On April 18, Standard and Poor’s (S&P), one of three “rating companies” that control that industry, revised its outlook on the safety of long-term US debt from “stable” to “negative.” There are only two reasonable reactions to this announcement, although the usual business and political leaders are promoting their usual spins.
We may dispense quickly with the latter since they are not worth the cyberspace they waste. Conservatives “point with alarm” — a gesture they enjoy — at US debt as if it proved (1) general profligacy in the forms of excessive social programs and out-of-control entitlements (Social Security, Medicaid, and Medicare), and (2) the “obvious” need to cut current budget deficits by cutting federal spending. These geniuses missed what S&P analyst Nikola Swann wrote or else they found it convenient to speak as if they had no clue about the realities of US debt. As Swann pointed out, from 2003-2008, the annual US government’s budget deficit ranged from 2-5% of GDP, but it “ballooned to over 11% in 2009 and had yet to recover.”
In plain English, fast rising US debt is a direct consequences of the current global economic crisis and the US government’s decision to borrow the money it used to bail out the major banks, brokerage firms, AIG, GM, and so on. In plainer English, the conservatives who now dominate both parties are using S&P’s negative outlook as a club to make the masses of people pay — in reduced services and entitlements — for the costs of borrowing to bail out major capitalists in crisis.
Now to the two reasonable reactions to the S&P outlook. The first is sheer incredulity. S&P is famous for having issued what Senator Carl Levin (Chair of the Senate Investigations Subcomittee) recently called “inflated credit ratings” prompted by “rampant conflicts of interest” in the US financial industry. Sen. Levin named this company a “key cause” of the economic crisis. That is polite-speak for having either lied about credit risks or else having shown monumentally poor judgment in assessing such risks. So we now should take seriously what this utterly compromised company says? What?
The second reasonable reaction to the S&P outlook is a yawn. Borrowing to save capitalism and capitalists in crisis has undermined the safety of government debts from Greece to Ireland to Portugal to Hungary and on and on. Why is anyone surprised that US debt would come similarly into question? In the current fiscal year, with an outstanding US debt just under $15 trillion, the annual projected deficit is to be $1.5 trillion which adds 10 per cent to our debt. Meanwhile the US projected growth of GDP this year is around 2.5 %. It takes no special training to worry about a country (that is already the world’s largest debtor nation) whose debt is rising 4 times faster than its wealth.
In November 2010, China’s Dagong Global Credit Rating Company (one of that country’s major rating companies) downgraded US debt. Should we be grateful that it only took S&P half a year to catch up? Oh, wait, the timing of S&P’s announcement was not likely driven by the facts (any more than its credit ratings on mortgage-backed securities proved to be). Since April 18 was the last day to file 2010 tax returns, it was a good moment to spin another scary installment in the conservative campaign to justify cutting government social spending.
Richard D. Wolff is Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York. He is the author of New Departures in Marxian Theory (Routledge, 2006) among many other publications. Check out Richard D. Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan, at www.capitalismhitsthefan.com. Visit Wolff’s Web site at www.rdwolff.com, and order a copy of his new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It.
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