In spite of President Barack Obama’s optimism, the United States’ economy is going downhill and many fear a double dip recession. Unemployment is hovering at over nine percent, without taking into account unofficial data or
even those workers who are underemployed because they are no longer working their full 40-hour weeks. It’s been months that Obama and the media insist and continue to say that the economy is gradually recovering and getting better
while millions of Americans sit back and wait for the so called “recovery,” that is far from being real. The political bickering and inefficient decision-making in Congress coupled with a historical credit downgrade, clearly suggest that the situation is critical.
In an interview with Fox News back in April, Treasury Secretary Tim Geithner said the U.S had no risk of losing its pristine
AAA credit rating because lawmakers were working on fiscal plans. However, that is not the reality today. Standard & Poor’s, one of the three world’s major credit agencies, downgraded U.S.’s perfect credit to AA+ for the first time in history, since 1917, when the credit rating system was created. The other two agencies, Moody’s Investor Service and
Fitch, have upheld the triple A credit rating, at least for now.
Republicans are now asking for Geithner’s resignation and a new era of fiscal leadership inWashington. In a 42-page report Standard & Poor’s cites the political brinksmanship in Washingtonas a reason for the downgrade. The agency feels America’s governance and policy-making is becoming less stable, less effective and less predictable than they previously believed. In other words, people are unhappy with their government and we owe too much money.
Without a doubt, the tensions and unrest during the debt ceiling negotiations brought about the unthinkable, according to experts. Both parties, Democrats and Republicans were once again fighting hard to each get their way in this deal, but even after reaching an “agreement,” things point to a bleak economic future for America. We were too close from defaulting. During the negotiations, president Obama and Democratic supporters contended the debt ceiling had to be raised in order for the government to continue to face its financial obligations and even came forward with a modest deficit reduction packet. On the other side were the Republicans calling for greater deficit reduction measures without raising taxes, all while using the possibility of a government
default as their bargaining chip? After hours and days of bitter negotiations they agreed to lift the $14.3 trillion debt ceiling, instantly giving the Treasury $400 billion in additional borrowing power.
“This compromise does make a serious down payment on the deficit reduction we need, and gives each party a strong
incentive to get a balanced plan done before the end of the year,” said President Obama during a press conference. “Most importantly, it will allow us to avoid default and end the crisis that Washington imposed on the rest of America. It ensures also that we will not face this same kind of crisis again in six months, or eight months, or 12 months. And it will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy. But the deal was bittersweet, and no one got their way. President Obama said the agreement was not what he envisioned, but it’s a first step in getting there. He wants to see more. “I believe that we have to ask the wealthiest Americans and biggest corporations to pay their fair share by giving up tax breaks and special deductions. Despite what some in my own party have argued, I believe that we need to make some modest adjustments to programs like Medicare to ensure that they’re still around for future generations.” The first part of the plan calls for spending reductions of $1 trillion over the next 10 years. But the president said the cuts wouldn’t happen so abruptly that they’d be a drag on a fragile economy. He also promised to create more jobs. The second phase of the agreement calls for establishing a bipartisan committee of Congress to report back by November with a proposal to further reduce the deficit, which will then be put
before the entire Congress for an up or down vote. The new committee needs to identify $1.2 trillion in savings over a decade. If the plan is not drafted by November or if the Congress turns it down, an automatic budget cut of $1 billion a year will take place starting in January 2013. The cuts would apply evenly to defense and non-defense programs So, although there is a compromise,
there’s still a long way to go. The worst part is that even with the agreement; the U.S was not able to avoid the black cloud. And it seemed like we were doomed to take a hit either way. Had the debt ceiling not been raised, the government would have defaulted, causing an automatic credit downgrade. But on the other hand, the negotiations to bring about the decision to raise the debt ceiling exposed the vulnerability of our country and political leaders. So, it seems there was no way around it. Bottom line is, the government didn’t do enough. On the brighter side of things, experts have said the credit downgrade should not be a reason for people to panic and run to take their money out of the bank as the U.S. continues to have the largest economy in the world. However, taxpayers and investors are afraid interest rates will skyrocket and the economy will sink even more, and they seem not to be completely mistaken. Just a few days after the downgrade announcement, the stock market felt the consequences as the Dow Jones plummeted 634 points, the largest fall since 2008. In the face of uncertainty, amid a crisis that seems to be never-ending, President Obama continues to be hopeful. He addressed Americans in a speech that some political commentators called
“idiotic.”
“Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we’ve always been and always will be a AAA country,” said the president. “United States received a downgrade by one of the credit rating agencies — not so much because they doubt our ability to pay our debt if we make good decisions, but because after witnessing a month of wrangling over raising the debt ceiling, they doubted our political system’s ability to act.”During the speech Obama encouraged
both parties to work together in cutting spending and drafting a long-term fiscal plan in order to reduce the enormous deficit. He also said it is important to keep the George W. Bush era tax-breaks in place, which are set to
expire next year.
Recent polls show that the president’s popularity has decreased. According to a Gallup poll from Aug. 7, approval rates are at 50%. However, there is no data showing a disproportionate loss of support among Democrats and Liberals.
There are 18 countries in the world that still have the desired triple A credit rating. There are also four American companies that now have a higher credit rating than the U.S, one of them is Microsoft. The triple A rating allows countries to borrow money at low
rates under the presumption that their governments are stable and their bonds secure.
In the meantime, the Federal Reserve has promised to freeze interest rates for the next two years. Anyone buying a home or car is expected to face higher interest rates after the two-year period expires. The agreement reached by Congress is not set in stone as after the elections the new Congress will decide on a new budget and things can change then.
