If you have been away for the past twenty-four hours, you missed that for the first time since its founding in 1941, Standards and Poor downgraded our nation’s credit outlook. S&P believes there is a 33% change it will downgrade the nation’s AAA credit rating in the next two years.
For the past year, Democrats have spent freely arguing that their free spending ways did not matter. In fact, Barack Obama’s proposed budget for 2012 increases the national debt to 116% of gross domestic product, even while adding $2 trillion in tax increases.
It is not that budget proposal that became the straw to break the camel’s back.
It was not even his trillion dollar stimulus plan or his multi-trillion dollar stimulus plan than became the straw to break the camel’s back.
In fact, it was Barack Obama’s disastrous speech last week that broke the camel’s back.
As James Pethokoukis noted, Obama’s muddled plan to solve the crisis was “fastened together by the chewing gum and sticky tape of rosy economic assumptions and fiscal opacity.” But more so, it was Barack Obama’s angry words and denunciation of Paul Ryan‘s own plan that drove S&P to its conclusion.
We view President Obama’s and Congressman Ryan’s proposals as the starting point of a process aimed at broader engagement, which could result in substantial and lasting U.S. government fiscal consolidation. That said, we see the path to agreement as challenging because the gap between the parties remains wide. We believe there is a significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections. If so, the first budget proposal that could include related measures would be Budget 2014 (for the fiscal year beginning Oct. 1, 2013), and we believe a delay beyond that time is possible.
Remember, up until the President’s attack, even Democrats on the Deficit Commission were praising Paul Ryan’s willingness to engage the issue “at an adult level.” Everyone expects congressional partisans to take pot shots, but for the President of the United States to have a temper tantrum over it akin to a three year old denied a lollipop? That’s unheard of.
The President’s open hostility to an adult plan while offering no substantive plan of his own was the straw that broke the camel’s back. And because Mr. Obama still cannot deal with the issue as an adult, we will keep heading down this treacherous road.