OBAMA USES S&P DOWNGRADE TO PUSH BUDGET

HE HASN’T yet, but President Obama could use Standard & Poor’s (S&P) recent negative revision of its US debt outlook to force action on Capitol Hill.
On 18 April 2011, S&P gave its vote of no confidence on the US budget debate, changing its opinion of America’s ability to pay off its debts in the future.  Its “AAA” credit rating has gone from “stable” to “negative”, implying that it could drop if Congress doesn’t agree a fiscal plan soon.
In essence, S&P said “giddy-up, lawmakers”.  They threw the US for a loop on Monday; Wall Street grabbed the railing and held on while stocks took a dive.
But what’s shocking in America is old news in Europe, where countries like Greece and Portugal have long since traded in their “AAA” status for the junk pile; 20 April 2011’s Marketplace Morning Report says our neighbors across the pond are unfazed. The threat of downgraded credit ratings is practically child’s play next to the looming problem of debt-crippled countries unable to borrow.
Marketplace Morning Report’s Stephen Beard goes on to say the United Kingdom was itself threatened with a credit rating downgrade in May of 2009. The people of Britain became concerned about losing their “AAA” rating, so they voted in a conservative government that used their mandate to push what Beard calls “a pretty severe deficit reduction plan”.
President Obama could choose to use this same spectre to force Congress to play nice. Now that Obama has announced his reelection bid, I imagine the Democrats will echo his support for a modified version of the Simpson-Bowles deficit commission findings.  All that’s left are the Republicans.
I have heard informal criticism of the GOP’s recent conduct on the Hill: people in Washington, DC are still grumbling about the government shutdown we avoided recently, believing politicians fought over small change. While every penny the elephants save builds political capital for the 2012 presidential election, they have to strike deals. When you only control one-sixth of the government, you have to strike deals.
So the Republicans will have to reconcile Paul Ryan’s budget with the President’s; after all, I doubt they’ll want to look responsible for an S&P credit rating downgrade. They’ll have to include some Democratic tax hikes alongside their Republican spending cuts.
But are cuts the answer? The UK’s conservative government started cutting two years ago; since then, the economy has shrunk and consumer spending has dropped off the face of the Earth. We could try a Chinese-style influx of public cash, as long as it didn’t boost inflation too much. So which do we choose? A strong Chinese economy plagued by inflation or a weak British one with a “AAA” rating?
Tell me what you think below. If things really head south for the Queen, she can always paper the problem over with some outstanding lines of credit.
Live well, live well within your means, and remember – that’s how the Solvency Shark seas it!
YOUR COMMENTS ARE MORE PRECIOUS TO ME THAN A BALANCED BUDGET. PLEASE LEAVE THEM BELOW.
Stewart Pelto

Stewart Pelto

Stewart Pelto is a recent graduate from the University of North Carolina at Chapel Hill. He is now the proud recipient of a Master’s degree in French Literature – a degree that honed the same researching and writing skills he uses to write informative articles today. While pursuing this degree, he taught French courses to undergraduate students for two years. What he enjoyed most about the position was the challenge of making difficult concepts readily understandable and accessible to all.

He served as a Senator for the Graduate and Professional Student Federation, fighting to keep tuition costs down for graduate students struggling with their finances and student loans. He also developed his budgeting skills during his time as a Treasurer for the Graduate Romance Association. He enjoyed becoming more active in his local community and working to make a positive effect on his surroundings.

While an undergraduate himself, he spent a year abroad in Europe earning his degree in Spanish and French. While studying in both Sevilla, Spain, and Montpellier, France, he was exposed to the everyday reality of living under different economic and financial systems. Among other interesting travels he has made is a financial pilgrimage to the Spanish stock market in Madrid.

Stewart Pelto brings his rigorous academic education and his international experience to the problem of raising credit awareness and promoting financial responsibility. He hopes that his articles will teach his readers about debt and credit in an easily accessible and readily understandable way.
Stewart Pelto