Why America Should Listen To Sound Fiscal Advice #S&P#FinancialCrisis#Obama#congress

The S&P downgrade that happened this past Friday night should be the ultimate wake-up call for the United States to get back on track to economic and sound fiscal policies. As much as I have reservations about institutions such as the S&P, Moody's etc. ( remember these are some of the same institutions that said Bear Sterns was financially sound a few months before it collapsed under the weight of the sub-prime mortgage mess back in 2008) the fact of the matter is what the S&P is saying makes sound sense.

According to the S&P, they have based their decision to downgrade the US for the following reasons;

-We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

-We have also removed both the short- and long-term ratings from CreditWatch negative.

The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.

-More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

-Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

-The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Basically, they are saying that without real compromise in Washington, the US standing in the world financial markets will only deteriorate and further lessen our foothold as "economic" superpower. Having said that, I still can't believe I'm hearing calls from both politicians and financial experts about how wrong the S&P are about this downgrade and that don't forget the other two grading companies (Fitch and Moody's) still believe in the full faith and credit of the US dollar.

Really? That's the best answer politicians have about this downgrade? I'm not sure about you but if there was something terribly wrong with my health I would be sure to seek a second opinion about my condition. Now, as a consumer I will make the best decision but that doesn't mean I'm going to ignore or not weigh in both opinions to make a sound, healthy judgement. The total oppoosite is happening with this downgrade and from what I'm hearing from politicians and the street. Maybe it's the arrogance that makes these same people blind to what the problems and issues have been to lead to this downgrade.

It's just maddening that when you read and listen to real economic experts, non-biased entitites and third party observers that in order for th US to right the ship what needs to happen is a combination of sensible cuts combined with tax increases over the next 10 years to get our rating back to solid standing. The S&P pointing out in their statement that the inability of Washington to come up with a sensible solution ( one of them being for the Bush Tax Cuts to expire next year in order to tax the wealthy) can further damage our status and rating.

All the while, less than 10% of 1% of the voting population ( AKA Tea Party) have the power in Congress to sway the pendulum to put America at risk. The irony of all this is that as much as they don't want to pay more taxes they also don't want their Medicare/Medicade benefits or Social Security to be touched ( all government run programs) either. So not only do they want to eat their cake but they want to eat it without paying for it!

I'm not giving up on America in anyway but I do care about the future of it. And if that means those of us more fortunate than others having to pay more in taxes to level the playing field than so be it. The margins between the haves and the have-nots shouldn't be growing larger ( as they appear to be right now) but instead should be meeting somewhere in the middle. The US needs to continually invest in its future either through more financial assistance to education, R&D and/or skills building in addition to improving our infrastructure by investing in high-speed rail, alternative forms of energy and building our roads and highways so they can be more efficient for electric/compressed natural gas hybrid cars.

None of this will ever happen as long as the rhetoric and policitcal football that is taking place in Washington continues on the path it's on. Americans shouldn't be penalized because a body of politicians who say they represent America and my interests make stupid decisions based on ideology and basic political kabuki theatre. So, America needs to listen to smart people who are one of three experts in grading financial institutions and governments around the world. Instead of being part of the problem, politicians need to step up and become part of the solution.