“May you live in interesting times” is a Chinese saying commonly meant as a curse. And China’s reaction is of primary importance since China holds much US debt. Everything about Standard & Poor’s historic downgrade is interesting…and a curse. If a financial credit rating agency took a front row albeit invisible seat at our
kitchen table while we attempted to pay the bills, how many individual households could maintain their current credit status? How credible is Standard
& Poor’s rating methodology when they admittedly made a $2 trillion error, it gets caught and corrected…and yet they still downgrade? This is the very
same agency that gave mortgage backed securities AAA status until well into the burst of housing bubble.  Per their statement, S&P has made their financial decision based upon political brinksmanship in Washington. Agreeably it would be hard to make the case that Congress has been acting in a positive manner for the greater good of ALL
Americans.  When presented with the same criterion and numbers, Mark Zandi, chief economist at Moody’s, has declined to downgrade. No matter how ugly, how contentious, how partisan the debt ceiling debates were, the bottom line remained true: the US paid its bills. We met our obligations. No single creditor was left unpaid. However all this uproar is water under the financial bridge now, the downgrade has occurred and the markets will become more volatile. This may prove to be an economic tipping point. Even during the Great Depression and World War II, this nation maintained its AAA credit rating. A fragile, tepid economy will teeter on the
edge of double dip recession or worse. The struggling middle class will continue to shrink.  The job market will suffer. And the average American will pay the price yet again.

Even more disturbing has been the administration’s reaction to the historic news. On April 20, Treasury Sec Tim Geithner stated in an on air interview that there is “absolutely no way will the US lose our AAA credit rating.” This statement from one of the architects of TARP and the failed stimulus. Previously Sec. Geithner has
signaled to President Obama that he would resign his office shortly after the debt deal. Expect many voices to join the chorus calling for his resignation.  Once the White House had been notified of the impending downgrade on Friday afternoon, the President left the White House and went to Camp David for the weekend.  In the President’s Saturday morning radio address, he never mentioned the downgrade. Perception is politics. What can be learned about this administration that is so out of touch, so removed from the struggling middle class, so arrogant not to even care about perception? Or care about the very voters who elected them to office? Americans have paid close attention and will inevitably pay higher interest—in every definition of that word, cursing all the way to the bank and heading into the next election.

 

Alessa Caye

Founder, Caye Street Associates

Follow me on Twitter @CayeStreet