U.S. Debt Outlook: Gridlock Turns S&P Negative
By JOHN M. BERRY,
Posted: April 19, 2011
Republicans reacting to the announcement by Standard & Poor’s that it might downgrade the U.S. government’s triple-A bond rating got it backwards: the rating agency’s concern isn’t primarily about deficits and debt but the political gridlock that may prevent doing anything about them.
“More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures," said S&P credit analyst Nikola G. Swann in the firm’s announcement.
“Serious reforms are needed to ensure America’s fiscal health, and today S&P sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit,” was how Republican Rep. Eric Cantor of Virginia, the House majority leader, chose to spin the announcement.
Standard & Poor’s and the other bond rating agencies, Moody’s Investors Service and Fitch Ratings, would like nothing better than to see a quick, clean increase in the debt limit well before a potential default sometime in June. That would go a long way toward demonstrating that gridlock can be avoided and a viable long-term budget solution can be crafted.
But that’s not what Republicans have in mind. Most of them are quite willing to play brinksmanship while they pursue not a budget deal but a broader social agenda, such as eliminating all funding for Planned Parenthood because its clinics perform abortions and preventing the Environmental Protection Agency from adopting rules to curb greenhouse gas emissions.
Above all, they say, any budget deal must not include tax increases but rather tax cuts even for the most wealthy.
In a recent op-ed article in The Wall Street Journal, freshman Sen. Marco Rubio, R-Fla., wrote, “I will vote to defeat an increase in the debt limit unless it is the last one we ever authorize and is accompanied by a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid.”
Quite a list to be accomplished in a month and a half after Congress returns from a two-week vacation. It can’t be done, so Rubio, if he wishes, will be free to vote against a debt limit increase. That’s what passes for responsible political behavior these days.
Standard & Poor’s is right to be worried about gridlock.
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