Yesterday Standard & Poor’s, one of the nation’s largest credit ratings agencies, sent shock waves through the financial world and sounded a warning about the debt and deficit spending that every American needs to hear. As CNBC reported, S&P announced it is downgrading the credit rating outlook for the United States of America to “negative,” saying:
The negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years. The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.
S&P is signaling — in the language of the financial world — that it has so little confidence that either President Obama or Congress will deal realistically with the deficit anytime soon that it may downgrade our bond rating within the next two years.
Within hours, President Obama confirmed S&P’s concerns by dismissing the warning.
A credit rating downgrade would be catastrophic for the United States. The value of the U.S. dollar is already falling and it would fall even more with a credit rating downgrade. And as it falls, Americans would see their standards of living fall. Due to a weaker dollar, the prices we pay for imported goods, groceries and gasoline would soar.
In addition, interest rates as well as payments on our debt would rise painfully and dramatically. This would force sudden, draconian austerity measures such as gutting our defense and entitlement spending, instituting massive tax increases, or likely both, and none of these scenarios are acceptable in my view. Every day we delay taking proactive action to reduce the debt exponentially increases the national trauma we will put America through later.
The S&P warning may come as a shock, but it is not a surprise. Washington has known this was coming and ignored it. S&P and Moody’s have been warning us for more than two years that we were headed down a dangerous path on our debt, yet President Obama and Congress obliviously continued their deficit spending at record-shattering levels.
Even after the Republicans won a majority in the House, the leadership of both parties continued to dither, making nearly meaningless cuts of $353 million in the 2011 budget. Republican leaders, some of whom have voted many times to raise our debt ceiling, “reluctantly” supported this deal when they should have taken a stand and said, “No more!”
Now, S&P is warning us that the U.S. must reduce its debt. Yet despite these warning signs flashing “Bridge out Ahead!” the White House and Congress — stomping on the accelerator! — want to raise our debt ceiling yet again.
There is only one way to change course: To dramatically cut deficit spending. But Washington is incapable of mustering the political will to do this. Instead President Obama’s spokesmen predict Armageddon and calamity if we do not raise the debt ceiling (the same tactics used to sell the failed stimulus package and TARP, by the way). They are not correct. The Fed and the Treasury Department can reprioritize our spending to keep our creditors satisfied while we focus on the spending cuts needed to stay below the debt ceiling.
The time for half-measures, political vacillation and denial is past. S&P has sent a clear message: We must begin reducing our debt now, not in 26 years or 10 years. Congress can start by blocking any increase in the debt ceiling.
Jamie Radtke is a Republican candidate for the U.S. Senate in Virginia. She is Chairwoman Emeritus of the VA Tea Party Patriot Federation, former president of the Richmond Tea Party.