Grading the outlook on debt

Our view: A wake-up call from Wall Street quickly misinterpreted as an endorsement

April 19, 2011

Wall Street sent the United States a wake-up call on the national debt this week, but it appears conservatives didn't get the message. It took about a nanosecond for Republicans to start blaming President Barack Obama for the decision by Standard & Poor's to lower its outlook on U.S. credit to negative instead of stable, and to increase their threats to hold hostage a crucial vote on raising the debt ceiling.

The warning from S&P is surely not something to be taken lightly. Should the nation's bond rating be lowered from its current Triple-A, the consequence could be severe. The tiniest fraction of a percent increase in the interest rate paid on the debt would add billions of dollars to the deficit. It could also drive up the cost of consumer borrowing.

What caught the rating agency's attention were not the actions of the White House but the gridlock in Congress. The deficit has become so large and the outlook for a budget compromise so poor that fiscal disaster now seems within reach even for the world's economic leader. Is that the fault of Democrats who want to protect programs like Medicare and raise taxes on the rich, or Republicans who want to reduce spending only?

For bond rating purposes, the answer is immaterial. Anything that reduces the debt load — and thus ensures that the country can meet its obligations to creditors — would surely please Wall Street. That's a reality not lost in Maryland, where the state enjoys its own Triple-A bond rating but not the GOP's aversion to safety net spending.

Yet there was House Majority Leader Eric Cantor, once again equating debt with spending and refusing to consider all remedies. He announced Monday that House Republicans will agree to raising the debt limit only in conjunction with "serious reforms that immediately reduce federal spending."

In other words, Mr. Cantor has taken a warning on gridlock as a reason to make the gridlock worse. Only in the logic-defying world of tea party politics does this make sense.

Democrats have called for less federal spending, too, but they also want to see some sharing of the debt burden. That doesn't mean solving the problem entirely through taxing the rich; it does mean making taxes part of the solution.

House Republicans are the hostage-takers in this negotiation, not the White House. Serious deficit reduction requires both raising tax revenue and lowering spending — a point President Obama's bipartisan commission on fiscal reform made abundantly clear last December.

Conservatives choose to be intransigent but want to be seen as reasonable for being so. Thus, the far-right scribes of The Wall Street Journal's editorial page can call the White House "hyper-politicized" for defending traditional Democratic values but see nothing wrong with Republicans refusing to raise the debt ceiling unless the rest of government accedes to their demands.

Congress is not past the point of no return on this. The S&P warning is not a downgrade. If negotiations prove fruitful, the debt ceiling is raised and the country appears down a path of more manageable debt, the outlook would no doubt change.

But no wonder the experts at S&P are skeptical this will happen. The American people are, too. As President Obama pointed out Tuesday during an appearance in Annandale, Va., the solution lies in shared sacrifice and not with telling the rich "you don't have to do a thing." The sooner Republicans accept that reality, the sooner the debt crisis will go away.

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