Is The S&P Downgrade Targeting The President?

August 9, 2011  |  

Let’s first understand that a downgrade on ourselves is not atypical. Someone asked me the other day, “Why would we downgrade ourselves?” I explained, “S&P not only trade for domestic investors but it also trades funds used by foreign investors.” It’s no different than you being honest on your resume. You don’t want to lie and come across less credible if the truth is found out. S&P does this to protect its index and image. Now, I am not saying the S&P is accurate or inaccurate. What I am saying is it is not out of the ordinary. My main concern about their move is, why now?!?!

What I had to look at is, is there a comparable case that yielded a different result; you know, like in law. Attorneys often look at the outcome of similar previous cases to use as a defense in court. This is what we should do. Now, understand that the debt ceiling is simply raising the amount of debt we are legally able to take on. There are limits placed on how much debt can be held by foreign investors and foreign nations, and there is a limit of how much debt the nation can carry overall. It doesn’t measure our resilience, innovation, gross domestic product output or our potential. Remember, as cocky and confident as he may be, even Donald Trump had credit problems in his career, leading to him filing bankruptcy twice!

So why would the country take on debt? As the government grew to a size beyond the true percentage of the private sectors’ output that it taxes it, it must stimulate spending in the economy until those deficits recover. They do this so they aren’t always laying off government workers or consolidating facilities every time there are deficits or recessions. This happens when the government overforecasts the revenues it expects to collect. The government takes risks by spending to help stimulate the economy so it can retrieve those tax revenues. So, it sometimes creates an intentional self-inflicted deficit, hoping to recoup the monies spent in taxes during economic growth. This is called an economic injection.

Now that we know why the government borrows in the first place, let’s look at what this means. We all have our opinions of President Obama. Quite frankly, we seem to have stronger opinions on this presidency (whether good or bad) than we have had on any other. We can call it desperate times, racism, increased poverty levels, or whatever. Our opinions have been strongly against or in support of the president. This heightened intensity has caused much scrutiny and criticism. However, let’s simply look at our past to get a better idea of this so-called downgrade.

According to the Congressional Research Service, since 1962 alone, the debt ceiling has been raised 74 times; 10 times alone in 2001 under President Bush’s watch. This shows that the debt ceiling was raised under 8 previous presidents! Is our recent downgrade targeted at the president or because of the bickering within our political system? The fact is, our country was in economic constraints before Obama took office and can very likely persist past his presidency. What we are seeing is economic residue from President Bush’s presidency. Now, I would be totally dogmatic if I were to say that Bush deliberately ran our country into financial trouble. In fact, his desperation to return us to Clinton Administration surplus was part of his motivation for such knee jerk reactions, i.e. The War on Iraq.

Historically, wars have strengthened the U.S. economy, but he failed to realize that we now operate as a service economy. We are not a country that manufactures as much as we did during previous wars, where we were the ones providing the widgets and gadgets to the military and to the nations we blew up. In essence, Bush attempted to inject into the economy but those funds leaked out of our economy into foreign (manufacturing) nations, simply because we were no longer in position to capitalize on infrastructural needs of the destroyed nations and our military. So my question remains, why now? Why with the debt ceiling constantly being raised historically, numerous recessions over the past 30 years, assassination of Kennedy, scandal from Nixon, and deepening debt brought by the 2nd Bush, why downgrade now? We’ve heard the stories of banks charging higher interest rates on loans and denying them altogether for Blacks. I wonder, why now?

Now, our new AA+ rating is actually a great rating but it simply shows that America is no longer at its credit- worthy best. China’s AA- credit rating is two steps beneath America’s, however there remains strong praise for China’s progress. High standards are set for us. Countries like Canada have grown and thrived despite having a mediocre credit rating, so is this a political attack or the true economic outlook of the country?

The credit position of the nation is important, but living on credit isn’t always the best option. Businesses can be started, vehicles can be purchased and education can be attained without loans. Though the government may be seen as less credit worthy, it has no bearing overall if “we the people” are worthy or not.

Devin Robinson is a business and economics professor and author of “Rebuilding in the Black Infrastructure: Making America a Colorless Nation” and “Blacks: From the Plantation to the Prison.” Contact him at devin@devinrobinson.com.

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