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.