Loose Canons

The Obama Downgrade

Meanwhile, Republicans had better prepare to downgrade the Supercommittee.

By 8.8.11

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Standard & Poor's fired a red flare into the Friday night sky, downgrading America's credit rating for the first time in history. On Saturday, senior S&P executives warned that a second downgrade could happen if the spending cuts promised by the debt ceiling deal didn't occur.

The Treasury Department objected to the downgrade when advised by S&P of the planned action hours before it happened. Treasury accused S&P of being off by $2 trillion, saying the error raised "… fundamental questions about the credibility and integrity of S&P's ratings action."

But Treasury's objections were brushed aside when it became clear that the error -- which S&P corrected in its math -- wasn't material to the downgrade conclusion. The argument between S&P and Obama's Treasury Department resulted from a difference between the White House's assumptions and S&P's: the Treasury insisted that all the spending cuts and debt reductions included in the debt ceiling deal should be counted and S&P didn't buy it. In short, S&P wouldn't accept the old Washington "if-then" deal I inveighed against in ancient times, all the way back on 11 July.

The S&P downgrade memorandum makes clear that the objection is to "spending cuts" that are left to future action. It says, "We view the [debt ceiling deal]'s measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future."

This boils down to the fact that "if-then" deals never result in reductions in government spending. S&P had warned that real cuts of about $4 trillion over ten years were needed to restore American economic stability. The downgrade means that S&P believes that our political class -- especially the Obama statists -- will never live up to the bargain they made. And -- from the caterwauling from liberals, and renewed insistence on tax hikes from the White House -- we know that even the bad deal the Republicans had to make won't long survive.

The debt ceiling legislation made minuscule spending cuts -- $21 billion in 2012 and $42 billion in 2013 --in the context of automatic increases in spending that so greatly outweigh the cuts as to render them absurd. All the deal does is kick the can down the road to the "supercommittee" it creates which that either compromise on $1.5 trillion in cuts or trigger massive cuts in defense spending and other "discretionary" spending. (Even if the trigger is pulled, Social Security and Medicare are protected from cuts exceeding 2%.)

As S&P's David Beers said yesterday, one of the biggest reasons for his firm's downgrade is that the debt ceiling deal did nothing to rein in entitlement spending. Other S&P executives hinted that if the supercommittee doesn't make substantial cuts, there could be a further downgrade to America's debt rating.

In the deal, and S&P's reaction to it, are two lessons we cannot afford to ignore.

First is that dealing with America's enormous debt and deficit has to be done by making real cuts that take effect now and aren't left to future Congresses or state legislatures to render ineffective. That means that feel-good legislation that cannot have any effect for many years -- such as the balanced budget amendment Republicans wasted two critical weeks on -- cannot be part of a responsible solution. Spending "caps" -- like those featured in the "cut, cap and balance" package -- have no credibility in the financial markets because Congress and the Obama administration will not abide by them.

Second is that Republicans have to take far greater political risks and do a much better job in taking their case for real spending cuts to the American people. House Speaker John Boehner (R-OH) made a very good speech responding to Obama's July 22 debt crisis talk, but after that, the Democrats dominated the media. Senate Majority Leader Harry Reid (D-NV) was everywhere, calling Republicans "extremists." Americans were deluged by pundits and Democrats calling the House's Tea Party members radicals and worse.

Then came Vice President Biden's statement quickly leaked from a closed Democratic caucus meeting that Tea Party Republicans "have acted like terrorists."

The second lesson is easy to learn and apply. The latest CBS News/New York Times poll shows that while 47% of Americans disapprove of Obama's handling of the debt ceiling crisis, 72% disapprove of the way Republicans did. That's the result of not hitting back harder and more often to the onslaught of Obama speeches and crazed rhetoric from Biden and others.

RNC chairman Reince Priebus should start running some national television ads now and continue them through the election. They should be aimed at the Tea Partiers. Show the faces of Tea Party members at work and at home with their families, smiling people saying nothing more than "Hey, Mr. Biden: I'm a Tea Partier and I'm no terrorist. I just want Obama and you to stop spending too much."

Every time Obama goes on television to talk about the economy, a tough Republican speech should follow. There's a deep bench of speech makers to call on including Rep. Paul Ryan, Sen. Jeff Sessions, Sen. Jon Kyl, and Rep. Michele Bachmann to name just a few. Those speeches should re-ignite the fire under the Tea Party kettle.

The first lesson is harder, but even more important.

Liberals are screeching that Obama lost the debt ceiling deal because it makes massive cuts in spending. That's nonsense. The only thing Obama and his statist cohorts have lost is the precedent. Before the debt ceiling deal, no actual reductions in federal spending could be made (and there's a good argument that they still haven't). Nevertheless, if small cuts can be made, bigger cuts are possible. Which is what Republicans have to dedicate themselves to do, even if it means pulling the trigger mechanism of the supercommittee.

We know what's going to happen when the congressional "supercommittee" reports in November. Democrats will have insisted on huge tax increases, compromised not one bit on spending, and Republicans will have agreed to tiny tax hikes in exchange for tiny spending cuts. Neither will agree to do anything about entitlement spending in the election year. So deadlock will result and the "trigger" will be pulled. Democrats prefer confrontation to real compromise because they have no intention of abiding by the debt ceiling deal in any event.

The Dems will try -- in every bill that Congress considers this year -- to raise taxes and spending regardless of their commitments in the debt ceiling deal. Republicans can't be bound to a deal the Democrats will reflexively violate.

Republicans shouldn't fear a deadlock, nor should they respect a deal the Democrats will violate continuously. Republicans should embrace supercommittee deadlock because it will present them with an opportunity to win parts of what they lost in the debt ceiling deal. When the supercommittee reports a deadlock and the trigger is about to be pulled, Democrats will count on Republicans being overcome with fear of blame. At that point, House Republicans can vote down the two debt ceiling increases on the straight up-or-down vote called for in the debt ceiling deal and bring the whole debt ceiling "crisis" back to the boiling point. That won't be enough because the Democratic Senate won't vote for a resolution of disapproval, but Republicans can regain the initiative and serve up a political shockwave that may knock out Obama or create a Republican Senate majority or both.

Republicans should then put the Dems on the spot by proposing a comprehensive bill, like the one I proposed two weeks ago. Raise the debt ceiling through the 2012 election, but include specific and immediately effective spending cuts in a ratio of at least $3 in cuts to $1 in debt ceiling hike. Impose entitlement spending cuts by means testing, enabling those under 45 years of age to opt out of Social Security, and call the Dems' bluff. Pass it through the House and leave it on Harry Reid's doorstep.

If Republicans go along with tax hikes or retreat from real spending cuts, they will lose the economic battle and probably re-elect Obama.

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About the Author
Jed Babbin served as a Deputy Undersecretary of Defense under George H.W. Bush. He is the author of several bestselling books including Inside the Asylum and In the Words of Our Enemies. He is coauthor (with Herbert London) of the new book The BDS War Against Israel. You can follow him on Twitter@jedbabbin.