Credit rating firms, watching the debt ceiling increase turn into a serious crisis, have warned that the American credit rating is at risk. Although they also cite the size of U.S. debt, that is not in fact the real issue for them, now. Similarly, creditor nations such as China have now also issued warnings to the U.S.
Right-wing spokespersons point to those warnings as reasons why Federal debt must be addressed now in a series of drastic moves. The right wing is attempting to employ "disaster capitalism" tactics, detailed by Naomi Klein in Shock Doctrine: The Rise of Disaster Capitalism, to achieve ideological goals that have nothing to do with Americal fiscal matters. And the right wing wouldn sacrifice not just the economy if the country defaults, but also any chance of improved recovery or increased employment if their blackmail results in excessive spending cuts.
Debt and the U.S. Credit Rating
Nobel laureate economist Joseph Stiglitz wrote that while the amount of debt accumulated by the U.S. government indeed posed the risk of a credit rating downgrade, it was the character of the debt and how the country proposed to reduce it, that would make a major difference.
Following are some excerpts from his recent book on the current economic crisis, Freefall: America, Free Markets, and the Sinking of the World Economy (W.W. Norton & Co., New York, 2010, ISBN 978-0-393-33895-9). Page numbers for the citations are in parentheses after each quote. (I am not using the quotation layout feature because the greyed-out, italicized text is hard to read.)
"... (A)s the government borrows more, those who lend the money will worry about whether the government will be able to pay it back. As their worry increases, they may demand a higher interest rate." (pp. 72-73)
The context of this statement is a discussion about severe austerity measures versus stimulus programs to spur growth and employment - which are ultimately the driving factors in renwed economic health, and a government's ability to generate revenues to repay debt. Stiglitz observes in that respect that governments have found themselves "between a rock and a hard place," damned if they do spend, damned if they don't.
In respect to the current debate, Stiglitz's observation solidy paints the debt ceiling impasse as the basis for the wrnings from Moody's and Standard & Poor's. As Congressional inaction continues, and the right wing of the GOP attempts to drive the country into default, creditors indeed react exactly as he said they would. Although the concern involves the debt, the motivating factor is not its size but its repayment.
Further on, the economist explains that creditors are more comfortable with debt that is not aimed at creating consumer spending, but rather creates assets and sets a firmer foundation for economic health:
"If ... the stimulus money is spent on investments, these adverse effects are less likely to occur, because markets should realize the United States is actually in a stronger economic position as a result of the stimulus, not a weker position. If the stimulus spending is for investment, then the asset side of the nation's balance sheet increases in tandem with its liabilities, and there is no reason for lenders to be worried, no reason for an increase in interest rates." (p. 73)
As related to components of the debt accumulated since President Obama took office, stimulus money already spent or still available for future allocation includes some considerable sums of exactly the character Stiglitz described. The "green" manufacturing investments, the small business long-term capitalization investments, and yes, even those "shovel ready" projects are examples. Products of that spending of borrowed money are one reason why the actual debt at this time is not a far more serious concern to international creditors of the United States.
Again, the issue involved when China and other countries admonish the United States to straighten out affairs of its financial house is not the size or nature of the debt, but the utterly foolish obstruction from the GOP right wing to practical resolution of the debt ceiling.
GOP "slashonomics" will damage economic recovery
The inescapable result of right-wing obssession with cutting federal programs - really motivated by ideological considerations - is contraction of the economy, and does not contribute at all to growth or increased employment. The evidence is already abundant: As states run by Tea Party governors, such as Wisconsin and Florida, have chopped their budgets and sent tens of thousands of public employees into unemployment, private sector job growth has suddenly begun to slow. The recent figures do not reflect some sort of "failure" by the Obama Administration, but rather the failure of the right wing to learn any lessons at all from the economic collapse their failed polcies caused.
For the in-depth discssion mentioned above, see http://firstread.msnbc.msn.com/_news/2011/07/14/7081699-first-thoughts-always-darkest-before-the-deal?threadId=3173432&commentId=55964206#c55960570
Stiglitz put the approach of the right wing into sharp contrast with what is actually necessary to keep the country moving forward, and his comments, first written in 2009, apply equally to the posture of the right wing in the debt ceiling debate:
"Anxieties about the deficit growing out of hand lead to the ralsource of concern: the political risk that America will not be able to stay the coures, jast as it failed to do during the Great Depression and just as Japan failed to do after the bursting of its buddle in the early 1990s. Will the government continue to provide a stimulus if the economy fails to achieve a robust recovery after the first dose of medicine? Will those who never believed in Keynesian economics ally themselves with deficit hawks in Congress to urge a cutback in government spending? I worry that they will, and if they do, a return to strong growth may be delayed." (pp. 73-74)
Stiglitz's prophetic words describe the issues at stake in the debt ceiling debate. If the right wing succeeds in holding the country hostage until it gets major cuts in federal spending - cuts far beyond reasonable - then the nation as a whole loses. So also do the economies of other countries that are closely connected to that of the U.S.
Conclusion: The Issue is NOT debt by itself, but confidence in the U.S. ability to pay it
The right wing's shsrill cry, heard repeatedly, that debt itself is the issue simply shows they do not know what they are talking about.
The very dangerous obstructionism and delay by the right wing of the house GOP in respect to the debt ceiling is instead a key component of worry by creditors and ratings agencies. And, further, the outside world sees the right wing attempting to hamstring the government's ability to foster continued - or rather, renewed - economic growth and an increase in employment, and thus become concerned that U.S. revenues will fall as a result.
By the way, that is one essential reason why the President's insistence of increased revenues from corporations now legally evading taxes, as well as the upper-income brackets, is so important. Given that the right-wing insists on actually cutting employment and shrinking initiatives that help economic growth, the concomitant loss in revenues must be made up.
