|President Obama looks on as Treasury Secretary Timothy Geithner delivers remarks at the White House in 2009. (File 2009/ Reuters)|
A ham-handed response from the White House
STANDARD & POOR’S recent downgrade of US debt could have been entitled: “Pox on the Washington Establishment.’’ That would have captured the mood of the public as it has witnessed the slow unraveling of civic responsibility and reasonable discourse in the nation’s capital. Attacking the downgrade misses the point - and an opportunity.
In a television interview after the downgrade, Representative Barney Frank told viewers to “pay no attention to those people’’ at S&P. Senator John Kerry called it the “Tea Party downgrade,’’ in an effort to distinguish it from the downgrade of the United States generally. And not to be outdone, Treasury Secretary Tim Geithner attacked both S&P and Congress.
Geithner said that S&P demonstrated “really terrible judgment.’’ As for who owns the downgrade, Geithner’s view is, “Congress ultimately owns the credit rating of the United States’’ . . . as if to wash his hands of the entire mess.
Judging from the dust storm that the downgrade has caused since its announcement, it is clear that few are paying attention to these comments. Nor should they.
What is surprising about the downgrade is not that it happened but that the administration was apparently taken by surprise when it did. After all, S&P had warned the markets in April that US debt was on watch for a possible downgrade. And that was long before Congress and the administration made a spectacle of themselves over the debt-ceiling issue.
The administration has attempted to isolate S&P by pointing out that both Moody’s and Fitch maintain their AAA ratings of US debt. But that leaves out the important point that Moody’s has its US rating under review with negative implications and Fitch simply calls the S&P downgrade “premature,’’ pending the outcome of this fall’s debt ceiling review. In addition, S&P’s downgrade was accompanied by a “negative outlook’’ for long-term debt.
The tragedy in all this is that it was entirely uncalled for.
Sure, the Tea Party is outlandish and irresponsible. Of course, a $2 trillion error in S&P’s calculations was a whopper. What would you expect from the same outfit that gave Lehman Brothers a AAA rating shortly before its collapse? And, yes, if there was ever a time to downgrade US debt it was in December when President Obama extended the Bush tax cuts for the wealthy, thereby increasing the debt, and not in the aftermath of the debt ceiling resolution that decreased debt projections.
All that is true, but what is also true is that the Geithner-Obama approach to the debt-ceiling issue and to negotiations have been as ham-handed as it gets.
The tactical errors have been obvious. First, they failed to embrace their own deficit commission’s report that recommended a $4 trillion deficit reduction by 2020; tough discretionary spending caps and enforcement mechanisms; comprehensive tax reform; and, health cost containment. Second, as has been observed by others, the debt ceiling was a political hostage the Republicans could not afford to shoot. But because Obama did not realize this, he gave away the store. Third, Obama abandoned the bully pulpit by not calling the Tea Party zealots out for what they are. Finally, he took the 14th Amendment alternative (the debt of the United States “shall not be questioned’’) off the table without the slightest pressure to do so.
On Saturday, Geithner informed the president that he would be staying on as Treasury secretary, thus sparing the administration and the country the ugly scene of confirmation hearings for a successor, which would inevitably have devolved into a rehash of Geithner’s stewardship of the economy.
Geithner will serve through 2012. Picking a fight with the S&P is not the best way to launch this phase of his tenure.
A better course would be to embrace the subtle hints in the S&P report that support the administration’s agenda. For example, the report speaks ruefully that “. . .new revenues have dropped down on the menu of policy options.’’ It then holds out the “lapsing of the 2001 and 2003 tax cuts for high earners’’ as a potential positive development that would help with the rating.
Keep your eye on the revenue ball, Mr. Secretary.
Cornelius Hurley is director of the Center for Finanace, Law and Policy at Boston University.