"Be careful what you wish for." I have never liked that saying, but today I am going to use it myself, and direct it to the Tea Partiers and other conservatives who have been trying to hobble the U.S. budget process, and threatening to halt the operation of the vital U.S. government.
This morning, we learn from Bloomberg,
Standard & Poor's put a "negative" outlook on the U.S. AAA credit rating, citing rising budget deficits and debt.
"We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013," New York-based S&P said in a report today. "If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns.This doesn't mean that the rating has been cut, at least not yet. But it's movement in the wrong direction.
Yesterday I wrote about the possible consequences of cartoonish political views. Well, today we get the first taste of that. Stocks are way down, and interest rates have risen (a little, just 0.05 pct on the 10-year Treasury bond).
Here is a part of Standard & Poor's report, noting that the U.S. is falling behind its peers in restructuring government spending:
While thus far U.S. policymakers have been unable to agree on a fiscal consolidation strategy, the U.S.'s closest 'AAA' rated peers have already begun implementing theirs. The U.K., for example, suffered a recession almost twice as severe as that in the U.S. (U.K. GDP declined 4.9% in real terms in 2009, while the U.S.'s dropped 2.6%). In addition, the U.K.'s net general government indebtedness has risen in tandem with that of the U.S. since 2007. In June 2010, the U.K. began to implement a fiscal consolidation plan that we believe credibly sets the country's general government deficit on a medium-term downward path, retreating below 5% of GDP by 2013.
We also expect that by 2013, France's austerity program, which it is already implementing, will reduce that country's deficit, which never rose to the levels of the U.S. or U.K. during the recent recession, to slightly below the U.K. deficit. Germany, which suffered a recession of similar magnitude to that in the U.K. (but has enjoyed a much stronger recovery), enacted a constitutional limit on fiscal deficits in 2009 and we believe its general government deficit was already at 3% of GDP last year and will likely decrease further. Meanwhile, Canada, the only sovereign of the peer group to suffer no major financial institution failures requiring direct government assistance during the crisis, enjoys by far the lowest net general government debt of the five peers (we estimate it at 34% of GDP this year), largely because of an unbroken string of balanced-or-better general government budgetary outturns from 1997 through 2008. Canada's general government deficit never exceeded 4% of GDP during the recent recession, and we believe it will likely return to less than 0.5% of GDP by 2013.Both parties need to get serious about the budget process, and bring to the table people who know how business, finance and the economy really work. As we see today, the world's patience is wearing thin on the embarrassing U.S. political process.