I am writing this post on Sunday and I must say that I am quite anxious about Monday and how Wall Street will act in response to this downgrade. We will get an inkling of the response once the Asian and European markets open on what is Sunday night in the US, but I suspect it won’t be pretty. I do suspect some of the response is already built-in given last week’s market malaise. My bigger concern is the institutions which hold US debt as reserves that may be forced to unload it do to their charters’ requirement of holding AAA debt.
There has been much discussion about this debt crisis and how to solve it. In overly simplified terms, the Republicans feel we have a spending problem and the Democrats believe we have a revenue problem, which brought us to this downgrade. S&P disagrees to some extent. “Difficulties in bridging the gulf between political parties” was cited as a major reason for the downgrade. S&P doesn’t appear to care whether we tax or cut spending to get us out of this pickle, only that we cut the deficit by a larger margin and faster. Bottom line: S&P has simply lost faith in our government’s willingness to compromise and work together.
It is easy to blame the Tea-tards for this debacle but I don’t think that is fair. I hate them with a passion but think the fact we are talking about cutting spending versus simply rubber-stamping the raising the debt ceiling is a good thing. Without them, I’m not sure that conversation would be happening, unless it was about only reducing our defense expenditures. Hate them for many things like the racism of some of their members, poor spelling, and extremism, but we should at least acknowledge the kernel of good here. Even a broken clock is right twice a day.
I hope this downgrade is a wake-up call to Washington. This downgrade isn’t as much about our debt but confidence in the political environment we are now experiencing. It is time to stop blaming and accusing others of holding the country hostage and work together on a debt deal that makes sense — and more importantly WORKS.
