Yet again, the American public is being terrorized with threats of a looming financial crisis. Standard & Poor's Credit Ratings Services has demanded that the White House and Congress agree to savage budget cuts, arguing that anything less will result in a downgrading of the U.S. credit rating, which in turn will result in complete economic collapse. No time to deliberate. No time for rational analysis. We must act, and we must act now!
Aside from the fact that this is simply untrue, it is telling that S&P’s threat came just days after the U.S. Senate Permanent Subcommittee on Investigations released a report on the criminal activities of the banks and credit rating organizations (including S&P) that caused the 2008 stock market crash and global recession. According to the WSWS, the Subcommittee report said that S&P routinely gave AAA ratings to worthless securities after being paid by the Wall Street firms that benefited from the inflated ratings.
Even if S&P were innocent of wrongdoing, they are hardly a trustworthy source on the security of U.S. debt, considering their incompetence in predicting the mortgage debacle. Economist James K. Galbraith argues that S&P’s hysteria about the deficit is unwarranted considering that it is impossible for the U.S. to default on its loans since it can simply print more money (unlike individuals or members of common economies, like Greece, Spain, Ireland and Portugal). Furthermore, there is no consensus among the big three rating agencies that the U.S. is in any kind of trouble. For example, Fitch Ratings, based in Europe, saw little threat, saying that the likelihood of the U.S. failing to honor its debts “. . . is extremely low.”
Nevertheless, S&P threatened to lower the U.S. credit rating from "stable" to "negative" for U.S. Treasury bonds, if congress failed to reach an agreement on reducing the federal deficit by at least $4 trillion over the next decade. This could cause interest rates to rise, further depress the housing market and make it much more difficult for businesses to borrow. In other words, S&P is using extortion by threatening to deliberately crash the U.S. and global economies if Congress and President Obama fail to impose drastic cuts to social programs and services that will result in wage cuts, mass layoffs, the destruction of the social safety net, and the devastation of living standards for the majority of Americans.
This attack by S&P can be thought of as a preemptive strike by the rich in their class war against the rest of us. Consider that just days before the S&P threat was announced, a McClatchy-Marist poll (reported in the WSWS article) showed that voters supported raising taxes on incomes above $250,000, by a margin of 2-to-1, with 64% in favor and 33% opposed, while they opposed cutting Medicare and Medicaid by a 4-to-1 margin, with 80% opposed and only 18% in favor. The rich hate few things more than taxes. The demand for the deficit be closed by cutting social programs is not only intended to avert tax hikes on the wealthy, but also to create a little surplus that could be used to lower their taxes even further.
Like the initial “debate” on WMDs and going to war with Iraq, Democratic leaders have accepted S&Ps exaggerated analysis uncritically and rushed to reassure Wall Street that they were ready and willing to open this new front in the class war. Yet the absurdity of S&P’s claims should be as obvious to the Democrats as were the lies about Iraq’s nuclear capabilities. Consider that Congress has already approved lowering the corporate tax rate from 35% to 25%, which would add billions of dollars to the deficit. The L.A. Times reported that Obama and the Democrats also want to slash the current corporate tax rate. If they were truly concerned about the deficit, tax cuts would be unthinkable, while tax increases would be given serious consideration. (Nearly 33% of all federal tax dollars came from corporations in 1952. Last year it was only 8.9%).
It is also important to consider how the U.S. acquired its huge debt. According to the Center for Budget Policy and Priorities (as reported in the OB Rag), 49% of the budget deficit resulted from the Bush tax cuts, more than any other factor. The wealthiest 400 U.S. households pay an effective tax rate of around 16%, while those earning over $1million per year only pay around 22%, though they are all supposed to be paying 35% (and even this is much lower than when Reagan was in office). Contrary to Republican mythology, the U.S. has the second lowest tax rate of all industrialist nations, after Australia.