In their sensationally titled report released last Tuesday, "Update on the Outlook for Government Debt Rating," credit ratings agency Moody’s expressed a negative outlook on U.S. debt. The announcement laid out the possible path to a downgrading of U.S. debt from Aaa to Aa1. Moody’s assessment outlines that it’s unlikely Congress will do their job to craft "specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term." To snowclone James Carville’s famous phrase, when it comes to our credit rating, “Its not our economy – its our politics, stupid." American financial markets showed no initial reaction to the news and all major indexes ended the week up 2% from where they started. I’m no markets expert, but it’s reasonable to assume that investors were not surprised by the notion that our upcoming congressional session might prove to be as incompetent at budget negotiations as the last. A recent Gallup poll of registered voters placed Congress’s approval rating at 10%, a 38-year low. I’m guessing those 10% have a family member in Congress.
This fall’s lame duck Congressional session will need to pass a $1.2 trillion deficit reduction bill or across-the-board cuts will be triggered automatically. This “fiscal cliff” has its roots in last year’s kick-the-can initiative, the Budget Control Act of 2011. This act signaled the conclusion to a fabricated "debt ceiling" crisis. You might remember it as two and half months of congressional deliberation over whether to authorize the U.S. Treasury to pay for spending that had previously been authorized by Congress. The turmoil and less than satisfactory outcome led to Standard & Poor’s downgrading of U.S. Government bonds, the most volatile trading week since the 2008 financial crisis, and a 5.8% drop to the Dow Jones Industrial index.
Since then, the U.S. economy has improved and looks better fortified for our secondannual false debt crisis, but our political strength looks equally as stunted. The stock market has reached or surpassed levels prior to the 2008 financial crash and we’ve seen 30 consecutive months of private sector job growth. Our political situation, on the other hand, has not improved. The Republican strategy for this November’s election has shown the same disregard for honesty, arithmetic, and problem solving that defined their congressional strategy for the past 4 years. As an example, Mitt Romney’s campaign responded more vigorously to Moody’s announcement than Wall Street with a press release condemning President Obama’s failure to “exercise leadership during the last debt crisis”. You know, the one that Republicans in Congress created and were intent on sustaining as long as possible. This strategy has been defined as "obstruct and exploit." Romney’s article continues by blaming Obama for a deficit increase of $5.4 trillion. This assertion is blatantly false. Federal spending under Obama has risen 0.4% annually, the slowest since Dwight Eisenhower in the 1950s. In addition, the projected 8-year deficit impact from Obama’s policies has been estimated as $1.44 trillion compared to George W. Bush’s $5.07 trillion for his two terms.
For the average person, the sharp-tongued political discourse can be extremely draining and the tendency is to tune out both sides. The reality is that our stalemate is predominately driven by the radicalization of the Republican Party – only accentuated by the rise of the Tea Party. As stated in a review of a recent book by two authors from left and right-leaning think tanks, "the Republicans have become ideologically extreme, scornful of compromise, and ardently opposed to the established social and economic policy regime." Another book by a long-time GOP staffer brings this radicalization to light with the tag line, "How Republicans Went Crazy, Democrats Became Useless, and the Middle Class Got Shafted." Unfortunately, the mainstream journalists responsible for reporting the facts to our divided populace are hiding this reality by creating false balance – relaying both sides of an argument even when there are only facts to support one.
Current GOP campaigning seems focused solely on making policy promises to the richest 1% to secure their monetary support and then spending it to maintain the voting support of a fearful and waning Caucasian majority. If this out-of-power strategy fails in November, I predict a GOP recalculation that will hopefully bring more emphasis on solutions and less on obstruction. With that in mind, and statisticians reporting a 75% chance of an Obama victory, I suppose my mood is slightly more optimistic than Moody’s.