#110 - Credit Rating Downgrade - Why You Can't Blame the Republicans/Tea Party

Prayer Alert - Please continue to remember the families and comrade-in-arms of the nearly 3 dozen of our brave fighting men who perished in Afghanistan this past Saturday, and whose bodies are being returned to the US today. Pray that knowing Him will comfort them and that this tragedy will especially draw those who have yet to come into a relationship withh Him.

Left Rushs to Blame the GOP for S&P Downgrade
Posted by Erick Erickson http://www.redstate.com/erick/2011/08/05/left-rushs-to-blame-the-gop-for-sp-downgrade/ Friday, August 5th

The S&P has downgraded American credit from AAA to AA+, the first time in history. The left is scrambling to blame the GOP for this and is fixated on one paragraph

The issue here, however, is that while present law presumed the GOP tax cuts would go away, the policy presumption is that they would get extended. Likewise, this is not blaming the GOP. This is a statement of reality that the GOP wasn’t going to "Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade." raise taxes.Consequently, because the GOP refused to raise taxes, the alternative needed to be more cuts.

And S&P clearly believes that the cuts the debt deal made were not enough. And who opposed big cuts? Why yes, a guy named Barack Obama and the Democrats.

"We view the act’s measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future. Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow."

The Democrats can spin this as blaming the GOP all they want since they clearly got outplayed and still saw a downgrade, but the S&P downgrade has nothing to do with any specific policy. In fact, S&P says "Standard & Poor’s takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.’s finances on a sustainable footing."

The whole focus is on the debt burden. And if taxes are not going to go up, as is reality, spending must go down.The left, spinning otherwise, is simply trying to escape blame.

Only the Tea Party Had a $4 Trillion Plan
Posted by Erick Erickson http://www.redstate.com/erick/2011/08/05/only-the-tea-party-had-a-4-trillion-plan/ Friday, August 5th

Here was the question to S&P exec John Chambers, and his reply:
Q: “There’s been a figure of $4 trillion dollars circulating as an example of the scope of fiscal consolidation measures that could work to stabilize the U.S. debt-gdp ratios. Could you explain how that figure was arrived at since it was mentioned in S&P’s reports and where it figures in S&P analysis?”
A: “First of all, that figure comes initially from the Bowles-Simpson fiscal commission, and it was embraced by President Obama in his April 13 speech and Paul Ryan in his counter-budget proposal. And so you had policy makers converging around the amount. Now actually the $4 trillion, depending on whether it is front-loaded or back-loaded, is not going to do the trick in terms of stabilizing U.S. government debt-to GDP ratios. But it takes you pretty far along. And I think a grand bargain of that nature would signal, you know, the seriousness of policy makers to address the fiscal issues of the United States, to actually stabilize the debt-to-GDP. The IMF says it takes 7.5% of GDP consolidation. I think we have more than that.”The U.S. annual budget deficit is now around 9% of GDP.

Chambers adds: "But $4 trillion would be a good down payment. We thought that..if policy makers could deliver the goods on that, then that would be a strong sign on our political scores and eventually on our projections on the fiscal side.” S&P has already said it may slash the Triple-A rating if a debt ceiling deal is not accompanied by what it deems is a credible plan to cut the $14.3 trillion federal [debt] by $4 trillion. The plan has “to have bipartisan support,” Chambers said. “If you have a plan that is only backed by one side or the other, even if you got it through, you would be faced with the prospect of it being unwound.”

So, S&P’s Chambers is saying the ratings agency wants to see at least a $4 trillion deal, one that would come with bipartisan support, too, because the ratings agency fears without that support, Congress will upend any debt-cutting plan. There was only ever one plan that did what S&P said was required — $4 trillion in cuts with bipartisan support. That’d be Cut, Cap, and Balance — a plan that cut $4 trillion and got bipartisan support in the House of Representatives.

As Democrats tonight, and some Republicans, lash out and blame the Tea Party for causing the United States to lose its credit rating, it is worth pointing out that only the Tea Party offered up a plan to avoid what happened.This is precisely why the GOP should have held the line.[emphais here mine]