose erotica are free to NOT buy it, those who oppose abortion are free to shun abortions, those who oppose gay marriage don't have to get gay married!
It is here that Hayek's liberalism is most clearly in opposition to both conservatism and socialism. "I sometimes feel that the most conspicuous attribute of liberalism that distinguishes it as much from conservatism as from socialism is the view that moral beliefs concerning matters of conduct which do not directly interfere with the protected sphere of other persons do not justify coercion."
Conservatives invoke supernatural claims to justify intransigent opposition to change, not so with Hayekian liberals.
"The liberal differs from the conservative in his willingness to face [human] ignorance and to admit how little we know, without claiming the authority of supernatural forces of knowledge where his reason fails him. It has to be admitted that in some respects the liberal is fundamentally a skeptic -- but it seems to require a certain degree of diffidence to let others seek their happiness in their own fashion and to adhere consistently to that tolerance which is an essential characteristic of liberalism."
Hayek's wrote, "What distinguishes the liberal from the conservative here is that, however profound his own spiritual beliefs, he will never regard himself as entitled to impose them on others and that for him the spiritual and the temporal are different spheres which ought not to be confused."
Hayek never feared evolutionary change in society, nor believed religious values sufficient reason for using power of the state to prevent change. Hayek, the intransigent opponent of socialism that Beck and conservatives admire, also saw himself equally opposed to their conservative agenda, something conservatives ignore at their peril. More confusing for these so-called admirers of Hayek would be the fact that Hayek opposed their conservative agenda for precisely the same reasons he opposed socialism. But that, I suspect, is a brew too strong for the so-called Tea Party.
Last year we released a video called “Real or Fake” that quizzed citizens on whether crazy-sounding government spending examples were, well, real or fake. The answers, unfortunately, weren’t good news for taxpayers.
Since that video, the federal government has continued to spend at a rapid and clearly unsustainable rate. And as it turns out, the government is still funding some pretty ridiculous projects. So we decided to make a sequel.
Watch Real or Fake, part 2 below. Play along with the participants, the answers may surprise you.
Just about a year ago BankruptingAmerica.org released “Real or Fake” — a fun yet serious video of many questionable government spending projects, and groups of people responding if they believe they are real or fake.
Today we release the sequel “Real or Fake 2”
Real or Fake #2
Host: Can you tell if the government spending projects I’m listing are real or fake?
Host: Our first question: recently a government agency spent half-a-million dollars to determine if being sick impaired people’s ability to walk on a treadmill. Is that real or fake?
Man with Blue Hat: Uhh… fake
Man without Shirt: That definitely sounds like something our government would do
Man with Sunglasses on Head: That is… real
Host: It’s actually fake. They did spend half-a-million dollars but they did it to determine if being sick impaired a shrimp’s ability to walk on a treadmill.
Man without shirt: Wow. As in sea shrimp? As in shrimp-and-scallops shrimp?
Man with Blue Hat: That’s more important
Man with Blue Hat: Yeah. I’m concerned about the welfare of shrimp.
Woman with Canadian Flag: A little weird.
Host: Do you have one of those at home? A little treadmill for shrimp?
Host: Last year, top ranking government officials in California made salaries of over 100 thousand dollars each.
Man with Sunglasses on Head: Real.
Man without Shirt: For sure it’s real. Yeah, I’m going with real.
Man with Green Plaid Shirt: It’s real.
Host: It’s absolutely real. They did make 100 thousand dollars each. However, so did the Newport Beach, California lifeguards.
Woman with Black and White Shirt: What?
Man with IL Shirt: Wow.
Host: They made 100 thousand dollars each.
Woman with Black and White Shirt: Gosh we have to move.
Man with Green Plaid Shirt: That’s a pretty sweet gig. You have to admit
Woman with Purple Shirt: Yeah, yeah that’s amazing.
Host: And can you also believe that many of them are eligible for a pension worth up to 90 percent of their greatest paycheck by age 50?
Woman with Purple Shirt: The lifeguards?
Woman with Purple Shirt: Okay, okay we so need to go apply for that job.
Host: Next question: the US had a debt that’s over 14 trillion dollars. It took about 200 years to rack up the first trillion dollars in debt, but it took only 10 years to add on the last trillion in debt. Is that real or fake?
Man with Blue Hat: True.
Woman with Canadian Flag: I’m gonna say real.
Man with Gray Shirt: Yeah it doesn’t surprise me. That’s real.
Woman with Purple Shirt: I’m gonna say that’s true.
Woman with White Shirt: Real.
Woman with Purple Shirt: Yeah.
Children: Real! Real!
Host: It’s actually fake.
Woman with Canadian Flag: Okay. (laughter)
Host: It took only 10 months to add on the last trillion. Not even a year
Woman with Canadian Flag: Wow.
Man without Shirt: Canada here I come.
Host: What do you think of all that spending?
Man with Blue Hat: Um, I’m not real happy about it.
Man with Green Plaid Shirt: Well I’m glad I don’t have any children.
Man without Shirt: Great, thank God I’m not having kids because we’d leave them a horrible legacy.
Woman with Purple Shirt: Yeah it’s pretty scary, especially when you have children that you know we’re leaving that kind of debt to
Man with Blue Hat: I wish we could do something about it.
Consider the myriad paradoxes of the Obama age. Unprecedented government borrowing is out of control, unsustainable, and finally causing financial markets to panic. Yet we are told that the necessary cutting ahead will further stall the stalled economy. We went from $9 trillion to $14 trillion in aggregate debt in order to jump-start a sluggish recovery, and failed — only to be warned that if we do not proceed to incur even more debt — from $14 trillion to $16 trillion — we will stall the stalled effort to restart the stalled economy. So more of what did not work most surely will work?
The Left insists that the real problem is not unmanageable debt, but near-record unemployment, as if the two were unrelated. Most Americans apparently once agreed, as Obama easily borrowed nearly $5 trillion in his first two and a half years in office, supposedly to stimulate employers into hiring workers. We are now told the U.S. must borrow more, and should worry less, not more, about paying the money back. The logic of the new Keynesians is that stimulus is never quite achieved because indebtedness is never quite large enough — an Achilles-and-the-tortoise paradox that only insolvency will finally dispel.
Keep reading this post . . .
The White House engaged in two puerile gambits last week that exposed the Obama administration’s amateurish and deceitful Middle East policies in a painfully obvious manner.
The first case concerned the thorny issue of Jerusalem’s legal status in American law. In 1947, the United Nations ruled the holy city to be a corpus separatum (Latin for “separated body”) and not part of any state. All these years later and despite many changes, U.S. policy continues to hold this to be Jerusalem’s status. This ignores that the government of Israel declared western Jerusalem to be its capital in 1950 and the whole of Jerusalem in 1980. The executive branch even ignores U.S. laws from 1995 (requiring a move of the U.S. embassy from Tel Aviv to Jerusalem) and 2002 (requiring that U.S. documents recognize Americans born in Jerusalem to be born in Israel). Instead, it insists that the city’s disposition must be decided through diplomacy.
Keep reading this post . . .
WASHINGTON -- Fresh from her victory in the Ames Straw Poll, Rep. Michele Bachmann (R-Minn.) had to defend her positions on government spending and economic policy on Sunday. Appearing on "Fox News Sunday," Bachmann insisted that her prior eagerness to accept funds from President Barack Obama's economic stimulus bill was not in conflict with her vocal criticism of the legislation.
HuffPost's Sam Stein reported last week that Bachmann not only repeatedly sought stimulus funds from federal agencies, but deployed traditional Keynesian economic rationales to justify her requests, claiming that the funds would create jobs and strengthen the economy. Publicly, by contrast, Bachmann has insisted that the stimulus was an act of "overspending" and "fantasy economics" that hurt jobs.
When asked by Fox News' Chris Wallace about this discrepancy, Bachmann claimed there was no conflict.
"I voted against the stimulus and I was very public against the stimulus. After the stimulus was passed and the money was there, why should my constituents or anyone else be disadvantaged?" Bachmann said.
Bachmann sought federal money to create jobs in her district -- but those practical considerations conflict with her economic message that government spending has in fact hurt the economy and destroyed jobs. Bachmann attempted to sidestep that contradiction by arguing that corruption had diverted stimulus funds to inefficient areas.
Chris Wallace and Bachmann previously had a very public falling out when she last appeared on the Sunday program and he asked whether she was "a flake." Bachmann was offended by the question, and Wallace publicly apologized. He opened the interview on Sunday with another apology, which the congresswoman accepted.
Several other high-profile media observers have questioned Bachmann's understanding of economic issues and her ability to present practical solutions. Last week, former Republican Congressman and current MSNBC host Joe Scarborough called Bachmann "a joke" because she had advocated for defaulting on the nation's debt.
Bachmann openly advocated against raising the debt ceiling to allow the U.S. to continue to borrow, a move that policy experts from both parties believed would lead to default.
Wallace invoked the recent debt ceiling drama, and noted that credit rating agency Standard & Poor's cited political considerations -- including the serious consideration of default among some members of Congress -- when downgrading its AAA credit rating on U.S. debt.
Bachmann claimed she had never advocated for default, but had put a plan on the table that would have denied an increase in the debt ceiling and instead required the Treasury Department to prioritize payments to U.S. creditors, Social Security recipients, Medicare beneficiaries and the U.S. military.
When Wallace noted that doing so would have required defunding a majority of government programs, from unemployment benefits to the FBI, Bachmann suggested that she was not bothered by that prospect.
"Doesn't that tell you how bad off the U.S. is -- the fact that we're overspending to that amount?" Bachmann said.
When asked how she would be able to work with Democrats to reassure markets if she were elected president, Bachmann said she would "work tirelessly" to ensure that the Republican Party picked up 13 seats in the Senate, giving Republicans a filibuster-proof majority to enact her agenda.
"That would send a very strong signal to the market," Bachmann said.
The U.S. stock market has nose-dived. Congress just approved the highest debt ceiling in American history, allowing the government to carry over $16 trillion in national debt "“ prompting the credit-rating agency Standard & Poor's to downgrade America's multitrillion-dollar debt for the first time in 70 years.Unemployment is still over 9 percent. Private-sector businesses may have more than $1 trillion in cash, but they will be scared into not hiring or buying as long as they fear a new tax, a new regulation, a new entitlement obligation, a new plant shutdown...
No matter which side of the political fence or economic Continental Divide you sit on, few can deny that this was the week that was. It began with the controversial debt-ceiling deal about which I wrote in my last column. Shortly after the president signed off and the legislation became law -- a remarkably silly law, even in the context of a country with so many silly laws -- Moody's issued a statement that it would not change the AAA rating given to U.S. government debt, although the company's "outlook" was announced as negative. This signaled to the cognoscenti that there was about a one-in-four chance that the rating would be lowered in the short term. Moody's is one of the big three rating agencies that rate debt issued by corporations, governments, and investment banking products such as the now famous (or infamous) mortgage-backed securities which damn near destroyed the world economic order.
But then last Friday evening, Standard & Poor's, arguably the best-known and most important of the rating agencies, lowered its rating on U.S. debt from AAA to AA-plus. This was the first time in history that the U.S. debt rating fell below AAA. It came as a surprise to many -- despite the endless discussion of the possibility of a ratings cut throughout the world media over the months-long course of the debt ceiling tragicomedy. Part of the surprise was the timing of the announcement, made after U.S. markets were closed for the weekend, though historically many businesses announce bad news on Friday evenings in the hope that panics can be averted if people have a few days to digest and reflect upon it. The first market reaction came when Asia opened on Sunday night, and then when Europe opened a few hours later but still several hours before trading began in New York.
Over the weekend, experts around the world explained why the actual lowering of the rating wasn't important, that it was already baked into the market's pricing of equities, and that it wouldn't have the effect of raising interest rates paid by the Treasury, or paid by us to our mortgagor or credit card company. Lots of reasons were given as to why the action by S&P was really a nonevent: after all, Japan's debt had been downgraded some years ago with no discernible effect on their interest rates or their economy as a whole. Everyone knew that the debt ceiling would be lifted anyway, and everyone knows that it always will be; and, of course, countries like France, whose debt-to-GDP ratio is much worse than America's, still have an AAA rating so any downgrading of U.S. paper was merely a blip.
By now, literally everyone in the world with access to a newspaper, television, radio, or computer knows what has happened since then. The Dow took a 640-point nosedive, along with every major stock market around the world. There was what is known on Wall Street as "flight to quality." Gold went over $1750 per ounce, the Swiss franc -- always dull but very stable -- went through the roof against every other major currency in the world -- and guess what? Yields on treasury bills dropped, as a massive number of those flights to quality circled around but landed on the roof of the Fed. I could write endlessly about what happened, why it happened, and what it means politically, economically and globally -- but I'm sure you've already read way too much from way too many people on those subjects without getting any real understanding of the facts or issues.
What's Really Going OnSo let me take you through a very simple analysis, followed by a very simple analogy. Here's how I see it, and how I believe history will see it, stripped of all artifice and needless complication. When S&P lowered the rating on U.S. debt, it was the final nail in the coffin of denial about what's really going on in the United States economy and in the world. In explaining why the cut was made, S&P pointed out, however vaguely or discreetly, that political gridlock in the United States was a factor. It reiterated something it had alluded to in earlier releases, which was that the cuts agreed to in the debt compromise were not sufficient to solve the long-term problem -- a problem that cannot be solved except by severe budget cuts and, dare I say it, significant revenue increases principally in the form of tax rate hikes for the rich, or the elimination of the now infamous Bush tax cuts, which were set to expire by their own terms at the end of last year but were extended to the end of 2012. Thus what S&P really said, much more loudly, persuasively and officially than it had ever been said before was -- ENOUGH ALREADY!
Let's go one more step. What precipitated this crisis -- if there is one -- was the adamant position of conservative Republicans that they wouldn't agree to any increase in the debt ceiling unless budget cuts were substantial and tax increases were off the table. Taking seriously the proposition that the debt ceiling might not be increased, President Obama acquiesced (either in frustration or with a greater purpose in mind) and gave them what they wanted. As Speaker John Boehner put it, "I got 98% of what I wanted." Indeed the president, in my view an intelligent, well-meaning and good man, never looked more hapless than he did in a television speech that he made during the trading day on Monday. He blamed the Republicans and tried to reassure America that we are in better shape than S&P would have us believe. The platitudes didn't work but the disruptive nature of the blame game, international frustration and fear escalated, and the market went straight down during Obama's speech, then to the bottom shortly thereafter. Meanwhile, as the Obama administration was working feverishly to raise our collective spirit, Republican presidential hopefuls were whirling around the political bonfire screaming that we were being cluelessly led to financial slaughter by the first American leader to preside over an AA-plus nation. It didn't work for them, either.
As the week progressed, the market reacted in a classic see-saw of volatility that shaved trillions of dollars of equity value from its April high. Many pundits have opined that these wild trading gyrations and the rush into Treasuries and gold had more to do with fear and uncertainty over bank stability in Europe than the show put on in Washington and S&P's reaction to it.Â I concur. That said, I believe that bad theater and mordant politics mightily contribute to a loss of confidence in government and I agree with John F. Kennedy's assessment that the appearance of reality is oftentimes more important than reality. As much as I agree with so many of the things that have been said about these goings-on, and the terrible costs of the past ten days, I do believe that most people are missing the silver lining, and the true meaning of all this.
The Silver LiningAmerica, before FDR and the Great Depression, was a relatively conservative place, at least fiscally. As a response to the economic disaster he faced, President Roosevelt correctly started building government and building government programs, and the federal budget soared. To condense decades of history into a few sentences, what followed was World War II, which begat huge expenditures, the Marshall Plan, the Cold War, the nuclear arms race, the huge demand for very expensive oil from the Middle East and the rest of the second half of the 20th century. And with only minor exceptions, after the New Deal, the federal government grew geometrically, and the federal budget increased proportionately.
There will be one lasting effect, and only one, of what happened in the last few days. Whatever else the conservative Republicans accomplished, however costly those accomplishments may be economically as well as politically, and however much their timing and tactics should be decried, something very important actually happened. The cycle of spending madness in Washington may well have been finally, and forever I think, broken. It is now PC to take the position that spending in Washington must be drastically curtailed, whether or not one believes that taxes should be increased. If you've ever had a bad fever that broke suddenly, you can understand this: the chills and ague always give way to a sweat, uncomfortable in itself but always, at least in retrospect, better than the illness that caused it.
I believe that Washington will never be the same after this week, and it will be different in a way that after some period of time -- perhaps a very painful period of time -- will be better for America and the rest of the world. (Speaking of painful, you might be interested to know how the U.S. credit rating might impact your credit card interest rates.)
The simple analogy is really quite simple -- after the Depression, America became a very rich and powerful country, and developed some very bad habits in the process. Just like a family: if it spends above its income when its income is strong, it becomes very hard to spend less when its prospects decline. We know intuitively what happens when we overspend, and the same thing happens to a country when it overspends. America's days of salad in the 1920s turned to steak in the '50s and caviar after that. We're hardly poor; we're still the richest country on earth -- but we just can't sustain the growth rate that we would need to afford the spending we do. We have to learn to live within our means.
Like you, I believe that the events of the last few weeks were outrageous and that both parties embarrassed themselves and the nation. We must stop screaming at each other and have an adult conversation which leads to a reasonable, balanced solution that includes both permanent spending cuts and fair and appropriate revenue increases.
Like you, I am uncertain as to where we go from here as a country and as an economy. It's a very uncomfortable feeling. But sooner or later, I will be sleeping better at night, as should you, because whatever the costs of going cold turkey have been or will be, at least our children might finally be born addiction-free.
This article originally appeared on Credit.com.
Last week, we had the privilege to attend the 2011 BlogHer Conference in San Diego. BlogHer brought in over three thousand attendees from all over the country and around the world. And we had a great time! Between enjoying Skinny Girl Margaritas and talking about the need for a healthy economy and slim government spending with countless bloggers, we felt right at home.
The level of interest from these women was incredibly high. Again and again, they told us that they just couldn’t understand why Washington can’t seem to make the same responsible financial choices that they have to make everyday in their own homes. We couldn’t agree more, Washington should be held to same standards of fiscal responsibility as everyday Americans.
When the news of S+P’s downgrade of the United States’ credit rating hit last Friday, people were visibly concerned. They knew their 401k accounts and investments that were suddenly losing value because Washington can’t find common-sense solutions. At the end of the conference, we had met so many amazing leaders in the blogging community and we hope to stay in touch as we continue to break down the latest budgetary and economic news at BankruptingAmerica.org.
Standard & Poor’s recent downgrade of the United States’ credit rating leaves 13 states with higher ratings than the federal government.
As reported by USA Today, S&P has yet to announce plans to downgrade the ratings of states and municipalities, but the effect may be felt anyway on numerous municipal bonds backed by federal repayment.
While S&P is waiting to warn states, The Boston Globe notes that fellow credit ratings agency Moody’s earlier warning has been repeated to five states and 161 cities and towns with AAA ratings. In the case of Massachusetts, even “dozens of affluent communities” could not evade a “negative outlook.”
Even as a shroud of uncertainty wraps around the country, the 19,000-member National League of Cities issued a statement affirming S&P’s decision to leave municipal ratings untouched. The statement argues that although “federal policy responses have been inadequate” the “overwhelming majority” of cities and states balance their budgets and pay off their debt.
Still, following the lead of federal overspending, states and municipalities added $58 billion more in debt this year alone, leaving them with a current combined debt of $2.4 trillion.
Washington must set the tone for responsible spending and eliminate wasteful and inefficient programs that have contributed to this debt crisis. Once a reasonable plan is in place, some semblance of economic certainty can return and the recovery can begin to take hold.