As every thinking person expected, our government's credit rating got dinged by Standard & Poor's. Moody's and Fitch, each of which has expressed formal pessimism about U.S. debt, now contemplate downgrades of their own.What happens next? No one knows, and anyone who claims to know is guessing. These are uncharted waters, nationally and globally. Any honest analysis admits as much.
S&P, in explaining its rationale for the downgrade, judged the U.S.'s debt-to-GDP ratio to be unsustainable. It was the current political climate, however -- read, ineptitude and ideological inertia -- that caused the agency to pull the trigger.
It would've been reasonable to hope (if not predict), then, that the feuding factions -- Republicans and Democrats in Congress, as well as the Obama administration -- would start acting like Americans for a change. No such luck.
On the weekly talk shows yesterday, partisan finger-pointing ruled, with each side flaming the other. Republicans blamed Pres. Obama. (Natch.) Sen. John Kerry and others test-flew a new Democratic Party talking point, calling S&P's action the "Tea Party downgrade" -- which is idiotic, of course, but unfortunately it'll probably catch on.
Surrogates for the White House busied themselves pitching rocks at S&P, calling it "amateurish" (among other things). That prompted this reaction from Sen. John McCain on Meet the Press:
"On the S&P thing, don’t shoot the messenger. Is there anybody that believes that S&P is wrong in their assessment of the situation -- of the fiscal situation of this country?"That's the truth, as succinct as it can be. And until
Nixon-Ford-Carter-Reagan-Bush-Clinton-Bush-Obama-fits easily on a bumper sticker, it'll have to do.
Congress-Bureaucracy Downgrade
I spent ten years of my professional life in the corporate headquarters of two financial-services companies, the last four in the executive suite of a major player in the investment business, so I know something about the influence of agencies like S&P, Moody's, Fitch and Best.I can say that in the private sector, a downgrade (or even a negative outlook) can suck the life out of a company. I also know that corporate instability -- the comings and goings of fund managers, for example -- can tip a ratings agency toward taking action. Finally, I can't recall a downgraded company that hasn't issued a press release saying that S&P (e.g.) is full of shit, abuses kittens, etc.
That's just the way it works.
After all that, the same question burns: So what's going to happen after this downgrade? The answer remains: We simply don't know. Common sense and convenient parallels, however, combine to offer us a few useful clues.
Interest rates are likely to rise for businesses and, consequently, for consumers. The recession is bound to deepen, and sharply. Depending on how bad things get, how long they stay that way and what cuts are announced in November, I envision civil unrest resembling what we've seen in the U.K. and Greece.
On the bright side, gas prices may come down -- maybe.
It's not the duty of citizens to save the nation's economy, but as much as possible, in my view, this is the time to renew our commitment to supporting domestic and local commerce. We should ignore the flailings of Wall Street and the wailings of its shills -- anyone who spews chestnuts like "historical performance" or exhorts us to "stay in the market" is a self-interested robot, not an expert and certainly not a friend.And, of course, when Election Day rolls 'round, we must send incompetent incumbents packing.
Making wise choices now, deliberately, preparing for deteriorating economic and social conditions -- and I predict that they will deteriorate -- will give us the agility we'll need when the time comes to act in the interest of ourselves, our families and our communities.
