Missed in the Downgrade Hubbub - No Entitlement Reform

For all the blame of the tea party has taken for the recent debt downgrade, the real culprit was lost in the news. The S&P report is remarkable mostly for stating the obvious. That the President would issue excuses and denials is more evidence, as if we needed it, of his lack of leadership.

The money paragraph from the S&P report:

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

Parsing this, there are four problems, all obvious.

1. The two political parties are far apart in their philosophical differences on how to deal with the the federal government's liabilities. I wrote that the voters will have to decide in 2012. Maybe they won't. This is a reasonable cause for downgrade, because uncertainty exists. Tea partyers, we need to keep the pressure on and push the election of those who will get serious about debt reduction.

2. Only modest savings were agreed to. Sounds like a tea party position to me. And we get the blame? Of course only modest savings were agreed to, because big savings require political consensus that is still lacking, see paragraph 1.

3. New revenues are needed. Before you expel me from the tea party for agreeing, let me state the manner in which I agree. New revenue does not mean new taxes, even if that's what S&P meant. Reform of the personal and corporate tax code to close loopholes, special favors and incentives, while reducing rates in a manner that would be scored as revenue neutral would in fact increase revenue. This is because in a dynamic economy, rather than the static one envisioned by the CBO, the misapplication of resources caused by the tax code will cease. This will in turn increase economic output. Further, corporations will spend less on tax compliance, releasing those resources for investment and hiring. What about the armies of unemployed tax lawyers you might ask. Really? Did you ever meet an unemployed lawyer? And if you did, how is that a bad thing? Further, rolling back Obamacare and other anti-jobs recent regulation will also increase revenue. All with lower tax rates.

4. And the big money issue: only minor changes in entitlements. Structural changes to social security, medicare and medicaid are necessary for fiscal solvency as they form about half of all federal expenditures. Somehow they are off limits, according to Democrats. In a future article, I intend to propose ways to "save" these programs by reducing their costs all while wrapping the pitch in lefty rhetoric.

This is all obvious; we don't need a panel of analysts with PhD's in economics to realize that the debt issued by the United States is less solid than it once was. The most likely outcome is that the government will give current investors a "haircut" through inflation/devaluation of the currency. If you don't think that's likely, you didn't live through the 70s. The only real question in my mind is how low should the rating go. If we are evaluating the risk to our capital by buying long term treasuries, and inflation could easily erode that capital, maybe AA+ is too high a rating.

Debt Downgrade - Blaming the Tea Party - San Diego Responds

All of the usual suspects have decided to blame the Tea Party for the recent S&P downgrade of U.S. government debt to AA+. This should be in the category of dog bites man news, of course, but it somehow makes the papers. First of all, the downgrade is long overdue. Second, unless spending is curbed, the debt will grow; tax revenues will not increase until the economy is growing, and there are upper limits on how much tax revenue the federal government can squeeze out of the economy. Hint, it's less than the current rate of spending. Even though I supported Boehner on this deal, as the best we could get under the circumstances, the deal itself stinks because Democrats blocked any serious spending cuts.

Many of your local tea party bloggers have reaction to the stupidity of lefty talking points about "the Tea Party" downgrade.

Temple of Mut sets the stage:

No one here in San Diego, across the country, or elsewhere in the world, who has been closely following the news, is surprised that S&P downgraded this nation’s credit rating from AAA to AA+. The simple, bitter truth is that the United States of America spends money it doesn’t have. And S&P formally stated what the taxpayers of this nation have been saying loudly these past three years — you can’t spend us back to solvency.
. . .
Republican and Democrat establishment politicians, and their elite media supporters, own the downgrade. They fought Tea Party representatives at every turn, while using derogatory terms such as “terrorists” and “hobbits”. They were the ones who forced a deal which was insufficient, essentially kicking the can of fiscal responsibility down the road and off the cliff.

The same article also quotes local SCTRC leader Sarah Bond.

It’s time for real spending cuts. Time for “shared responsibility” to mean something more than tax hikes for everyone. Time for redundant regulation to be slashed so that the businesses of this once great nation can roar back to life. It’s time for the rule of law to mean something. And time for government to STOP bailing out every bank, home owner, and union dominated industry that fails.

W.C. Varones reminds us Geithner's reassurances last April.

Tonight, Timmy the Tax Cheat Geithner joins Bernanke in the Idiots or Liars Club. As recently as April, Timmy said there was "no risk" the U.S. would lose its AAA credit rating. How's that working out for you now, Timmy?

Beers with Demo takes on the new leftist meme that the downgrade is somehow the Tea Party's fault. Responding to algore's call for an "American Spring" Dean had this to say:

After reading this, it struck us: What it is algore desires is a call to arms to.... protect the status quo. Imagine that: a revolution to keep things just as they are!

Record debt and deficits? Apparently, they're all for it. Unsustainable entitlement programs? More, please. Increased government power? Right on, man. Power to the people? Hell, no.

It shouldn't surprise anybody then that it would be Al Gore at the intellectual spear tip of the most counter-intuitive democratic uprising in history. No change!

And the award for snarkiest comment goes to K.T. Cat of The Scratching Post:

Personally, I blame the terrorist lunatic Taliban extremist Tea Partiers for blocking our path into Europaradise.

K.T. also predicts more inflationary policies from the Fed (and I agree in the short term):

In Quantitative Easing (QE) I, the Fed printed hundreds of billions of meaningless dollars and used them to buy government debt. In QE II, the Fed printed hundreds of billions more and bought still more government debt. Now that S&P has downgraded the US for the first time in history*, expect QE III.

Les Carpenter at Left Coast Rebel nails the real reason for the downgrade.

It is clear that Standard and Poors recognizes the most desirable path to fiscal sanity, and thus stability rests in further spending cuts. There is a reason for this.

This nation has been living beyond its means for a long while, going back to the seventies. Deficit spending has somehow crept into the American economic lexicon as an acceptable way of doing the government's business.

Finally, and somewhat gloomily, Richard Rider reminds us that the federal debt isn't even the total debt we owe through various levels of government.

But according to an April 2011 USA TODAY article, the TOTAL per U.S. household debt owed to governments is now $531,472 – the household’s piece of the estimated $61.7 trillion U.S. federal, state and local government debt/liability obligation. At 5% interest, the household bill is $26,573.60. EVERY year. . .

And yet still I persist in my optimism, because Americans are capable of meeting great challenges.

The following video, taken in February 2010 is a reminder that the energy with which the tea party movement was launched has had a salutary effect on the politics of the nation. For those of us involved and those who support our goal of small and limited government, it's a healthy reminder of how far we have come.