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S and P Downgrades U.S. Credit Rating: “Hail Victory” for the SS Kampfgruppe Norquist

Norquist photo

Grup­pen­fuhrer Norquist (pho­to cred­it, Gage Skid­more)

COMMENT: Well, folks, they’ve done it [1]. The GOP’s Tea Par­ty fas­cists [2] (with a gen­er­ous assist from an appar­ent­ly clue­less and def­i­nite­ly gut­less Barack Oba­ma) have suc­ceed­ed in caus­ing S & P to down­grade the U.S.‘s cred­it rat­ing from AAA–the first time in his­to­ry that this has been done.

In FTR #412 [3], we out­lined the strat­e­gy of the GOP–run up mas­sive gov­ern­ment debt in order to force the rolling back of the New Deal-style social leg­is­la­tion that they despise. The point man for the “no new tax­es” mantra is lob­by­ist extra­or­di­naire [4] Grover Norquist.

Some things to con­sid­er in this con­text:

Now comes the word that S & P’s action was large­ly dri­ven by their belief that Oba­ma (the black man with the white flag) and the Democ­rats will fail to block the exten­sion of the Bush tax cuts.

“S & P Down­grades U.S. AAA Bond Rat­ing to AA+, Out­look Neg­a­tive” by Bri­an Beut­ler; TPM Muck­rak­er; 8/5/2011. [19]

EXCERPT: As threat­ened, the rat­ings agency Stan­dard & Poors has down­grad­ed the coun­try’s AAA bond rat­ing, despite acknowl­edg­ing, accord­ing to mul­ti­ple reports, that their ini­tial cal­cu­la­tions includ­ed a $2 tril­lion error pro­ject­ing U.S.‘s debt-to-GDP ratio over time.
You can read the entire expla­na­tion below the fold. But the key is that the use of the debt lim­it as a leg­isla­tive bar­gain­ing chip, com­bined with grid­lock in Con­gress, led S&P to pub­licly con­clude that the coun­try will have a hard time restor­ing grav­i­ty to its debt tra­jec­to­ry.
How­ev­er, while they par­cel blame across Con­gress — imply­ing Democ­rats are rigid­ly opposed to cut­ting enti­tle­ment spend­ing — they hint that Repub­li­can intran­si­gence to rais­ing tax rev­enues is more trou­bling.
From the agen­cy’s press release:

. . . . Com­pared with pre­vi­ous pro­jec­tions, our revised base case sce­nario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assump­tion on this because 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. Key macro­eco­nom­ic assump­tions in the base case sce­nario include trend real GDP growth of 3% and con­sumer price infla­tion near 2% annu­al­ly over the decade. . . .