S&P Rating Really Downgrade of the Political Leadership’s Credibility

Viewpoint by George Hawthorne, Chairman, Gulf Coast African Chamber of Commerce, Inc. —

The recent downgrade of the United States ‘AAA’ credit rating should be a “reality check” for Congress regarding the poor state of their fiscal governance and political leadership. Congress should bear the direct responsibility for accepting the blame for S&P’s credit downgrade. In S&P’s official report dated August 5, 2011, “Research Update: United States of America Long-Term Rating Lowered To ‘AA+’ On Political Risks And Rising Debt Burden; Outlook Negative,” it is clear that the recent “debt debate debacle” in Congress (that was played out with such dramatic political “posturing”) was a direct cause of the S&P action and not the true reflection of the U.S.’s economic condition and/or credit attributes. The S&P report specifically states;

“Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see “Sovereign Government Rating Methodology and Assumptions,” June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government’s other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.”

The political nature of the debate was a key factor in our credit downgrade. However, the most disturbing issue in this process was the fact that S&P provide Congress plenty of downgrade warnings, advisory actions and policy reviews from April of this year. However, consequences of their actions were not regarded and lost out to a philosophy of, “political warfare was more important than the American people and the U.S. economy.”

The S&P report’s opening sentence revealed a clear explanation of their rationale as it stated,

“We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process.”

Clearly, this issue is not to be placed solely at the “door” of just Republicans or Democrats … it is the collective result of both Parties’ actions. This is a systemic problem based in the fundamental idea that, “political gain and making the other guy look bad is good for the Party.” However, it has become painfully apparent that such political strategies and legislative philosophies may be “good for the Party” but is “bad for the American people.” This is further highlighted by S&P report that further states;

“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.”

The true question is, if the Congressional leaders can overcome their political “nature” and take a position that helps the American people and the global economy as a whole? Unfortunately, S&P has already downgraded the credit rating for the U.S. and they are not convinced that our political leaders are serious about taking the bold and necessary steps that it will take to restore our ‘AAA’ rating. The S&P report gives further evidence of the lack of confidence in the will of the political leaders to solve our problems. They give clear evidence of their thoughts in the following statement,

“Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a ‘AAA’ rating and with ‘AAA’ rated sovereign peers (see “Sovereign Government Rating Methodology and Assumptions,” June 30, 2011, especially Paragraphs 36-41.”

True leadership should be based upon creating policies and legislation that is “forward-looking” and is based in a “sober reality” of what is best for the Nation and its citizens. Furthermore if the United States is to remain the “moral exemplar” and that “nation on a hill,” its political leaders have to look beyond partisan politics and political “gotchas” to create solutions that provide consumer confidence and fiscal responsibility to aid our fragile global economy.

See the full S&P report of the U.S. Credit Rating Downgrade at the S&P website at the following link:

http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DUS_Downgraded_AA%2B.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243942957443&blobheadervalue3=UTF-8

August 9, 2011

By:George Hawthorne, Chairman
Gulf Coast African Chamber of Commerce, Inc.
Pensacola, Florida

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