AA+ Credit with a AAA+ Addiction

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.” [S&P Ratings Report 8/5/2011]

Standard and Poor’s may have just done the United States a huge favor.

By downgrading our credit, we are forced to face the grossly irresponsible actions taken by this administration. S&P is obviously not going to continue *enabling* our addiction to debt and out of control spending, and in fact has threatened to lower our credit rating even further:

“We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.” [S&P Ratings Report 8/5/2011]

Sadly, it is often true of any addict that we must stand by and watch him or her crash before any effective intervention can take place. In our case, the *crash* has begun. It is now riskier to lend money to the United States, and what we do manage to borrow will come at a much higher price.

This is more than fair. Obama and Congress have been on a spending binge the likes of which have never been seen before, and just as with a drug addict, we cannot reason with the current administration about the evils of spending beyond our means. The only way to make the point is through pain and/or loss.

And correcting our problem will be painful.

There are ways to mitigate the suffering, although I’m not at all convinced any of our political power-brokers have the cajones to implement necessary austerity.

We could, for instance, impose a 5-10% across-the-board cut in spending. A REAL cut, not some accountant’s fancy work that just makes it look like we are cutting spending.

Along with these cuts, we could also lower taxes across-the-board, or declare a tax moratorium, to give citizens more money to spend and provide an incentive for employers to hire more workers.

The point is that there are ways to handle our debt, and sooner or later we will. The question is, will it be voluntary where there is some control, or will it be involuntary and completely out of our control? It is up to our politicians to decide…and they’d better do it soon.