OPINION_ Politicians bicker after US downgrade

Politicians bicker after US downgrade
ABC
North America correspondent Lisa Miller, staff, On Monday 8 August 2011, 18:12 EST

Chinese state media issued another stern rebuke to the US this morning as Republicans and Democrats on Capitol Hill blamed each other for the nation's humiliating credit downgrade.

The White House accused Standard and Poor's of relying on "questionable mathematics" to downgrade the US's AAA credit rating, a decision which was announced after the US markets closed on Friday.

But the ratings agency stood by its decision and warned America there is a one in three chance of a further downgrade.

Republicans and Democrats on Capitol Hill are blaming each other for the downgrade, which former Federal Reserve chairman Alan Greenspan admits has already had an impact.

"It's hit the self-esteem of the US, the psyche, and it's having a much profounder effect than I conceived could happen," he said.

And US Treasury secretary Timothy Geithner slammed Standard and Poor's, saying it had shown "terribly poor judgement in downgrading the US credit rating for the first time ever".

Adding to the humiliation, this morning China stepped up its rebuke of Washington, saying Democrats and Republicans needed to stop blaming each other over the unprecedented US credit rating downgrade and find solutions.

The demand came in a lengthy and harshly worded commentary published by China's official Xinhua news agency.

"Disappointingly, instead of reflecting on themselves and sitting down to fix problems in a cooperated way, the Democrats and Republicans...

are questioning the creditability of the downgrade ruling and blaming each other for the ever-first shame of slipping out top-credit rating club," it said.

"During the angry finger-pointing, the US politicians seemed to have forgotten Wall Street's severest losses in almost three years last week.

"Forgotten mounting concerns about double-dip recession, and forgotten the criticism over their irresponsibility showed during the debt arm-twisting from all over the world." It continued: "The alarm has rung.

It is time for the naughty boys in Washington to stop chicken games before they cause more damages.

"It is time for the policy-makers in Washington to settle down, to show some sense of responsibility and fix their fiscal problems." The Xinhua piece concluded: "History is a guide.

What we should learn from the financial crisis is to be selfish could only hurt yourself and drag others into water.

It is time for the US to tighten belts and solve structural problems in order to resume reputation and restore world confidence." On Saturday China, the largest foreign holder of US treasuries, had slammed what it said was the US "addiction" to debt.

In a stinging English-language commentary carried by Xinhua, China said it had "every right" to demand Washington address its structural debt problems and safeguard Chinese dollar assets.

"To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means," it said.

Australian Treasurer Wayne Swan has criticised China over its condemnation of the United States' "debt addiction".

"I don't think it's helpful to have some of that commentary that we saw at the weekend," Mr Swan said.

"What we have to do internationally is to work closely together to deal with these challenges," he added, saying the G20 nations in particular had a strong role to play.

Downgrade warning Standard and Poor's managing director John Chambers warned that the US remained on a negative outlook and said another downgrade was possible over the next two years.

"If the fiscal position of the United States deteriorates further, or if political gridlock becomes more entrenched, then that could lead to a downgrade.

The outlook indicates at least a one in three chance of a downgrade over that period," he warned.

As the US recovery limps along, Mr Obama's former economics advisor Lawrence Summers has raised the spectre of another recession while defending the administration's stimulus programs.

"There's certainly a risk of recession, but God knows, if we had not pursued these policies we would be looking at another version of what happened in the 1930s," he said.

Standard and Poor's decision on Friday came after frantic last-minute lobbying from the US Treasury, which said it had discovered an accounting error.

It did not change Standard and Poor's decision, but it infuriated the White House, which has accused the company of questionable maths and amateurism.

The message from the ratings agency was clear: the US is paying a price for Washington's divisive politics.

And there is little sign of that ending as both sides argue over the budget deficit and how to tackle the massive debt burden.

Democrats are targeting the Tea Party, with Senator John Kerry leading the orchestrated attack against Republican members of Congress who are ruling out tax increases.

"I believe this is, without question, the Tea Party downgrade," he said.

"This is the Tea Party downgrade because a minority of people in the House of Representatives countered even the will of many Republicans in the United States Senate.

I think this is one of the most telling, important moments in our country's history." Republican senator Jeff Sessions said responsibility for the downgrade lay at the door of the White House.

"The president is going to have to look the American people in the eye and tell them we are on an unsustainable course," he said.

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8 comments


Tek
43 minutes ago
Screw the Chinese as American I know the credit rating doesn't change anything with China since there payment is paid before the other stuff. They are just scared that with the downgrade there trade surplus with USA might be reduced. Obama is to blame for the downgrade since he has been going nuts spending money and giving it to unions. Plus most of both of the stimulus packages is still in Obama's pocket to try and buy 2012 election.



Phony Tony
1 hour ago
Tuff luck China. The Chinese have been like a drug dealer giving an addict their product on tick and now they want to complain when the addict hasn't got the money?
Print cash USA, deflate your debt and teach those dodgy Chinese a lesson in currency manipulation.



wanderer
1 hour ago
China purchased the debt ... to make a profit. They have not learned the 'buyer beware' lesson yet ! Print money mr usa and remove those tax subsidies to the wealthy !



James
2 hours ago
There are only two surprises here, that the downgrade was not more severe and that the downgrade has so far had little effect on US government securities and the like.

The rating that the US still enjoys is in my own opinion FAR too optimistic, true I am no economist so my opinion is no credit rating (that is what a credit rating is, in effect, an opinion on how likely the US is to pay back its loans), however I can see some fairly simple things that make them far less than an AA rating, the US's:
-Debt is immense compared to their GDP
-Financial commitments made without having sufficient funds is several times that figure
-Has a congress who have taken no action on reducing spending
-Has a history of defaulting on (especially foreign) creditors

-Dollar is at historically low values, especially compared to gold
-Has a central currency with little or no transparency
-Has a history of paying off debt by printing money, reducing the value of their repayments on the loans that they owe through inflation

-Share market is continuing to lose perceived value
-Imports continue to exceed their exports by a very significant margin
-Unemployment rate is very high
-Cost of living is rising at a high rate

I am no economist, but in my humble opinion the horrible state of the US economy, their history of refusing to pay their bills and their printing of money; combined with their unwillingness to tackle overspending or to examine the workings of their currency... according to the S&P folks' scale, I would barely class them above junk bonds, perhaps BBB-

P.S. Interesting that Yahoo removed so many comments.



robert
2 hours ago
It's about time someone had the Bal*s to stand up to the USA! S&P without realising it may have averted a 1930's type depression. This is a big wake up call for the USA and China has every right to be critical. If my company was owed a squillion $'s and my debtors were printing worthless cheques as the usa id starting to do, I would be banging on debtor doors as China is doing to the yanks.We are all spending money we don't have... hoping the future will take care of itself long after we have gone.Well!! the future is here now! and the people who got us into this are long gone... We can come back but it will be hard and wont happen if our current lot of decision makers don't get it right!!! What are the chances of that happenong on a scale of 1-10! I give them a 2 -3 before S&P and now a 4-5. Prove me wrong and I'll be the first to cheer!!!



luis
2 hours ago
time to get rid of the US dollar and bring in the gold standard exchange rate system. Damit with the Americans for bringing us all into this global mess and Bush and his two infamous wars that led the world into the financial crisis. He must be sleeping cooly in his texas home watching the news and enjoying his retirement benifits. Damit with Bush and his cronies. Obama has a lot to handle and he will succeed eventually. The world will be at ease in no time. History will be written by the victors and not those who work towards the dark side of history.



Nang Radford
3 hours ago
America needs a bilateral approach more than any time in their history, however with a two year long election process, along with a Black president having to negotiate with southern good ol' boys, i don't see how it is possible.



Steve
3 hours ago
Politics is just showbusiness for ugly people.

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