The three major credit rating agencies — Moody’s, Fitch and Standard & Poor’s — spent the past few years stinking up the financial markets by stamping triple-A all over rotten mortgage-backed securities.
So it’s galling when one of them, S&P, decides to downgrade the sovereign debt of the United States.
But what’s even more galling is that the basic message is valid. Our debt problem is a threat not only to our immediate economic prospects but to our children’s standard of living. S&P said, in effect, that our political system has been unequal to the challenge.
S&P had warned the downgrade was coming. It said that to avoid the move, Washington must reduce federal debt by $4 trillion over the next 10 years. The recent debt ceiling deal fell short, with cuts of up to $2.4 trillion.
It wasn’t the numbers alone that prompted S&P’s move; it was the climate in Washington. Policymaking, the agency said, had become “less stable, less effective and less predictable.”
The blame game is now in full swing, and there’s plenty enough for all.
The Republicans, buttressed by many new members from the tea party, refused to consider any new revenue — even if it resulted from closing loopholes rather than raising rates.
Democrats, with their core of liberals, refused to consider reforms to Social Security, Medicare and Medicaid.
If you eliminate new revenue while walling off nearly half the budget, the prospects for serious debt cutting are limited.
President Obama deserves a share of the blame, as well. He gave lip service to entitlement reform but never offered specific details. Indeed, his plan for deficit reduction wasn’t clearly defined.
But the larger error occurred earlier in the year, as has been previously noted in this space. Toward the end of 2010, a bipartisan presidential commission published a report offering a path toward real change. It proposed a reform of Social Security and called for new revenue within the context of tax reform: lower rates in exchange for loophole elimination.
The report was endorsed by key members of both parties, but Obama put it aside and the opportunity was lost.
Perhaps that opportunity can be regained. In the coming weeks, a bipartisan supercommittee made up of members from the House and Senate must devise a plan for more debt reduction. The panel will have a broad mandate. A failure to come to an agreement would trigger massive cuts neither party wants.
The deficit commission report of last year should be the starting point for deliberations. The commission’s work exceeded expectations. It’s time for Congress and the president to do the same.