How to Avoid a Credit Downgrade


    No matter what Congress does now, the probability is that at least one credit rating agency is going to downgrade the credit rating of the USA, according to a majority of economists. The shameless spectacle of political wrangling has already done the damage. The cuts being proposed, says Zero Hedges would likely result in at least $100 billion in higher interest costs, which would offset any of the proposed spending cuts in the budget—- making it all an exercise in futility.

    We are now at the point where various professionals say the only way we could avoid a wholesale disaster is to:  

    (1) End the imperial wars, which reduce rather than strengthen National security ; economist Stiglitz says the Iraq war alone will cost over $3 trillion—- and then, there’s Afghanistan, another money pit;

    (2) End the never-ending bailouts of Wall Street; remember, the purpose of all the so-called Quantiative Easing has been to provide liquidity for the (too-big-to-fail) banks; all the fancy European bailouts of Ireland, Greece, and so on, are nothing more than bailouts of other major banks, totaling trillions;

    (3) Prosecute fraud; remember, it was similar fraud which triggered the financial collapse leading to the Great Depression, and claw back ill-gotton gains for a change; the present system actually encourages bigwig financiers to commit fraud, and right now there is no incentive in place for them to do anything else (so they do);

    (4) End the Bush tax cuts which Ronald Reagan’s budget director David Stockman called the worst fiscal mistake in history back in November 2010, when he warned the tax cuts would do nothing to stimulate the economy (a statement today’s Republican leadership dismissed with contempt);

    (5) Slash pensions for public employees, at least when they are pegged to an artificially high “final year’s salary,” according to recomemndations in an article in Barron’s which pointed out that public employee pension funds (local, state, and national) provide benefits, unlike most private defined benefit retirement plans, which are set without regard to the vicissitudes of the stock market, but are protected from inflation by COL raises, all of which are funded by taxpayers.

    As the writer on Washington’s Blog notes: “”The talking heads will say that these actions are not politically feasible…. (but) that phrase is just code for: The powers-that-be don’t want it, even if the people overwhelmingly and passionately support it.”

    There are serious problems with implementing (5) in the list above—- yet it is the only one with much of a chance of being taken up and passed, sad to say.  The others, (1)-(4), make a coherent package and are popular with the voters. Imagine what would happen if a populist-oriented political party (dare I say “Democrats?”) announced their platform:

    End the wars immediately, end the bailouts, prosecute the banksters while clawing back the bailout money and the fraudulently grabbed “profits” of Wall Street, end those Bush tax cuts and close those other loopholes which are nothing more than entitlements for the rich….

    While we’re at it, why not a genuine foreclosure relief program which would force investors to accept a cram-down of the balance on the under-water mortgages to below current market value of the property while reducing the interest rates to reflect today’s rates and do whatever else is needed to help people to stay in their homes….

    And, why stop there? Why not an honest-to-god jobs program with Uncle Sam as the employer of last resort, a modern WPA and CCC that put people into real (as opposed to make-do) jobs, pumping money into the economy—- which would encourage hesitant businesses to hire employees of their own to handle the increased demand from consumers who suddenly had money to spend—- in the 1930’s we called this priming the pump, and it worked.

    Wouldn’t you like to go into battle in the 2012 campaign with a platform like that? Go ahead, quibble about the devil in the details, listen to the horrendous howls from the corporotists and the free marketeers and the libertarians, the neocons and the military-industrial complex. And then go do it anyway.  

    • Say What

      Time and again you hear the solutions to “fixing” the deficit problem … and out year programs like social security, medicare, etc.

      There are the wars which MUST end (watch us get out of Afghanistan next year), health care cost to be gotten under control and social security.

      It all gets lost in the false debate (stoked by Fox News & fake experts on the right) over spending and the role of government.

      Truly there are a LOT of REFORMS to be debated and implemented (Webb’s Judicial Reform Initiative, TAX Reform, etc.) …. but this predisposes you’re dealing with rational people …. and we’re not.

      You’ll hear people say that you’ll get better results when you have a divided government …. can’t say I agree since what we got after 2010 is a dysfunctional government.

      Let’s hope that voting Americans now fully understand the differences between the two parties …. at least as well as they can understand the LOSS of Medicare Benefits (as in upstate New York) under a Young Gun Ryan Plan.

      People will vote their pocket book especially in bad times… and it’s becoming very apparent their money (and welfare) is safer when managed by Democrats.

    • glennbear

      I collect a state pension from my former state and yes my pension is “funded by taxpayers” just like a private pension would be funded by my employer. I contributed during my years of employment and this movement to slash public pensions is misguided. Those who want public pensions reduced to the same roulette game as private pensions are the same folks who make a fortune from Wall Street gambling.  

    • glennbear

      Handy blanket statements which fire up the tea party wackos such as “slash public pensions” embolden GOP politicians to do exactly that.  

    • Elaine in Roanoke

      The problems that have arisen with most public pension plans is caused much more by states using the funds as their own slush fund for borrowing and then not paying the money back. (I need only point out that Virginia state government short-changed VRS in 16 of the last 20 years. Not putting in the money the state is actuarially obligated to pay is the same as getting an interest-free loan from present future and future retirees and never paying it back.)

      Other problems relate to high-ranking managers and employees getting their pensions enlarged by the special way their retirement is calculated.

      When the government division I worked for first offered to pay our 5% contribution into VRS in lieu of our getting a pay raise back in the early 1980’s, I was opposed. When we had “skin in the game,” we had a seat at the table when decisions were made. After we no longer contributed, we had no say in VRS contributions…nor should we have had.

      Now that Virginia public employees are paying into the system once again, it is imperative that they demand a voice in how the system is managed.

    • Teddy Goodson

      From various (more less) mildly Republican friends I have heard things like this: “Well, the Republicans wouldn’t have brought up the debt ceiling if everyone hadn’t finally go fed up with all the spending and wanted to put a halt to it… the Obama administration has spent way way more than any other administration, I’ve seen charts showing it. They have to be stopped.” I am not so sure that the majority of the public really understands what is going on, and they sure do not think it is all the Republicans’ fault, it is more Obama and the free-spending Democrats that brought this on themselves.