The Fighting Decline

It's official. Standard and Poor's rating agency has dropped the United States of America's credit rating from AAA to AA+. Since this is the first time in U.S. history that we have not had a AAA rating, this is an historic moment. In a statement explaining their reasons for the downgrade S and P blamed, in part, the political wrangling in Congress over the debt ceiling: "The majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act."

Yes, folks, you read that correctly. One of the reasons given by S and P for downgrading this country's credit rating was because of the posturing by the Republicans over the debt ceiling. They postured us into downgrade; they own this economy. "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 company said. "The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy."

Other items of note in the statement include a reference to higher interest rates, which I suggested would happen in an earlier blog entry, and the need for allowing taxes to go up on high income earners. Scroll to the bottom of the statement for that latter salient point. Even S and P thinks a tax increase for the rich would help the U.S.

But to the matter at hand: we now have an historic downgrade in our country's credit rating. These are the things that will probably happen in the coming days, in no particular order:
1) stock markets across the globe will be erratic (at best) or plummet (at worst);
2) dollar values will drop as investors run to the Yen (yes, the Yen!) and possibly the British pound;
3) Republicans will blame President Obama for this;
4) interest rates will go up.

A couple years ago I read and reviewed a book by Farheed Zakaria entitled The Post-American World. Although he gets a few things wrong, overall Zakaria does a pretty good job of identifying the challenges the U.S. faces in the years and decades to come. One of those challenges is how to decline gracefully. As a society, we are faced with a choice: whether to go down gracefully and graciously, or whether to go down fighting and take the rest of the world with us. Based on the events in Washington, D.C. and their grand consequences, I think I now know which method of decline we have chosen.