S&P plays into debt hysteria and the drive to cut social spending on the backs of those who need it

After taking a modest hit Monday from the S&P's surprise announcement that it might, a couple of years down the road, lower the triple-A credit rating of the United States, the Dow Jones seemed to be suffering no after-effects Tuesday. That may well have to do with the fact that the other two ratings agencies Fitch Ratings and Moody's did not take similar action. Or it may be the widespread ridicule that greeted the S&P's announcement. Dave Lindorff noted:

At least one economist burst out laughing on hearing about the S&P announcement. ?They did what?? exclaimed James Galbraith, a professor of economics at the University of Texas in Austin, who formerly served as executive director of the Congressional Joint Economic Committee. ?This is remarkable! It certainly will confirm the suspicions of those who have questioned S&P?s competence after its performance on the mortgage debacle.?

S&P, as well as the other two big ratings firms, all notoriously failed completely to spot the looming disaster of the banking collapse and financial crisis, and famously issued A ratings to mortgage-backed securities that later proved to be virtually worthless paper, as well as to the banks that had loaded up on the financial dreck.

As Galbraith explains it, ?US debt consists of bonds issued in US dollars, which I assume the S&P analysts know. How can the US possibly default on its own currency? The obligation is in nominal dollars, which is to say when the bond retires, the US issues a check in dollars to cover it.? ...

Since the US prints its own currency (or actually just issues electronic payments to create new money) whenever it needs it, as Galbraith puts it, ?As long as there is diesel fuel to power up the back-up generators that run the government?s computers, they will have the money to back their own bonds.?

Eventually, of course, the United States must deal with its rising debt. We've heard the Republicans say this for a long time. Ronald Reagan said it when the debt was $1 trillion. Under his guiding hand, with the help of tax cuts for the richest Americans, the debt tripled in eight years. We heard it from George H.W. Bush, who added another trillion and a half. Bill Clinton raised taxes a smidge on those who could afford it most and set the nation up for a decade of surplus revenue that would have allowed the entire debt to be retired. But he was followed into office by George W. Bush, who thanks to more tax cuts, war spending and adopting policies that helped boost the economy into the worst recession since the big one 80 years ago, cranked the debt up another $4 trillion.

Yet all this gets blamed on the Democrats.

Deficit spending, and the accumulated national debt from that spending, obviously needs attention. What they don't need, what is utterly counterproductive, is this ginned-up hysteria that promotes savage attacks on social programs for those who need them most. As if they are at fault for wars costing multiple trillions or multi-millionaires paying a 17 percent effective income tax rate. What's desperately needed if we truly desire fixing the nation's fiscal problems is a comprehensive overhaul of an increasingly out-of-whack tax system, cutting the gargantuan costs of empire and an end to congressional bootlicking of corporations that have spent the past four decades exporting jobs and tax liability overseas.

Source: http://feeds.dailykos.com/~r/dailykos/index/~3/Enn6BASKdqM/-SP-plays-into-debt-hysteria-and-the-drive-to-cut-social-spending-on-the-backs-of-those-who-need-it

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