America Downgrades Itself!

Yesterday the inevitable happened. S&P downgraded U.S. debt from AAA to AA+. It was a stunning case of self-inflicted pain by a dangerously dysfunctional government. They were ably aided by a media that is incapable of analysis and perspective, so simply reports the finger pointing that goes on in Washington. as “he said, she said”.

Early indications are that stock markets around the world may plummet on Monday. Already Israel, whose markets trade Sunday through Thursday, dived 5% as it opened on Sunday and had to be shut down for a huge imbalance in trade. As of this writing the Asian markets have not opened but futures trading suggests a massacre.

S&P cited Washington’s inability to manage its fiscal policies as evidence of the huge risk in our ability to pay on our obligations. China, our biggest debtor, expressed extreme contempt for our political processes and called for a further moving away from the dollar as the world currency.

Fareed Zakaria pointed out today on his show that if the downgrade of our debt results in just a 1% rise in interest rates our deficit will increase by a whopping $1.3 Trillion over 10 years, more than the entire amount of cuts agreed to in the asinine “compromise” that was foisted by Congress upon us last Tuesday.

We are playing with fire with no possibility of a solution and no voice from those who understand the subtleties of economics or our debt structure and markets.

The U.S. clearly needs a structural change in the way the government operates, in the way our checks and balances have simply led to paralysis and inaction.

Consider this:

About 80% of Obama’s nominees for Treasury and other finance related senior positions in the government have languished in the Senate. The Senate, often by one senator taking blocking action alone, has failed to even get an up-or-down vote on these nominees.

More than 30 Federal judge Obama-nominees have not been confirmed, leaving the court system gridlocked and without leadership.

Only 36 bills have been passed by lawmakers and signed by Obama into law since the 2011 Congress came in. The lowest in American history by far for any comparable period in history. Essential government business simply isn’t getting done.

The filibuster, which used to be employed once or twice in a whole presidential term is now used to thwart 80% of the legislation that comes before the Senate.

The Senate has not passed a budget in over 800 days!

We have to take away the day-to-day authority of Congress to manage our fiscal economy. They are incapable, politically-driven, lobby bought and intellectually empty. We already do this in the Monetary arena – the Federal Reserve is independent of the rest of the government in its ongoing decisions. Although the Congress can hold hearings and force the Fed to explain its actions it cannot compel monetary policy or gridlock it.

Why not do the same thing for fiscal policy? Why not create a Federal Fiscal Authority (or FFA), with its chair and members appointed for, say, 8 years like Bernanke is now (or even 12 years to keep it independent of the political process). Then the FFA can have the responsibility and the power to make major decisions relating to:

The Budget Ceiling
Spending authority
The Tax Code

Yes, the Congress and the Administration could still make big decisions like going to war or healthcare policy, but the FFA would set the fiscal policy on how to tax, borrow and manage deficits to meet these obligations. They would be above lobbying and largely neutral in ideology and therefore would carry the force of an impartial referee in making fiscal decisions. We would also be able to make tough choices and much needed and sweeping simplifications to our tax code, such as a national sales tax, without the political impossibility that surrounds sane action now.

We already do this in the monetary policy area and it works far better than if Congress were doing it. Far, far better.

Now there’s a constitutional amendment that would be worthwhile! What say you, Tea Party?

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This entry was posted in Money, Politics, Uncategorized. Bookmark the permalink.

2 Responses to America Downgrades Itself!

  1. M UsneakydevilU J says:

    The U.S. seems to act as an drug addict who needs to loose it all before he realizes a change needs to come in order for him to have a better future. Just as economist and pundits claimed big businesses were “too big to fail”, Congress and the White House had preconceived notions of America’s economy as “too big to fail”. These sneaky devils haven’t a clue.

    Good article ayecapitalist.

    Like

  2. Larry Zeni says:

    Tea Party says: “I’ll have mine with milk, please”

    Like

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