Wall Street Is Underestimating How Dangerous Republicans Are For The World’s Economy
This post originally appeared at NationalMemo.com.
When Standard & Poor’s downgraded America’s credit rating from AAA to AA+ after 2011’s debt limit crisis, President Obama was apoplectic.
“Our problems are eminently solvable, and we know what we have to do to solve them. With respect to debt, our problem is not confidence in our credit,” he said. “The markets continue to reaffirm our credit as among the world’s safest. Our challenge is the need to tackle our deficits over the long term.”
Since then, America has made incredible progress in tackling its short-term deficit but the issues that caused the initial downgrade have only gotten worse. The problem has never been America’s finances, but rather the emergence of radical politicians willing to gamble with America’s full faith and credit, as S&P noted in a statement this week that reaffirmed their 2011 ruling.
“The current impasse over the continuing resolution and the debt ceiling creates an atmosphere of uncertainty that could affect confidence, investment, and hiring in the U.S.,” the S&P research team explained.
“This sort of political brinksmanship is the dominant reason the rating is no longer ‘AAA,’” they added. But the agency also noted that it wasn’t considering another downgrade.
Within hours of S&P’s new guidance, Tea Party congressman Rep. Steve King (R-IA) said that he didn’t believe it was even possible for the United States to default on its debt. He called such talk “false demagoguery,” which was his major at Glenn Beck University.
Former Obama speechwriter Jon Favreau wrote in The Daily Beast about the speech he was preparing for the president to give in the case of an actual default in 2011. He described the scenario America faced at the time like this:
Without enough cash on hand, the government would be forced to delay indefinitely Social Security checks, the ones our grandparents depend on to put food in their mouths and a roof over their heads. Veterans who served this country would stop receiving the benefits they earned, and the men and women in uniform risking their lives for us wouldn’t get paychecks.
Every company in America that does business with the federal government, of which there are hundreds of thousands, would not see their contracts paid on schedule, an effect that would ripple down to their employees and their families. With each passing day, making our debt payments to businesses and governments around the world would become more and more difficult. When the world stopped seeing the United States as a safe and reliable place to invest, the cost of borrowing money would skyrocket for every single American—whether it’s a home mortgage or a personal credit card. And those high borrowing costs, coupled with billions in delayed income for seniors, soldiers, small-business owners, and their employees, almost surely would send our economy and the world’s into a crisis even deeper and more dramatic than the Great Recession of 2009.
Republicans have argued that the debt limit has always been negotiable and that President Obama himself voted against raising it as a senator. But that ignores actual history, including the fact that Republican leaders voted to raise the debt limit more than a dozen times as George W. Bush turned a record surplus into a record deficit.
“Raising the debt limit always been unpopular, and tough to explain to voters,” Slate’s Dave Weigel recently wrote. “A few times, Democrats balked at raising it for a few days to make a point, then caved in. Many more times, they’ve just voted for the damn thing. John Boehner’s Republicans have only ever agreed to raise the debt limit if they won major policy concessions from the president. Both parties don’t do it. One party does it.”
Rep. Paul Ryan (R-WI) said last week that the House GOP plans to use the debt limit again to demand concessions.
“I think it will fold into the debt ceiling fight. I think that’s inevitable, and preferable in my opinion,” he said. “I like combining all of our leverage, which is sequester and the debt limit.”
The only way raising the debt limit is a concession is if Republicans want to crash the economy. The only way it’s leverage is if they are willing to crash the economy.
Even before Senator Ted Cruz (R-TX) was leading the Suicide Caucus in Congress, Republicans were willing to threaten default. Given the weakness of Speaker John Boehner (R-OH) and the willingness of a unified Tea Party faction to prevent anything that hints at compromise from coming to the floor for a vote, this may be a threat they’re now willing to back up.
Standard & Poor’s inflated ratings of subprime mortgages were a major cause of the financial crisis. Today it seems they’re underestimating just how irrational the Tea Party faction that’s leading the Republican Party is. America’s right has gerrymandered itself a congressional majority and a media that tells them they’re always winning, no matter what the polls say.
America is on the verge of another financial crisis and the fact that the financial world doesn’t see it coming makes it all the more dangerous.