Sunday, August 7, 2011

Notes on "A Statement on the Downgrade of U.S. Treasury Bonds"

Click here to read the speech itself.

This downgrade report is a gift to the President. It's a vindication of almost everything he's been saying and at the same time won't have a huge negative impact on the economy.

The first question in approaching the downgrade is whether or not to give Standard and Poor's their deserved criticism. After all, this rating is coming from the people who said subprime mortgage-backed CDO's were among the safest investments in the world. Their advice lags the market as a whole and serves little useful predictive purpose. There's also reason to believe they hold a grudge against the Obama administration for provisions in the Wall Street Reform Act.

I think people are going to be surprised how little difference this report makes. It won't surprise me if their parent company, McGraw-Hill, sees more downside to this on Monday than the Treasury does. So you could make a good case that this doesn't matter, but then you can't turn around and say that it proves you're right and the Republicans are wrong. Having to make a choice I would go on the attack, with a brief mention of having tried to stop the report to head off the attack you're enjoying this downgrade.

S&P's report has everything. It says there should be revenue increases in a budget fix. It says the uncertainty is a political issue brought on by the debt ceiling standoff, not a matter of the country's ability to afford its debt. It says the AAA rating will be restored if the Bush tax cuts expire and that the President was right to discuss entitlements. It just barely stops short of saying "this is the Tea Party's fault."

I don't see much of a downside to going on the offensive with this, mainly because I wouldn't see the point of having a second term that looks like these past seven months. I think Obama should go all in; make this a referendum on the antics of the 112th Congress. If he can convince people that Congress is dragging down progress in this country he'll have a second term and if he can't what good is facing more of these hostage taking scenarios? It doesn't let him have the Presidency he wants and weakens the Democratic Party. Hell, if this country could survive it, I almost think it'd better if he lost and ran again in 2016 against four years of Bachmann-Cain (or whatever nonsense he faces this year) so he could have a definitive win rather than face four more years like this one.

In the meantime, maybe this downgrade will talk some sense into the GOP leadership. They still listen to what Wall Street wants. In a strange twist, Wall-Street's interests are more palatable than the desires of grassroots members in Congress. What an odd world we live in.

No comments:

Post a Comment