United States' Credit Rating

A bill to lower federal spending and increase the debt ceiling is going to the Senate floor this afternoon, just in time to be passed before the government supposedly defaults on its loans. Obama has been pushing for an agreement on both sides of the aisle because it seemed to be the only option which the country had. His crack team of economic advisors told him that increasing the debt ceiling was not an option because the three credit rating agencies plan to downgrade the rating of the United States Treasury bonds if the deficit is not reduced by $4 trillion over the next ten years. However, there is absolutely no reason why the three rating agencies, Standard & Poor's, Moody's Investor Service and Fitch Ratings, should be trusted to accurately label any investment. These are private companies which get paid by investment banks based on the number of good ratings they pump out. Furthermore, they have a notoriously poor ability to rate companies correctly.

There have been numerous occasions when these rating agencies have failed to correctly do their job. One such occasion occured when the company Enron held an investment grade rating up until four days before the company went bankrupt. In July of 2008, Standard and Poor's downgraded a total of 16,381 mortgage and asset backed securities out of 31,935. These were the CDO which were responsible for the subprime mortage crisis of 2008. 466 of these downgrades went from the highest possible rating of AAA to a very low rating of speculative grade, basically calling the investments a gamble with high interest yields, but low probability of payback. If these rating agencies had been able to accurately tell investors which securities to purchase, the subprime mortgage crisis would not have been able to do so much damage to the economy.

The entire financial system is wool over the public's eyes. The United States should not have any debt whatsoever. It is a monetarily sovereign country which means that it has the power to create legal tender that others must borrow from the Treasury. Not the other way around. If the ability for the borrower to pay back the lender is what makes the debt a good investment, the United States will always have a AAA rating because it will always have the ability to create its own currency to pay off debts. The fact that credit rating agencies may have the opinion in the future that the US needs to be downgraded shows how little those agencies really understand the financial system. Their threat of an opinion should not be the reason why our Congress was pushed to pass a bill to decrease spending. In fact, criminal charges should be brought up on the credit rating agencies for blackmail. If the editor of a newspaper called Obama and told him to decrease spending or the newspaper would write an article containing reasons why Treasury bonds should not be purchased, it would be clear that criminal charges must be brought up against the newspaper editor. The fact that these ratings agencies are supposedly expert investment analysts makes absolutely no difference in how the administration should handle their threats.

Amidst Obama's financial propaganda he has forgotten to mention any of the ideas which were in his campaign speeches. There is no more talk about taxing the wealthy, providing social safety nets for those whom need it most, increasing disposable income throughout the middle class or cutting the defense budget. These used to be his economic topics, but the liar has turned about face to inform us that it is not increasing jobs which will deliver us from this recession, instead, the economy must be fixed by decreasing deficits. Apparently Obama's way of decreasing deficits is to gut social safety programs, keep corporate and wealthy tax loopholes and force austerity measures on local and state governments, thus reducing the disposable income of the middle class.

Obama claims that if the rating agencies decrease the rating of the United States Treasury bonds then the economy will be in shambles. His line of thought is that decreased debt creates investor security, and more companies will bring jobs into the country for the middle class. However, companies are investing in other countries not because of the US debt, but because there is no market with a 9.2% unemployment rate, as well as a shift from full-time jobs to part-time ones.

If Obama, his economic advisors, the House, the Senate, or any other political figure really wanted to get the economy rolling again they would not be focused on making sure private companies say something nice about the Treasury. They would focus on pumping as much money into local and state governments as possible. The time to decrease spending is not when unemployment is up, but when it is down. This is the idea behind counter-cyclical actions and pro-cyclical ones. Counter-cyclical actions are those taken by the government to reduce growth of the economy when it is growing, or increase growth when it is depressed. Pro-cyclical actions are ones taken that continue to slow down the economy if it is already slow, or grow the economy if it is growing too quickly. If someone knows they are going to lose their job in one year, they will save up as much money as they can in order to prepare themselves for the decrease in income. This is what the Treasury needs to do. It needs to save during economic booms, and spend during recessions.

Obama's demolition team of Summers and Geithner obviously missed class on the day of the pro and counter-cyclical lesson way back in Economics 201. In the late 1990s these two clowns pushed for deregulation of on investment banking. The removal of these regulations coupled with a very low interest rate at the Federal Reserve was a pro-cyclical action. The economy started going so fast that it eventually redlined in 2008. Now Summers and Geithner want to step on the brakes when the economy is going up a hill by pushing for decreased spending when unemployment is at 9.2%. They are in danger of stalling the engine. Nobody should support any politician who is in favor of pro-cyclical action such as the bill going through the Senate this afternoon.