Business

Who’s All Railing Against the S&P Downgrade? You Might Be Surprised

Paul Krugman and Steve Moore Rail Against S&P Downgrade

The Wall Street Journal's Stephen Moore

With the downgrading of America’s credit rating from AAA to AA+, and with the subsequent dives and gains witnessed in the stock market, Americans are worried about the United State’s financial future.

Rightfully so.

These are indeed tumultuous economic times and the palpable ideological divide in politics does very little to assuage widespread concerns. However, not all is lost; there are some enduring, positive aspects and hard truths that should provide a little consolation.

For one thing, economists from both the Keynesian and supply-side school of economics have uniformly denounced S&P for downgrading America’s credit rating.

Dean Baker, co-director of the Center for Economic and Policy Research, criticized S&P for lowering the country’s credit rating after the United States actually raised the borrowing limit, pointing out that its decision was based partly on calculations that were later revealed to contain a $2 trillion error.

That is quite an error.

“This suggests that S&P had made the decision to downgrade independent of the evidence,” Baker said in a recent report.

Alan Clayton-Matthews, economics professor at Northeastern University, reiterated Baker’s disbelief saying, “It doesn’t make sense to me.”

“The debt ceiling was raised and both sides, even as they were playing chicken, said the country would not default,” Clayton-Matthews said in a recent story carried by The Boston Herald.

Furthermore, both Democratic and Republican politicians have heavily criticized S&P for having “acted stupidly.” Predictably enough, they have also seized upon the chance to pin blame on one another.

When asked about the downgrade, Harry Reid took the opportunity to say

Paul Krugman and Steve Moore Rail Against S&P Downgrade

Senate Majority Leader Harry Reid

that it “shows why leaders should appoint members who will approach the committee’s work with an open mind – instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding.”

On the right side of the aisle, Michelle Bachman blamed the Obama administration saying, “The United States has had a AAA credit rating since 1917. That rating has endured the great depression, World War II, Korea, Vietnam and the terrorist attacks on 9/11… President Obama is destroying the foundations of the U.S. economy one beam at a time. I call on the

Paul Krugman and Steve Moore Rail Against S&P Downgrade

Congresswoman Michelle Bachman

President to seek the immediate resignation of Treasury Secretary Timothy Geithner and to submit a plan with a list of cuts to balance the budget this year, turn our economy around and put Americans back to work.”

But what is truly unique is that both Paul Krugman, an ardent leftist economist, and Stephen Moore, a staunch free market advocate, agree that the credit rating agencies and their downgrade are bunk.

“This was an absurd downgrade,” said Stephen Moore, a member of the Wall Street Journal editorial board.

“The United States, for all of our fiscal problems, is still the safest place to invest for investors around the world and the idea that the United States government would ever default on its debt is an absurdity,” said Moore in a radio interview with WMAL 630 in Virginia.

Paul Krugman agrees with Moore’s opinion of S&P and other credit rating agencies.

“America is indeed no longer the stable, reliable country it once was. [But] S.& P. itself has even lower credibility; it’s the last place anyone should turn for judgments about our nation’s prospects,” Krugman wrote in an op-ed for The New York Times.

Moore agrees and said, “You know, this was political grandstanding by S&P and the credit rating agencies which, by the way, have about the least amount of credibility of any institution in America.”

“These people should be out of business. The credit rating agencies aren’t the ones who determine the interest rates. That’s done by the global investor community,” Moore clarified.

However, both Krugman and Moore differ on their assessment of where the blame and solution lie. As expected, Krugman claims that the downgrade is the fault of the Tea Party, saying, “Because we have a powerful political movement in this country that screamed ‘death panels’ in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.”

He ends his article by claiming that, “The real question facing America, even

Paul Krugman and Steve Moore Rail Against S&P Downgrade

Economist Paul Krugman

in purely fiscal terms, isn’t whether we’ll trim a trillion here or a trillion there from deficits. It is whether the extremists now blocking any kind of responsible policy can be defeated and marginalized.”

Moore adamantly disagrees with his conclusion.

“The Tea Party? They are the patriots around the country who have been warning us for three years that this was going to happen!” he said in his radio interview.

Moore also advocates heavy cuts in the federal budget and an overall easing of taxation as a solution to the problem.

Although it is frustrating to hear one political party accuse the other of having caused the downgrade, it is nevertheless refreshing to see both sides united against the questionable judgement of the credit rating agencies.

It is worth noting that these agencies are the same ones who gave high marks to lousy subprime mortgages before, during, and after the housing market collapsed. They have already demonstrated poor judgment and unethical behavior in the past. It is a wonder they were able to influence the debt ceiling talks at all.

Furthermore, we should also ignore the woe-is-me, hand-wringing mentality as witnessed in The Economist:

“While the crash of a high-speed train highlighted many of China’s ongoing weaknesses, it also revealed, in the vigorous reporting and commentary that followed in print and online, a nascent apparatus of accountability. Conversely, America’s ostensible success in avoiding default in fact highlighted the growing dysfunction of its political institutions.  If these events are portents of things to come, then the day when China displaces America as the world’s economic superpower is closer than I thought.”

We should look instead to assurances from men who, though differing in economic ideology, have been around long enough to know that America can weather the abuse.

“The truth is that as far as the straight economics goes, America’s long-run fiscal problems shouldn’t be all that hard to fix,” said Krugman.

Stephen Moore agrees. “We do have a big debt problem, there’s no question about that. But think about this past week: when you had all these tumultuous events in Europe and all the events in the middle east, where do people still go to when they want [financial] safety? They still come to the United States and they say so by treasury bills,” he said.

The United States had enjoyed a AAA rating (for what it is worth) since 1917, in part for having always stood behind its debt and paid its bills on time. As a result, U.S. Treasury bonds were considered the world’s safe-haven investment. The happy truth: the still are.

S&P can say and do what they want, but the United States continues to be the most stable financial investment in the world. America is at a crossroads and she must choose carefully. If she decides to slash costs and lower taxes, she may very well be back on her feet in no time.

If, however, certain parties get their way, and the welfare state is grown and increased, well, one need only look to England and the euro zone to see how well that works.

Paul Krugman and Steve Moore Rail Against S&P Downgrade

"Rioting and looting is strictly the privilege of the new leisured class, meaning the wards of the state." - Rush Limbaugh

What matters is not so much the “symbolic black-eye” of having a credit downgrading. What is important is how America responds to this crisis and how she decides to go forward.

The French political theorist Alexis de Tocqueville coined the term “American exceptionalism.” Now is the time for America to prove just how exceptional she really is.

Comments (34)

  • Secessionista
    Posted on August 12, 2011 at 8:39am

    How is it that America’s creditors are always repaid since 1913, and yet our debt has never gone down? Don’t bother, I already understand it. We keep rolling one credit card to the next.

    Report Post » Secessionista  
  • Jim in Houston
    Posted on August 11, 2011 at 10:56am

    Would someone with two working brain cells please explain why we should have had a triple A rating to begin with? We have 50+ Trillion dollars in unfunded liabilities, 14 + Trillion dollars in debt and we are adding another 4+ Trillion dollars to it. If a family had this kind of debt (on a proportional basis) they would be denied any credit – PERIOD. Something is badly wrong with this picture.

    Report Post »  
  • Wilkins
    Posted on August 11, 2011 at 1:03am

    This downgrade is absurd. Should’ve happened 30 months ago.

    Report Post »  
    • Marcobob69
      Posted on August 11, 2011 at 7:40am

      Maybe instead of everybody in government slamming S&P for the downgrade, they should start working diligently to CREATE, and BALANCE a budget, and get our economic house in order, so that we never have to worry about a downgrade AGAIN! We should look at it as a WAKE UP CALL, not an INSULT! Congress, get your heads out of your butts and start doing something POSITIVE FOR THE AMERICAN PEOPLE! We need you to do your jobs, you can vacation when the job is done!

      Report Post »  
    • I support God's Israel!
      Posted on August 11, 2011 at 10:37am

      Fixing the financial crisis of the U.S. government is a totally achievable task. First, let’s start with the fixes necessary to get the U.S. government back to fiscal sanity. Here is a brief and do-able list from leaders across the nation:
      1. Move to a two-year budget process instead of the current annual budget.
      2. Freeze ALL federal spending increases across the board immediately.
      3. Roll back all federal spending to 2009 levels.
      4. Freeze all non-military federal hiring immediately.
      5. Stop all implementation on the Federal Health Care takeover immediately.
      6. Pass a balanced budget Constitutional Amendment with an effective date of 2014 to give the feds and state

      governments time to make adjustments.
      7. Roll all educational spending back to the states and local communities and eliminate the federal role in funding education. (The people who don’t like their schools can fix them at the state and local level.)
      8. Pass an energy bill that takes the shackles off of U.S. energy resources including coal, nuclear, oil refineries and in particular shale oil and gas reserves.

      This list could go on but the point is clear. America can get her house in order but only IF we take one critical step first: We must keep working to send better people to Washington, D.C.
      History proves over and again that great victories are always the result of small groups of real people who refuse to surrender the truth. The Bible tells us that when God called Abraham “he w

      Report Post » I support God's Israel!  
  • Saff SGT
    Posted on August 10, 2011 at 8:22pm

    Nothing will matter when 80% of the people get mad enough you will see a sudden down grade of eveything you ever knew…………………………………………….

    Report Post »  
  • John 1776
    Posted on August 10, 2011 at 4:42pm

    Government revenue is about 3.5t, debt is 14.5t. This would be like someone who makes $35,000 a year having a $145,000 credit card bill with no collateral to back it up, and now is asking to borrow more.

    Would that person have a good credit rating?

    Report Post » John 1776  
    • Jacque
      Posted on August 10, 2011 at 6:48pm

      Exactly. If it doesn’t work in our bank account it will never work in theirs. I hate to say it but I bet the Dictator and that thing he is married to had a celebration party relating to the downgrade. His dream of destroying America is on it’s way.
      LET’S STOP HIM-VOTE 2012!

      Report Post »  
  • vennoye
    Posted on August 10, 2011 at 2:41pm

    Whatever the credit rating is, it doesn’t change reality. We owe more than we can pay back. Both government and central banks have been seeing to that since before I was born. While the debt debate was going on, with the argument over raising taxes, Obama raised taxes (costs) on the American people by $9.5 billion in new regulations:

    http://lonelyconservative.com/2011/08/obama-admin-adds-608-regulations-in-one-month-costing-9-5-billion/

    Bob Beckel is sooooo good at touting that the tax rate is lower than it was during Clinton years…..BUT each and every new regulation on business that costs them money is a new tax on us…the cost is passed right through to us. The government and the Fed has devalued the dollar so much that it buys so much less, we are just getting more and more squeezed, and having to go into more individual debt.

    When you look at Agenda 21′s doing away with private property, they have done pretty good there too.
    http://hosted.ap.org/dynamic/stories/U/US_GOVERNMENT_HOME_RENTALS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2011-08-10-13-18-31

    I’d say the credit rating downgrade is NOT our biggest problem.

    Report Post » vennoye  
    • freedomofspeech
      Posted on August 10, 2011 at 5:03pm

      agree. Personally, I am getting rid of my debt,for I have been downgraded and it don’t feel good. I believe the saving of our great and prosperous country will come from her ppl. We have clowns running this amazing place in ALL branches. I am in awe of the American citizen how we can come together through all that has seeped into our nation. I will not take her for granted anymore, and I have. The TRUTH will set us free.

      Report Post »  
  • Jaycen
    Posted on August 10, 2011 at 1:36pm

    We deserved the Obama down grade. When we’re talking about spending AN ADDITIONAL $10 Trillion dollars on top of what we already spend today, who cares about $2 Trillion?

    That’s less than 1/4 of the additional money the Administration wants to dump on the fire!

    Good lord, anyone who blames the agency is a damned fool.

    Report Post » Jaycen  
  • Servant Of YHVH
    Posted on August 10, 2011 at 1:27pm

    ” “shows why leaders should appoint members who will approach the committee’s work with an open mind – instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding.” (from reid)”
    This shows the deliberate attempt to lie to himself as well as everyone else, but he knows that most people aren’t stupid enough to believe it. It was downgraded strictly because raising the debt ceiling does nothing more but cause more debt and the people at S & P are smart enough to know that. This country does not deserve that high of a rating until we get these spendthrift idiots out of congress and the WH and put people in their that has some control over their spending urges. Right now the government is like a little child that has been promised over and over that they can have anything that they want and then you tell them to go out and spend for everything that he could possibly want. As he’s out there spending, he sees more and more stuff that he wants to buy so he starts spending money on that too with no constraint. We don’t do that with our children so why would we do that the these children in congress and the WH?

    Report Post » Servant Of YHVH  
  • Servant Of YHVH
    Posted on August 10, 2011 at 1:21pm

    @encinon
    Did I just reat the stupidest statement I’ve read and it was from you? So you think that obama did good getting our rating dropped. This goes to show the level of stupidity that liberal wackos have. That level goes WAY off the charts to the point that it is so stupid that it is almost funny. I am praying for you and the rest of your gang to start using your brain and using common sense. Just remember that when you do start using common sense, it is difficult to keep focused on it but you can do it.

    Report Post » Servant Of YHVH  
    • Encinon
      Posted on August 10, 2011 at 3:05pm

      I did use my brain for that. I have always argued that we should be more in line with the rest of the world. GOP policy had us with a triple a plus credit ratin which gave us unfair advantages. Like the brilliant strategist he is, Obama managed skillfully to get ours lowered and more in line with others. Yet another disaster of bush that he had to fix

      Report Post »  
    • cosette
      Posted on August 10, 2011 at 3:48pm

      @ Enci-O.K. I once asked you” How old are you? 14? I may have given you too much credit. That post sounds as though it were written by an 8 year old on the short bus! I suggest you get off this site and go back to your Nintendo games. Have a fruit roll up, you’ll feel better!

      Report Post »  
    • Perspective
      Posted on August 12, 2011 at 1:13pm

      So we see that Ecinon, like Obama, wants to see our country brought to its knees and no better than any other country. You should really move somewhere else if you hate our country so much. Sad and pathetic.

      Report Post » Perspective  
  • spotster
    Posted on August 10, 2011 at 1:21pm

    you are the sickest pos i have ever read
    cant wait to start cleansing you libs out of this once great country…….*****

    Report Post »  
  • ravinginfidel
    Posted on August 10, 2011 at 1:06pm

    S&P is wrong only if the financial course is changed, that is, if Federal spending stops outstripping income. Income is represented by taxes. Too much in taxes and GNP suffers and federal income suffers. The solution is to encourage business and liberty. Reduce regulation and taxes. However both current democrat and republican leaders don’t have the political will to change their financial gluttony and go on a necessary diet. Look at the idiots Harry Reid picked for the committee. Government will wield its heavy weapon “STEALTH TAXES” in the form of the printing press. No vote in congress is necessary. Just your 401ks and current wealth is devalued through inflation. The debt the govt. owes is of lesser value and the taxpayer is pushed into higher brackets if his salary is adjusted upwards.

    Report Post »  
  • AzSage
    Posted on August 10, 2011 at 12:55pm

    What these knucklehead politicians fail to realize is that S&P is an INDEPENDENT rating agancy. They (Rinos and Demos alike) can whine and complain all they want, but the downgrade is justified. They don’t like it because they know its a direct result of their failed policies and their failure to manage the LIMITED financial resources of OUR country.

    Fire them all in 2012, and elect people with moral fortitude, sound fiscal principles, and at least a basic understanding of the US constitution, and the rating will be raised back to AAA.

    Report Post » AzSage  
    • turkey13
      Posted on August 10, 2011 at 1:36pm

      Man you have got it wrong! The president controls the market and all the rateing agencies. He has Congress having hearings over the downgrade. When the president and Congress gets thru with Standard & Poor this agency will cease to exist. I think Moodies will change us to AAAA after this a## chewing.

      Report Post »  
  • Bill Rowland
    Posted on August 10, 2011 at 12:26pm

    Hapless Harry Reid says that the committee of 12 should not be hard liners with preconcieved ideas that will refuse to comprimise and then he appoints Kerry and Bacus two liberal hardliners who say the TEA Party ideas of reducing spending is a none starter – What a joke

    Report Post »  
    • Navyveteran
      Posted on August 10, 2011 at 12:55pm

      If Congress was smart and that is a big if they would say that the committee is unconstitutional and discriminatory. Because this discriminates against anyone that voted against the bill that created this committee.

      Report Post »  
  • spysea
    Posted on August 10, 2011 at 11:49am

    America you got what you voted for….. next time think before you pick a community organizer to run your country… FAIL

    Report Post » spysea  
    • encinom
      Posted on August 10, 2011 at 12:51pm

      America, think before you vote for little girls more interested with tea partys than governing.

      Report Post »  
  • spysea
    Posted on August 10, 2011 at 11:48am

    America , you got what you voted for …… plain and simple

    Report Post » spysea  
    • Dinkiecb
      Posted on August 11, 2011 at 8:37am

      agreed .. the voters in this country keep reelecting these idiots that put us here…when the riots start, and they are livin in the streets i don‘t think they’ll wake up even then…

      Report Post »  
  • Wrender
    Posted on August 10, 2011 at 11:29am

    Let us not forget the Austrian Economists who have been stating for a long time that credit ratings are junk. We should have been downgraded a long time ago. Let alone Fannie and Freddie who haven’t had a leg to stand on for years yet still maintained a AAA rating until this past week.

    We need some fiscal sanity and accurate news for once. Thankfully we have Ron Paul and the Austrian School of Economics to help us truly understand what is happening. Look to the Mises institute for deeper insight into our financial crisis.

    May we push through our future struggles together and come out stronger.

    Report Post »  
    • encinom
      Posted on August 10, 2011 at 12:54pm

      The Austrian school is supported by conservative politics, not economic facts. The Austrian School, only left the John Birch Fringe, when Reagan need to justify his Voodoo Economics.

      The fact that the market and demand for T-Bills is stronger than ever shows how much bunk the downgrade was.

      Report Post »  
    • Wrender
      Posted on August 10, 2011 at 1:22pm

      Encinom, your view of the Austrian School appears to be grossly misguided. Austrians are in fact firmly set against government intervention in the market place and base their theories solely upon human action. Mainstream economists on the other hand are far more politically driven as they constantly seek to find balance through political and government stimulus in the ‘free market’. Furthermore, the John Birch Society has little to do with the Austrian School of Economics. The Austrians took prominence in the 19th century, long before John Birch was even born.

      Innumerable sources substantiate this and simply require some further reading on your part. I guarantee you will be surprised at what you are missing by offhandedly discrediting this school of thought.

      Report Post »  
    • trmkc
      Posted on August 10, 2011 at 10:33pm

      Dodd and Frank are the problem with Fannie. They have never been made to answer for their involvement with it. Obama was one of the biggest benefactors of that fiasco.

      Report Post »  
  • dovesong
    Posted on August 10, 2011 at 11:06am

    Seems to me that a government full of corruption and tyranny going “belly” up is a good thing. We’re Americans and as long as we have each other, we’ll be just fine. The rest of those little dictators like Reid and Pelosi can go broke as far as I’m concerned. And John Kerry? That goes for you and that that CFR minion Dick Cheney too!

    Report Post »  
  • American Soldier (Separated)
    Posted on August 10, 2011 at 11:03am

    Wait wait wait… so they think raising the debt ceiling (again) is not a good enough reason to lower our rating? In fact, that should reduce our rating more significantly! Because with a raised debt ceiling and no real cuts in spending, it means sometime in the near future, we’ll have another debt ceiling issue. Just because we didn‘t go into default doesn’t mean we fixed the underlining issue with our deficit. The downgrade is justified.

    Report Post » American Soldier (Separated)  
  • Roberto G. Vasquez
    Posted on August 10, 2011 at 11:00am

    Obama promised “change” and now we have it. A change from capitalism that made the USA great, to Marxism that always results in class warfare and unuversal poverty. Let’s face it, Marxists want America’s capitalist system to collapse. That has always been a key Marxist strategy, and still is.

    Report Post »  
    • Navyveteran
      Posted on August 10, 2011 at 12:57pm

      To be fair now it wasn[t just Obama, this change from capatilism to socialism to communism was started when the first regulation on business was enacted. It is just Obama is hammering the final coffin nail into the capalistic economy that we used to have.

      Report Post »  

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