Don't Call It a Recession - We've Been Here All Along

Optimism is down.

Last month, in the middle of the debt ceiling brouhaha, some canny trader got word from inside of Washington that the debt deal was not going to be all it was cracked up to be and, with a 10-to-1 return ratio slapped down a 1 billion $U.S. bet - against the credit rating of the United States. Shame nobody knows who it is, because they slapped all the money down on the futures market, when nobody was looking.

Oh, yes, the credit rating.

For the first time in the history of credit ratings, the United States has lost it's AAA credit rating. As of Friday, August 5, the Standard & Poor's downgraded the perfect credit rating of U.S. Treasury Bonds from AAA to AA+.


I don't post a lot on economic matters because I'm never really sure that I understand what I'm talking about. However, I do understand obvious facts - that's the benefit of living outside of the hermetically sealed bubble that Republicans and Conservatives trap themselves in - and I understand this: The S&P did not downgrade our ability to pay our debts. That's why all last week, the U.S. Treasurys were still seen as the gold standard on Wall Street, and even with the rumors of a downgrade, investors still continued to flock to them. No, what the S&P downgraded was our political system:

S&P is downgrading their estimation of our political system, not our actual ability to pay our debts. Indeed, the past 36 hours offered a stunning demonstration of the market’s faith in our ability to pay our debts. The panic sent investors rushing to buy Treasuries, sending yields on 10-year Treasuries to 2.4 percent -- that’s almost nothing -- and demonstrating that American debt is still considered the safest bet in the world. That vote of confidence under real world conditions is far more important than anything S&P says.

As Klein goes on to say:

Of course S&P is downgrading our political system. Did you see the nonsense we pulled over the past few months? The Republican Party took the country to the brink of default, and for what? A smaller and less certain deficit-reduction deal than they could have gotten if they had been willing to compromise with the Democrats. And then Senate Minority Leader Mitch McConnell said these default-driven deals would be the norm around Washington from now on. Why shouldn’t S&P downgrade our debt?

So there's what happened. It wasn't our debt that caused this - because France has a higher debt than we do but they still maintain their AAA rating through the S&P. No, the real reason for the downgrade is the Teabircher Clowns who got elected, and then made a big show of how they didn't understand that cuts aren't enough; there comes a point when you have to start making money as well, and if you're not making money, you can cut everything and still lose in the end. The way a government makes money is primarily through taxes.

Of course, if you want to say Klein is just a damn filthy "librul" who doesn't know what he's talking about, Mr. Teabircher, you can go here - The Standard & Poor's themselves (bolded and redded for emphasis):

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting
agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

So there you have it: the real reason that the S&P dropped the credit rating was two fold: One, the politics. The economy has become a political bargaining chip, and it's scared them. The fact that the Republicans were playing Russian Roulette with tax default just to get a damn balanced budget amendment through scared them. Hell, I know jack about economics and it scared me. This is what made things so difficult - that "extraordinarily difficult to bridge" gap that the S&P points out, and the recent debt deal fell short of what the S&P expected. Why is that?

1. They didn't reign in social entitlements. There's smart ways to do it and there's stupid ways to do it. Congress - Teabirchers especially - are only interested in the stupid ways to do it. That is, the "let me cut my own throat" way of doing it. Of course, this isn't exactly the time to do that now; we're well on our way back into a recession/depression, and things will only get more ugly from here - the government needs to spend now, not cut back. But it needs to spend smart, not just blanket, careless spending.

2. However, the biggest reason they downgraded the credit rating? No. Revenue. There's no means for the government to make any kind of money in that deal. None. And you can't just cut programs and expect to save money when you aren't making money in the first place. For talking a lot about running a balanced budget, it should surprise exactly nobody the Teabirchers fail economics, just like they fail religious studies and American history. I suspect, but have no proof, that if there'd been a means of revenue involved in the debt deal - those tax increases on the upper bracket of earnings and the closing of loopholes - then this could've been avoided.

But it wasn't, because the Teabirchers are all about cuts. Cuts, cuts, cuts, without adopting any new form of revenue to help the government stabilize financially.You don't treat cancer by just cutting out the cancer without giving some blood to help stabilize the loss. Likewise, you don't just cut out spending without giving some kind of revenue to help stabilize the economy. And they're not about sensible cuts, either; they're about total, blanket, across the board, "Ain't no [expletive deleted] welfare queen gettin' none ah my tax dollars."

This stuff is all common sense. Hell, the mere fact I understand it is saying something about how simple it is to grasp.

Of course, the Teabirchers are proud to be idiots. They prove it every time they open their mouth to talk about anything. This time, however, the entire country has borne the brunt of their single-minded stupidity. The stock guys are guessing that the market won't go into recess over this. I'm not sure. I'm a futurist, but I'm no analyst of stocks, bonds, and trades. For the full impact of this to be felt, we'll have to wait until next week, when the markets open back up again. I strongly suspect, with the optimism at an all time low, what's going to end up happening is the country will backslide into a recession. But what I know for an unequivocal, indisputable fact is this: The people who need to learn the most from this will learn the least, being impervious to learning, experience, and common sense. This will only spur the Teabirchers forward, more determined than ever to torpedo this already sinking ship, until they either get thrown out on their asses (which is what I hope happens) or until they're successful in sinking the ship.