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Context of 'August 12, 2011: Business Publication Blames Republican ‘Tea Party’ Legislators for US Credit Downgrade'

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Representative Michele Bachmann (R-MN), a contender for the 2012 Republican presidential nomination, says Congress should not raise the nation’s debt limit (sometimes called the “debt ceiling”) even though many economists and financial leaders warn of economic catastrophe if the US does not raise that limit. Bachmann says Congress is considering bills that would force the government to make payments on debts even if the debt ceiling remains unchanged. [Associated Press, 4/30/2011]

Entity Tags: Michele Bachmann

Timeline Tags: Global Economic Crises

Representative Michele Bachmann (R-MN) tells a CBS News viewing audience that the Obama administration is lying when it says the US government would default on its loans if Congress refuses to raise the US debt ceiling. Bachmann accuses the Obama administration of using “scare tactics” to push for a debt-ceiling increase. Bachmann has said previously that Congress should not raise the debt ceiling (see April 30, 2011). Treasury Secretary Timothy Geithner and other Obama adminstration members, along with a bevy of economists and financial leaders including Federal Reserve Chairman Ben Bernanke and former Chairman Alan Greenspan, have urged Congress to raise the debt ceiling by August 2 to avoid the US defaulting on its outstanding loans and engendering what many call an economic catastrophe (see May 20, 2011). The US Treasury has used accounting steps, what it calls “extraordinary measures,” to avoid default since the nation reached its debt limit on May 16. The final deadline for the US to raise its debt limit is August 2. Bernanke and others have said that even a brief US default could cause an uproar in the global economy. But Bachmann says she has “no intention” of voting for a hike to the limit, saying instead: “It isn’t true that the government would default on its debt. Because, very simply, the Treasury secretary can pay the interest on the debt first, and then, from there, we have to just prioritize our spending.” Face the Nation host Bob Schieffer asks Bachman: “Experts inside and outside the government say that, if we don’t raise the debt ceiling, we face the United States having to default on its financial obligations. Are you saying these are scare tactics? Or are you saying that’s not true? How can you say that?” Bachmann replies: “It is scare tactics. Because, Bob, the interest on the debt isn’t any more than 10 percent of what we’re taking in. In fact, it’s less than that. And so the Treasury secretary can very simply pay the interest on the debt first, then we’re not in default.… What it means is we have to seriously prioritize. It would be very tough love. But, I have been here long enough in Washington, DC, that I’ve seen smoke and mirrors time and time again.” Bachmann says if elected president, she would end the nation’s deficit problem by making extreme cuts in spending. “I would begin very seriously by cutting spending,” she says. “President Obama, again, he spent a trillion dollar stimulus program that’s been an abject failure. We need to seriously cut back on spending first and foremost, and then prioritize.” Her only recommendation to handle the job crisis is to cut corporate tax rates; she explains: “We have one of the highest corporate tax rates in the world; we need to drop that significantly, so that we have a pro-business, pro-job creation environment. So if we cut back the corporate tax rate, if we would zero out the capital gains rates, allow for 100 percent expensing when a job creator buys equipment for their business, that would go a long way toward job creators recognizing that this is a pro-business environment.” She says that the administration’s health care package, which she calls “Obamacare,” will cost “800,000 jobs.” Schieffer says, “That is data that other people would question,” and she retorts by saying the Congressional Budget Office (CBO), not she herself, has made that claim. A recent analysis by the St. Petersburg Times’s PolitiFact showed that Bachmann’s claim of “Obamacare” costing 800,000 jobs is an “exaggeration” of the CBO’s figures, and is “misleading.” Bachmann dodges questions about the elimination of the minimum wage, which she has advocated since 2005, and the elimination of farm subsidies, from which she and her family have benefited. [CBS News, 6/26/2011]

Entity Tags: CBS News, Alan Greenspan, Barack Obama, Bob Schieffer, US Department of the Treasury, PolitiFact (.org ), Congressional Budget Office, Ben Bernanke, Obama administration, Michele Bachmann, Timothy Geithner

Timeline Tags: Global Economic Crises

Mitch McConnell.Mitch McConnell. [Source: Daily Political (.com)]Senate Minority Leader Mitch McConnell (R-KY) proposes an alternative to the Obama administration’s economic proposal to raise the nation’s debt ceiling and avoid the US defaulting on its debt. Republicans in the House and Senate have repeatedly refused to consider raising the debt ceiling (see April 30, 2011, June 26, 2011 and July 13, 2011); some have welcomed the possibility of a default, simultaneously saying that the nation will suffer little real economic damage by defaulting on its debt and blaming the Obama administration for any such damage. Obama officials and an array of economists and financial leaders have warned that if the US defaults on its debt, such a default could trigger a national economic collapse and send the world’s economies into a downward spiral (see May 20, 2011). McConnell’s alternative would raise the debt ceiling in three short-term increments of up to $2.5 trillion in total over the next year, as long as President Obama matched the raises with equivalent spending cuts; House Republicans could vote for non-binding resolutions of disapproval. The London Daily Mail notes that McConnell’s proposal would put the onus of raising the debt ceiling, and the negative impact of draconian spending cuts, directly on Obama and the Democrats, absolving the Republicans of blame and giving Republican presidential candidates the opportunity to slam Obama’s economic policies during the height of the 2012 presidential campaign. McConnell has blamed what he calls the intransigence of the Obama administration for the nation’s deficit, which was largely inherited from the Bush administration, and has told the Senate, “After years of discussions and months of negotiations, I have little question that as long as this president is in the Oval Office, a real solution is probably unattainable.” Obama has said that if Congress does not raise the debt ceiling by August 2, Social Security recipients and veterans may not get the checks they are due to receive on August 3. Few Obama officials or Congressional Democrats have any positive remarks about McConnell’s plan, and House Speaker John Boehner (R-OH) refuses to endorse it. [Daily Mail, 7/13/2011]

Entity Tags: London Daily Mail, Bush administration (43), Mitch McConnell, John Boehner, US Senate, Obama administration

Timeline Tags: Global Economic Crises

Mo Brooks.Mo Brooks. [Source: Public domain / Wikimedia]Many Congressional Republicans, particularly “tea party” freshmen, believe that not only is the Obama administration lying about the potentially catastrophic consequences of a US credit default that would follow the failure of Congress to raise the nation’s debt ceiling (see April 30, 2011, May 20, 2011, June 26, 2011, and July 11-12, 2011), but some even say that a credit default would be ultimately good for the nation. President Obama is joined by House Speaker John Boehner (R-OH), the chairman of the Federal Reserve, and Moody’s credit rating agency in saying that Congress’s failure to raise the debt ceiling by August 2 would be an economic disaster and must be avoided. But Representative Eric A “Rick” Crawford (R-AK) says otherwise. Crawford says all Obama would have to do to handle a default and the subsequent halt in US borrowing would be to use existing tax revenue to pay for what Crawford sees as “essential” federal services: the military, Medicare and Social Security, and interest on existing debt. If other government services, programs, and agencies such as the FBI, veterans’ benefits, and others would be interrupted, Crawford says that would be acceptable. “That wouldn’t work for just a few days. That would work for a few years,” he says, adding that he will not vote for a debt ceiling increase unless it is coupled with massive federal spending cuts. Budget deficits require “that we take some painful measures now. I’d rather swallow that bitter pill today.” Most of the cuts Crawford and fellow Republicans want would be in social safety-net programs, from Social Security, Medicare, Medicaid, and disability benefits to funding for education and veterans programs. Crawford and a number of House Republicans simply refuse to accept statements that economic calamity would result from a missed deadline, the Washington Post reports. That opinion, the Post says, will make raising the debt ceiling far more difficult than similar ceiling raises of previous years. Representative Mo Brooks (R-AL) says that not raising the debt ceiling would actually benefit the economy in the long run. Raising the debt ceiling, he says, just enables the federal government to spend itself into more debt. “A debt ceiling problem, as large as it is, is not anywhere near as a big or as bad as” more debt, he says. He adds that the government can continue paying creditors even if it is refused further credit. “There should be no default on August 2,” he says. “In fact, our credit rating should be improved by not raising the debt ceiling.” Most financial leaders in government and the private sector believe that the US credit rating will be dropped, perhaps significantly, if the US defaults on its debt, and the consequences of that drop could send the nation’s economy into a full-blown recession or even a depression. Even Boehner says the debt ceiling must be lifted. “Missing August 2nd could spook the [stock] market,” he says. “And you could have a real catastrophe. Nobody wants that to happen.” An Obama official recently said of legislators like Crawford and Brooks, “These are the kinds of people who get eaten by bears.” Washington Monthly editor Steve Benen writes: “The problem that plagues the nation is not about competing parties, ideologies, or creeds. It comes down to a dispute between those who believe empirical reality exists and deserves to be taken seriously vs. those who don’t. With Republican members of Congress and their supporters choosing the latter, it’s increasingly difficult to imagine the United States thriving in the 21st century.” [Politico, 5/13/2011; Washington Post, 7/14/2011; Washington Monthly, 7/15/2011]

Entity Tags: Morris Jackson (“Mo”) Brooks, Jr., Barack Obama, Eric A. (“Rick”) Crawford, Moody’s Investors Service, US Congress, John Boehner, Washington Post, Obama administration, US Federal Reserve, Steve Benen

Timeline Tags: Global Economic Crises

The outside of the Standard & Poor’s office complex on Wall Street.The outside of the Standard & Poor’s office complex on Wall Street. [Source: Satellite Radio Playground (.com)]The US loses its top-rank AAA credit rating from the financial services company Standard & Poor’s; the firm drops the US credit rating one notch to AA-plus. The US has never had anything but top-tier credit ratings in its financial history, and has top credit ratings from S&P since 1941. S&P makes its decision based on the huge Congressional battle over raising the US’s debt ceiling, normally a routine procedural matter that was used by Congressional Republicans, who threatened to block the ceiling raise unless they were given dramatic spending cuts by the entire Congress and the White House. (House Speaker John Boehner (R-OH) boasted that he and his Republican colleagues got “98 percent” of what they wanted in the debt ceiling deal—see August 1, 2011.) Because of the dispute, the US was hours away from an unprecedented credit default until legislation was finally signed and the default avoided. S&P also cites the government’s budget deficit and rising debt burden as reasons for the rating reduction, saying in a statement, “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.” The drop in the US credit rating will result in a rise in US borrowing costs for American consumers, companies, and the government. US treasury bonds, once seen as the safest securities in the world, are now rated lower than bonds issued by countries such as Britain, France, Germany, and Canada. S&P says the outlook on the US’s credit rating is “negative,” implying another downgrade is possible in the next 12 to 18 months. A senior investment officer with a West Coast management company says such a downgrade was “once unthinkable,” and says the entire global economic system will be affected. After the fierce Congressional battle, President Obama signed legislation mandating $2.1 trillion in spending cuts over the next decade, but S&P officials had asked for $4 trillion in savings as a “down payment” for restoring the US’s financial stability. Part of S&P’s rationale for the downgrade is its assumption that Congressional Republicans will not allow tax cuts implemented by the Bush administration in 2001 and 2003 to expire as scheduled by the end of 2012. The Obama administration immediately notes that S&P’s made a $2 trillion error in calculating the US debt, an error that the firm acknowledges but says does not affect its decision to downgrade the US credit rating. A Treasury Department spokeswoman says, “A judgment flawed by a $2 trillion error speaks for itself.” [New York Times, 8/5/2011; Reuters, 8/6/2011] Credit rating agencies such as S&P have suffered tremendous damage to their credibility in recent years; a Congressional panel called the firms “essential cogs in the wheel of financial destruction” after what the New York Times calls “their wildly optimistic models [that] led them to give top-flight reviews to complex mortgage securities that later collapsed.” [New York Times, 8/5/2011]
S&P Explains Decision: 'Political Brinksmanship' - S&P explains its decision in a press release. The firm is “pessimistic about the capacity of Congress and the [Obama a]dministration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.” Fiscal policy decisions between Congress and the White House, the firm says, “will remain a contentious and fitful process.” The firm accuses Congressional Republicans in particular of “political brinksmanship” in threatening to allow a debt default if their conditions were not met, and says such tactics destabilize both the US and the global economy. “The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy,” the firm says. “[T]he majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the” legislation. “The outlook on the long-term rating is negative.” [Standard and Poor's, 8/5/2011] In an email before the debt ceiling was raised, S&P’s global head of sovereign ratings wrote: “What’s changed is the political gridlock. Even now, it’s an open question as to whether or when Congress and the administration can agree on fiscal measures that will stabilize the upward trajectory of the US government debt burden.” [New York Times, 8/5/2011]
GOP Presidential Candidates, Congressional Members Blame Obama - The day after the downgrade, Republicans in Congress and on the campaign trail blame the Obama administration for the downgrade (see August 6-9, 2011).
Economist Lambasts S&P, Blames Congressional Republicans - Nobel Prize-winning economist Paul Krugman lambasts S&P and blames Congressional Republicans for the downgrade (see August 5-6, 2011).

Entity Tags: US Congress, US House of Representatives, Timothy Geithner, Paul Krugman, Obama administration, Barack Obama, John Boehner, New York Times, Standard & Poor’s, US Department of the Treasury

Timeline Tags: Global Economic Crises

In a Republican presidential primary debate in Iowa, candidate Michele Bachmann (R-MN) claims that the recent decision by financial services firm Standard & Poor’s to downgrade the US credit rating (see August 5, 2011) proved that she and her fellow “tea party” Republicans in the House of Representatives were right to resist an increase in the debt ceiling. S&P itself (see August 11, 2011), along with an array of economists and private-sector financial leaders (see May 20, 2011, August 5-6, 2011, and August 12, 2011), says that the battle by Bachmann and her fellow House Republicans to refuse a debt-ceiling increase, even if it meant the US would default on its debt, is what led to the downgrade. But Bachmann sees the issue very differently. She reiterates her position in a post-debate interview on Fox News, saying, “Standard & Poor’s essentially proved me right.” The firm’s decision to downgrade the US credit rating came about, she says, because “we don’t have an ability to repay our debt.… We just heard from Standard & Poor’s, when they dropped our credit rating and what they said is we don’t have an ability to repay our debt. That’s what the final word was from them. I was proved right in my position. We should not have raised the debt ceiling.” Pat Garofalo of the progressive news Web site Think Progress writes that “it’s blatantly clear that Bachmann has no idea what S&P said, because just about every word out of her mouth regarding the agency’s decision was incorrect.” Garofalo notes that “S&P never said ‘we don’t have an ability to pay our debt.’ After all, the agency still rates the US as AA+, meaning it has a ‘very strong capacity to meet financial commitments.’ One S&P analyst characterized the difference between AA+ and AAA as just ‘degrees of excellence.’” Moreover, Garofalo notes, S&P downgraded the nation’s credit rating because, as it said in its own press releases and subsequent statements, “the use of the debt ceiling as a political football and GOP intransigence on taxes.” Bachmann has long derided the idea that not raising the debt ceiling would be detrimental to the US economy (see June 26, 2011, and July 13, 2011). [Think Progress, 8/12/2011]

Entity Tags: Michele Bachmann, Fox News, Pat Garofalo, US House of Representatives Tea Party Caucus, US House of Representatives, Standard & Poor’s

Timeline Tags: Global Economic Crises

Business Insider reporter Zeke Miller says flatly that Representative Michele Bachmann (R-MN), a leading candidate for the 2012 Republican presidential nomination, is the reason why the US suffered a recent credit downgrade (see August 5, 2011). Yesterday, Bachmann insisted that the credit downgrade proved her argument against raising the US debt ceiling was correct (see August 11, 2011), but, Miller writes, the evidence, including statements by Standard & Poor’s, the agency that lowered the nation’s credit rating, shows that she and her fellow Congressional Republicans who fought to prevent Congress from authorizing the raising of the debt ceiling (see April 30, 2011, June 26, 2011, July 13, 2011, July 13, 2011, and July 14, 2011), are themselves responsible. S&P officials have said that Congress’s intransigence on raising revenues in any fashion is one of the central reasons why it lowered the US’s credit rating (see August 11, 2011). Bachmann led “tea party” Republicans in voting against every plan offered to raise the debt ceiling; she told reporters that the only way she would even consider voting for a raise in the debt ceiling was if the same legislation repealed entirely the health care reform act recently passed by Congress. Miller goes on to note that all eight Republican presidential candidates, including Bachmann, have said that they would not sign a bill into law that provided 10 times the amount of government spending cuts as it authorized tax and revenue increases. Miller concludes: “Bachmann’s statements on the debt ceiling come off either as stunningly uninformed about the issue, or deliberately misleading. Either way, this line of attack will only weaken her campaign with mainstream and business voters.” [Business Insider, 8/12/2011]

Entity Tags: Business Insider, Standard & Poor’s, Zeke Miller, Michele Bachmann

Timeline Tags: Global Economic Crises

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