The key word in S&P’s explanation of its downgrading of US debt is “TRAJECTORY”. A trajectory is based on a series of data points collected over time, not on a singularity. A trajectory indicates a pattern of behavior most likely to result in a particular outcome (or a set of closely related outcomes). A trajectory may be affected by specific events, but it is highly unlikely that a single event will shift a trajectory massively enough to result in a completely unforeseen outcome.
The trajectory that led to the S&P debt downgrade was put in place long before the “debt crisis” of the last two weeks, and long before there was a Republican majority in the House of Representatives that was connected to the “Tea Party” . Our present trajectory began when President Obama and the Democratic leadership of the 110th and 111th Congresses enacted the largest peacetime expansion of the Federal government in US history, and chose to do so during the most severe economic downturn since the Great Depression.
The combination of a shrinking GDP during a steep recession and a historically large increase in government spending caused the size of the Federal government, as a percentage of GDP, to balloon from 19% to nearly 25% of GDP during President Obama’s first two years as President. All the explanations we heard about the government spending spree of 2009 (it’s the Stimulus, it’s the bailout of banks, insurers, car companies, etc.) that were designed to make us think these spending increases were temporary, were nothing but lies. The Federal Government is still consuming 25% of our GDP, and President Obama’s failed 2012 budget projects increases in government spending that will continue to outpace economic growth unless some kind of miracle occurs. Meanwhile, due to the depressed economy and a corresponding drop in government revenues, annual deficits have ballooned from their historical average of 2% – 3% of GDP to an all-time high of 10% of GDP.
All of this was due to massive spending increases approved by Democrats. Although President Bush signed the initial economic bailout bills in late 2008, the total cost of the Bush bailouts was less that one quarter of the $4.8 trillion in debt that the government incurred since 2008. The Democrats may have taken their 2006 and 2008 electoral victories to be a “mandate” for bigger, vastly more expensive government, but I don’t recall a single national conversation during which President Obama (or candidate Obama) ever openly discussed the cost of his party’s grand big government schemes.
Nor has President Obama ever done anything substantial in the realm of financial planning. His 2009 budget, $1.4 trillion deficit and all, was pushed through Congress as an emergency measure that was absolutely necessary for the survival of the nation and its economy. But then he dropped the ball and allowed all of fiscal 2010 to go by without a Federal budget. Then he claimed it was in the country’s best interest to wait on the recommendations of his bi-partisan Debt Commission before outlining any more spending priorities. But this past March he ignored the recommendations of his own Debt Commission and presented Congress with a budget so unworkable that two months later it was voted down 0-97 by the Senate. (This itself is unusual, as the Constitution proscribes that Federal budget measures are to originate in the House of Representatives). President Obama has not bothered to present another budget to Congress, thus ensuring that we will endure yet another year of government finances being pasted together through spending resolutions, rather than appropriated through an actual budget.
And during the recent Debt Ceiling debate, all the plans that were put forth for public discussion and were used as the basis of Congressional debate were plans authored either by Republicans or bipartisan Congressional teams. The White House failed to release anything resembling a detailed financial plan, only vague talk about a “balanced approach” to budget reform — just as it has failed to provide Federal budgets, or its own health care reform plan, or a plan to close Guantanamo Bay and revamp US detention and interrogation programs for captured terrorists, or a comprehensive strategy for military action in Libya, and on and on. Speaking of health care reform, one of the biggest White House selling points for comprehensive health care reform was ‘health care reform is entitlement reform’ — we were promised significant deficit reductions if our health care system was put under the direct control of the Federal government. Needless to say, after the final version of the bill, now the law, was scored by the CBO, its highly touted deficit reduction features were nowhere to be found. The ObamaCare bill mandates billions of dollars in new revenues and redirected spending, none of which will be used to close the current budget deficit.
Through all of this, the ‘trajectory’ that emerged was clear — once they had recaptured power in Washington, the Democrats were going to embark on the biggest and most expensive expansion of the Federal government since the New Deal and the Great Society, regardless of the state of the economy. To this end, they manipulated the Great Recession to justify even more spending (the failed “Stimulus”) and more regulation (Dodd-Frank). There was only a short term fiscal strategy, based on more borrowing and printing more money. Long term? Eh, just kick the can down the road one more time.
Caught in the middle of this whole episode has been President Barack Obama, a man whose prior professional experience included time as a (failed) community organizer, graduate student/law professor, entry-level attorney, board member of several non-profit organizations, and elected politician. Each of these vocations primarily involved either being a facilitator, or participating low-level meetings, or gathering and critiquing ideas from community members, clients, students, fellow board members, or citizens. Before he became President, he had little or no experience negotiating agreements between disparate factions, or consolidating a wide range of ideas into a concrete and practical plan of action, or — most importantly — participating in major political undertakings without the aid a coterie of party operatives available to fix anything that didn’t work out in his favor.
Clearly, President Obama does not have the skills to handle powerful factions from both the Republican and Democrat political parties. He rolled over (or perhaps more accurately, ‘voted present’) at the whim of the Democratic majority of the 111th Congress over and over again, signing whatever Harry Reid and Nancy Pelosi put in front of him (specifically the Stimulus and ObamaCare bills) with little in the way of personal input and virtually no effort to include Republican minority members in the authorship of Congressional legislation. And now that Republicans control the House of Representatives, Obama is completely out of his league. Professor Barack can’t resist the temptation to appear clever by flinging barbs at the inability of Congress to successfully complete their homework assignments and formulate a “balanced approach” that reflects his lofty ideologies. But he clearly has no idea how to lead Congress or the nation through our current financial and economic crises.
And so we come to the final point in our current trajectory, which is marked by President Obama’s lack of leadership. As a nation we are at an impasse, caught between the big government fantasies and out of control spending of career Democrats, a Republican party torn amid the establishment-loving members of the old guard and a group of brash, Tea Party-inspired, bureaucracy-slashing freshman legislators, and a President who has no idea how to deal with such domestic unrest, nevermind the financial crisis in Europe and the smoldering power keg in the Middle East.
Yeah … the way things are looking right now we really are “pretty darn f*cked.” And in a lot more ways than just our credit rating.
Okay, I should probably lighten the mood a little bit: