Just over one year ago, Standard & Poor’s (S&P) downgraded the United States’ credit rating after the debt ceiling debacle. This happened for two reasons: first and foremost, because the nation simply has too much debt. Second, S&P saw no reason to believe Congress would put aside partisan politics long enough to actually reduce our oncoming debt levels to those S&P believe are necessary for us to do so.
Now our credit rating has taken another, if more minor hit: in response to the Federal Reserve’s intent to push $40 billion per month into the economy, the ratings agency Egan-Jones has given the U.S. a second downgrade in less than six months. According to CNBC:
In its downgrade, the firm said that issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.’s real gross domestic product, but reduces the value of the dollar.
In turn, this increases the cost of commodities, which will pressure the profitability of businesses and increase the costs of consumers thereby reducing consumer purchasing power, the firm said.
Of course, ever since 2008, the question has arisen when it comes to the ratings agencies – how trustworthy are they? After all, they completely failed to do proper diligence when it came to the collapse of the financial industry. To me, this downgrade is significant for two reasons:
1) CNBC reports that “Moody’s Investors Service [MCO 43.82 0.07 (+0.16%) ] currently rates the United States Aaa, Fitch rates the country AAA, and Standard & Poor’s rates the country AA-plus. All three of those ratings have a negative outlook.” Whether or not one thinks these agencies are correct in their ratings, they do have a practical implication for interest rates in the U.S. and investor confidence. With less investor confidence and higher interest rates as the ratings agencies continue to ding the U.S., our debt problems will only get worse.
2) In 2006, 2007, and 2008 very few people in Washington or New York, or around the rest of the country, saw the recession happening the way it did. Many saw it coming – my own father predicted we would have the worst recession since the Great Depression as early as 2005, for example – but the ratings agencies were hardly the only organizations or people to fail in their tasks and duties. When it comes to our debt, however, we have politicians, academics, ratings agencies, Tea Party activists, center-left Democrats, libertarians, and conservative Republicans, among many others, worried about the debt. In short, even if one distrusts the ratings agencies after their utter failures in 2008, their concerns about America’s debt are not happening in a vacuum.
Unfortunately, many politicians are going to use this ratings downgrades to clamor for higher taxes. Others will simply ignore it – a Friday release of such information often gets little attention in the media, so politicians may not see a need to react to it.
This is the time for Tea Party activists to make their stand. Next week, the Senate is likely to vote on the House-passed CR funding the President’s health care law, and we have the so-called “fiscal cliff” and a debt ceiling debate coming in the next four months, all in addition to the elections in November. These are four great opportunities for activists to take a stand and show that rather than take more from hard-working citizens so Washington can continue to spend us into oblivion, we want cuts to spending that will make defense more efficient. We want to make Social Security and Medicare solvent and bring many federal agencies and bureaucracies where they belong – either on the dust heap of history or run by the states. We want the hundreds of billions of inefficiencies in the federal government diminished and, hopefully, eventually eliminated.
Activists know the nation has little time left to right the fiscal ship, and this newest downgrade highlights that. Let’s use it to our advantage to show Congress the Tea Party is still out here and holding them accountable.