Debt Downgrade Isn’t Just About Credit Rating

Unless you’ve been living under a rock, you know by now that Standard & Poors on Friday downgraded the U.S. debt.  Investors are rattled and headed for safe-heavens such as gold.  This is all tragic enough.  For the first time in our nation’s history, the United States’ sterling AAA credit rating is gone, at least according to one credit agency.

How did this happen?  Well, that’s obvious.  We took a debt that was already too big and made it downright unmanageable under the leadership of President Obama.  Moreover, the Democrats were unwilling to make the structural changes necessary to avoid long-term debt problems.  Fearing public backlash if President Obama followed through on his threats to withhold Social Security checks from seniors, Republicans caved.

People who blame Republicans for making this deal miss the point.  It was inevitable.

This is all about two things:

  1. President Obama’s insistence on no structural changes to the largest entitlement programs known to man.
  2. President Obama’s lie that Geithner would withhold payment of interest to investors holding U.S. debt.
The first item is obvious.  The second isn’t getting much press.
President Obama used the U.S. debt as a negotiating tactic.  He thought if he could scare Republicans into thinking he might actually tell the Treasury not to pay bond holders, causing a default, the Republicans would run to back his preferred measures.  To some extent he was right; he knew he had the press in the bag and they would harp on Republicans’ failure to “pass a balanced measure and ensure debt repayment” until the elections.  But what he unwittingly did (he seems to do a lot of things without wit) was scare bond holders senseless.
Let’s state this unequivocally: President Obama couldn’t possibly force us to default.  The 14th Amendment forbids it.  If he went that far, even the Democrats in the Senate would have a tough time not removing the impeached President from office.  It truly would be cataclysmic.  In that regard, S&P is punishing the Obama Administration for (a) lying to the American people and (b) playing fast and loose with his words in a way that endangers the U.S. bond market and, frankly, our ability to fund things that really do need to be funded with a little debt until we can turn this economy around.
As Alan Greenspan noted, the U.S. Treasury cannot default; throwing the 14th Amendment argument aside for a moment, they can still print money.
In that regard, we’ve been defaulting for the entirety of the Obama Presidency.  The Chinese know this all too well, and I’d feel a lot worse for them if they weren’t intentionally debasing their currency to harm U.S. imports and bolster exports from the developing country.
We need to pass a Balanced Budget Amendment and stop this madness that threatens to to turn the U.S. into a banana republic.  But first, it’s clear we’re going to have to toss a President and a Senate out on their proverbial butts.  Anything short of that in 2012 makes it almost impossible to get out of this mess.

Nicholas Stehle 
is a contributor to The Arkansas Patriot and serves on the Board of Directors of Arkansas Carry.  He is a concealed carry instructor in the state of Arkansas and an advocate for multiple conservative causes.  Check out his tweets and his blog, A New Approach.

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