After Downgrade, Blame Gets Passed Around
DAVID GREENE, Host:
From the studios of NPR West, this is WEEKENDS on ALL THINGS CONSIDERED. I'm David Greene, in for Guy Raz.
It was a little like getting your credit report back and taking a real punch in the gut, only this time, it's not you or me, it's the United States of America. Last night, a leading credit ratings agency, Standard & Poor's, downgraded its rating for the U.S. from AAA to AA plus. S&P essentially told the world that in its view, if the U.S. borrows money, there is some question about whether the government will repay the debt.
Our cover story today: after the downgrade: the fallout domestically and around the world and where the U.S. goes from here. Republicans certainly wasted no time keeping blame on President Obama.
TIM PAWLENTY: It's a reflection of the failed leadership of President Obama. He really is inept when it comes to the economy.
MICHELE BACHMANN: This president has destroyed the credit rating of the United States through failed economic policy.
RICK SANTORUM: The president has to be held accountable for it. He did not provide leadership.
GREENE: The voices of three people vying for the Republican presidential nomination: Tim Pawlenty, Michele Bachmann and Rick Santorum. I'd like to now bring in NPR's White House correspondent Ari Shapiro. Hello, Ari.
ARI SHAPIRO: Hey, David.
GREENE: How big are the risks here for the president?
SHAPIRO: Huge. I mean, the S&P really indicted all of the political leadership in America, but at the top of that pyramid is President Obama. He's the first president to have lost America's AAA rating, and you're going to hear that over and over again, even though there is certainly more than enough blame to go around. I mean, the S&P also mentioned the Republicans' refusal to raise revenues. But as you heard, Republicans are blaming the president, will continue to do so. We're going to see a lot of fingers pointed at the Tea Party and at the political leadership in Congress. But for the president's 2012 re-election campaign, there are certainly significant implications.
GREENE: And the administration already fighting back and really taking on the credibility of S&P.
SHAPIRO: Yeah. What's interesting is that the administration is not fighting back so much against the Republicans who resisted the sort of $4 trillion grand bargain that potentially could have averted this downgrade. Instead, they are attacking S&P, saying this was an uninformed, misguided decision based on what they described as a $2 trillion math error, that when the S&P gave the paperwork to the Treasury Department at 2 P.M. Friday afternoon, Treasury officials found this error that was in the forecast of the debt to GDP ratio going forward. They say correct that error, and you don't have the kind of debt problems S&P claimed you have. S&P says, well, you still got short-termed up problems, and you've got this political gridlock, so they went ahead and downgraded anyway.
GREENE: It's not like a one-digit error on your math homework. Ari...
SHAPIRO: Two trillion dollars is a lot of money.
GREENE: It's big. That's a lot of cash. Hang on, Ari, if you will. I want to bring in our colleague Tamara Keith, who's been covering the story from the business side. And, Tamara, Ari mentioned this $2 trillion mistake. Can you give us a sense of what happened with S&P's accounting, and does this really hurt the company's credibility?
TAMARA KEITH: Well, S&P couched it a little bit differently. They aren't calling it a mistake. They say that they just initially chose to use a different set of assumptions and then ultimately went with the assumptions that the Treasury Department wanted, and that didn't change the outcome because they weren't just considering the debt. They also heavily weighed political issues, the political brinkmanship.
David Beers is the global head of sovereign ratings for S&P, and he addressed this on a conference call with the reporters this afternoon.
DAVID BEERS: It really shouldn't surprise anyone that we have to look at the process under which government policy is made because fiscal policy is fundamentally at its core a political process. The short answer is, yes, political risk carries a bit higher rating than the fiscal part of the equation.
KEITH: But if you want to talk about credibility, you have to go back to the mid-2000s. And all three credit rating agencies came away from the financial crisis seriously tarnished, because back in the day, they were giving AAA ratings to housing securities that were basically junk and fed the current economic crisis.
GREENE: Well, let's talk briefly about the credibility of the United States. The U.S. got a pretty good lecture today from its biggest foreign investor China.
KEITH: China holds $1.2 trillion worth of U.S. debt, and it basically took this credit rating as an opportunity to kick the U.S. while it's down. The state-run Xinhua News Agency carried a commentary that said the U.S. needs to confront its addiction to debt. It also called on the U.S. to cut military spending, which is nothing new from China.
GREENE: Well, Standard & Poor's did give a number of reasons for this downgrade, and here's someone else from the company, John Chambers, the managing director and chairman of S&P's sovereign ratings committee.
JOHN CHAMBERS: You're going to need eventually either some action on entitlements, either by changing the parameters of the program or, you know, raising additional revenue to pay for those programs.
GREENE: And, Ari, let me turn back to you for this changing the parameters of Medicare and Social Security or raising taxes. This sounds like quite a challenge for this White House.
SHAPIRO: Well, yeah, but it's been a challenge for President Obama since he said months ago that he wanted to do this. This was the plan that he was pushing all along during the debt ceiling talks, and it's the plan that the bipartisan super congressional committee that's going to focus on finding more in deficit reductions has been looking for. Obviously, Democrats are resistant to changing Medicare, Medicaid and Social Security. Republicans are resistant to increasing tax revenues. But in some ways, this S&P downgrade may give more incentive to lawmakers to make those kinds of hard choices and make those changes.
GREENE: That's NPR's White House correspondent Ari Shapiro. We were also talking to NPR's Tamara Keith. Thank you both for talking to us.
SHAPIRO: You're welcome.
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