The Obama administration managed to elude being tagged with a first-time federal default, but they couldn’t avoid Standard & Poor’s downgrading of U.S. credit. The ratings agency reduced the nation a notch, from AAA to AA+.
“We didn’t need a rating agency to tell us that the gridlock in Washington over the last several months has not been constructive,” Obama said in response to the rating.
A more dramatic response occurred on Wall Street, where the Dow Jones industrial average slid more than 630 points, or 5.5 percent, to 10809.85, its lowest close since last October, according to the Wall Street Journal. The precipitous dip also caused a global tsunami of selloffs that witnessed huge market losses and unstable currency.
If the default debate wasn’t a wake-up call for the nation and the Obama administration, the credit rating has provided, as the president said, “a renewed sense of urgency.”
As expected, there is enough blame to go around, and Obama targeted Congress without damning them the way some pundits have for the recent political paralysis. Democrats accused the Republicans and the Republicans blamed the Democrats, while many point their fingers at S&P, who, despite a $2 trillion mistake, proceeded with the reduced credit rating.
Several editorial pages have cautioned Obama not to wallow in the mud with the Republicans in another round of the blame game and stay above the fray with a strong focus on job creation.
How Obama plans to deal with this critical turn of events isn’t absolutely clear, though White House Press Secretary Jay Carney seemed to suggest that his recommendations will probably be similar to the ones he made following the negotiations on the $14.3 trillion debt limit.
Obama, then in a compromise mood, offered to discuss changes in Medicare, including raising the eligibility age from 65 to 67 if, in return, Republicans would agree to higher taxes on people who earned more than $200,000.
“We are not reinventing the wheel here,” Carney told the press. “A lot of specifics about our approach to this are already well known.”
Obama, after a weekend at Camp David, insisted that the American economy was strong, and that it will get stronger when the nation’s wealthiest agree to pay their fair share of taxes. “Our problems are eminently solvable,” he said. He explained that a lack of plans wasn’t the problem.
Even so, if the problem is the inability of our political leaders to get their acts together, which clearly influenced S&P’s decision, then the economic downslide may be as interminable as the war in Afghanistan.