Friday, after markets had closed in the United States, the credit rating of the Nation – that hallmark of sterling quality – was downgraded for the first time since credit reporting agencies started rating sovereign debt.
After months of wrangling with hardline Tea Party members of the House and Senate, Congress finally in the 11th hour, sent a bill to President Obama raising the debt ceiling with a plan to cut expenditures by over 2 Trillion dollars. Just days after, in a week of extreme volatility in the public markets around the world, Standard & Poor downgraded the nation’s credit rating from its historic AAA rating.
This will mean that every credit card holder, student, homeowner or business borrower will be immediately affected by increased costs of borrowing. Credit markets, already tight, will become even tighter, making it more and more difficult for new enterprises to start and existing ones to expand. That translates into reduced job opportunities and potentially, more corporate belt tightening and consequential job losses.
In a period when it is critical to increase employment and build the national economy, this will come as a major blow to the future and its impact will be felt for at least a generation, maybe two. It will be felt in every corner of the nation; in big cities and small villages; and by every socio-economic group. The ramifications of this crisis of national creditworthiness will grind government projects into the ground, causing appropriations for the most routine, even essential functions to be reduced or eliminated.
The Tea Party seems to have won their goal to reduce the size of government, but they did so at the price of destroying the economy in the process. We are likely to slip into a second Great Recession and likely, a full economic depression purely for the sake of their political commitment to a non-governmental organization not to pay taxes. They took a political pledge and allowed it to supersede their primary obligation – their oath of office – to uphold and defend the Constitution of The United States.
While our corporate institutions are generally in good shape economically and able to withstand many of the pressures this crisis will create, in order for them to do so, they will be compelled to downsize even more. We are likely to see more and more companies transferring their corporate operations off-shore, to places like China, India and other growing industrialized nations.
The debate over raising the debt ceiling deeply wounded John Boehner’s speakership, making it difficult for him to successfully hold his party’s votes together. Eric Cantor (R-VA) is likely to continue siding with the Tea Party faction, effectively stabbing Boehner in the back by breaking the long-held tradition of unified Republican voting. This could make Congress ineffective in resolving the complexities involved in restoring the Nation’s credit rating. At minimum, we may be forced to wait until 2013 to see the effect of political change. Either voters will add to the Tea Party’s ranks or they’ll replace them with representatives with stronger, more stable economic knowledge and practical solutions.
The longer this goes without resolution and restoration of the triple-A rating, the harder it will be to fix the condition. We fully expect and anticipate that with the present Congress, it will be nearly impossible to pass any legislation that will be productive. As a result, we believe the Nation, and indeed the world will be headed into a global depression.
When the last Great Depression hit in 1930, the only means of resolving it was massive stimulus spending, inspirational national projects and ultimately, war. Why war as a tool of economic restoration? For two reasons. it reduces populations allowing for the redistribution of wealth to a smaller, but wider group; and it creates massive government spending.
Depression will lead to the rise of fanaticism, racism, social bias and prejudice, hatred and eventually to military confrontation. Fear and economic panic will eventually radicalize any population. As a result, irrational behavior will become commonplace and we’ll see stable, civilized nations greatly affected, perhaps facing revolutions. With the use of technology, we’ve already seen Egypt and other nations subjected to revolutions.
The public will likely blame the Republican Party for this crisis, though it is not the moderate Republicans who caused this. It is however, squarely the responsibility of ill-informed Tea Party members who base doctrine and dogma on incorrect analysis of data and fear-mongering. Oddly, the same thing that led to the rise of the Nazi Party in Germany in 1932 and Iraq’s Bath Party in the 1960’s and while we are not comparing any politician or political group to the Nazi’s, we are suggesting that the circumstances and history are similar.
The public’s fear of economic loss and deprivation of an expected lifestyle will cause many to shift political opinion, just as the middle-class and lower classes did in the Russia of 1917. War will ensure that Americans radicalize. The political future will be volatile, dangerous, unstable and fearful.
Democrats will not come out of this crisis unscathed either. Failure of strong leadership by President Obama and the lack of strength of former Speaker Nancy Pelosi to lead a compromise will cause many to blame Democrats. While perfectly true, it remains however, a crisis caused solely by the bullying tactics and ill-informed economic theories of the Tea Party.
For Speaker Boehner, the problem will not be whether he can get his Tea Party members to vote with him, it’s going to be what they’ll actually vote on. Before a bill is introduced, it is usually negotiated and rather than doing most of his negotiating with Democrats, he’ll be compelled to do so within his own caucus. The result, most likely, will be watered down legislation that is ineffective and potentially hazardous.
The S & P downgrade was the result of watered down legislation that could have easily prevented this entire fiasco. The original compromise legislation that Boehner and Obama had reached would have successfully prevented this crisis by ensuring that there were added revenues in addition to spending cuts to ensure deficit reduction. Now, Congress has no option other than to approve immediate repeal of the Bush-era tax cuts and to allocate 100% of that revenue to deficit reduction.
The American public, meanwhile, will be the worse for the wear, suffering considerably as this unfolds before them. Disgusted, and already radicalized, they won’t know whom to believe. Faith will not resolve this, not even faith in their leaders. Rather, they must elect moderates who’s goal is to fix the economy, not to reduce taxes, strip spending or downsize government. Dogma and ideology have no place in resolving broken economies.