The Standard and Poor’s downgrade of United States Treasury Bonds confirmed that the Tea Party Congress’ threat not to pay our nation's bills was not only reckless, but destructive as well. Warren Buffett, who is certainly no financial idiot, said more starkly that Congress was “threatening to blow our brains out.”
Buffett’s colorful comment drew some attention, but most failed to take notice of the history he referenced to back it up. His reference point was our national debt level after World War II. The national debt then was 120 percent of GDP. That’s right, 120 percent, as much as a third higher than now.
Perhaps assuming the Tea Party Congress was not as ignorant of American history as they have proven themselves to be, Buffett offered no reminder that the United States did not adopt some draconian austerity program of spending cuts to address longterm debt concerns after WWII. To the contrary, the U.S. continued paying its bond obligations on time, including War Bonds, kept its GI Bill commitments to our veterans, created Medicare, built the interstate highway system, and implemented scores of other progressive economic policies, all the while raising the debt ceiling as needed without consternation.
During that post-war era, no one but no one questioned the United States’ ability or willingness to pay its bills, and treasury bonds were regarded more and more as the safest investment in the world.
America learned from the Great Depression that the gross disparity of wealth between the rich and the rest of society, a level of disparity to which we have now returned, was economically unsustainable and morally bankrupt. When the super rich, large financial institutions, and huge corporations in response to the depression they had caused sat on record cash reserves just as they are today, instead of investing in new plants, equipment, and the jobs to man them, Franklin Roosevelt called it what it was, “hoarding.”
Congress began a series of top income rate tax increases that peaked during WWII at almost three times today’s top end rate. In short, the message to the super rich was “use it or lose it,” and the signal to bond markets was “America will pay its debts.”
After WWII, America enjoyed an economic boom that lasted until the end of the century, by which time the lessons of the Great Depression were all but forgotten. American manufacturing soared. Unions grew. America built a middle class that became the envy of the world. The American economy diversified. Prosperity, not austerity, ruled the day. America was even able to gradually reduce top end tax rates.
By the time Lyndon Johnson was President, the U.S. treasury was running a surplus. When Ronald Reagan initiated a trend back to the failed economic policies and morally bankrupt political philosophies that led to the Great Depression, undermining unions, chipping away at the social safety net, and lowering top end tax rates to the extreme, manufacturing fell off dramatically, the decline of the middle class began, and the poverty rate soared once again.
Near the end of the century, Bill Clinton demonstrated that increasing the top end tax rate once again by just a couple of percentage points and implementing the most modest of progressive economic measures would get the economy back on track. By the end of the Clinton administration, the federal treasury was once again running a budget surplus and an enormous surplus at that.
George Bush began the 21st century with a renewed appeal to the lesser angels of our nature, ridiculing Al Gore’s call to pay down the national debt and create a “lock box’ to protect the Social Security trust fund. “The surplus is your money,” Bush said. Bush didn’t say the tax cuts he proposed would go predominately to the wealthy, not us.
Those extreme top end tax cuts, still in effect today, simply did not work. America lost jobs and only began adding jobs again as the impact of Obama’s American Recovery and Reinvestment Act, passed early during the two years Democrats controlled both houses of Congress, began to be felt in some sectors of the economy including manufacturing at long last. Then came the Tea Party, ignorant of history… or worse.
Today Americans face the implications of the Standard and Poor’s downgrade. The language of the S&P report on the downgrade is best described as incredulousness that the Tea Party Congress ever considered default an option. While the report expresses disappointment with the outcome of the debt ceiling debate on both the spending and revenue side, it also marks one glaring change in its previous assumptions. The S&P, having previously assumed that the Bush tax cuts will expire in 2012, now assumes the Tea Party Congress will most certainly find a way to extend them.
It is odd how Tea Party politicians worship rhetorically at the altar of free enterprise, a system driven by risk-taking, but blame “uncertainty’ for the failure of “job creators,” meaning the super rich, to create jobs. It is all the worse that those same politicians fuel uncertainty with their reckless and destructive efforts to bring a president down, only to gain more power for themselves. Never mind that the top 10 percent who supposedly need certainty to create jobs hold ninety percent of the wealth in America, but will contribute nothing, zero, nada to reduce the national debt.
After WWII, the only real certainties for job creators were death, taxes, progressive economic policies, and the full faith and credit of the United States of America.
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I hate to keep repeating myself on all these post against the Tea Party and the evil George Bush, but I guess I'll keep saying it until it sinks in.
In December of last year, Obama stated when he extended those pesky Bush tax cuts for the rich that not doing so would hurt the struggling economy, and cost every family $1,000-$3,000 in additional taxes. If those tax cuts were only for the rich, how, sir, could it cost every family?
It is a known fact, and has been reported all over the media, on TV and online, that we have an annual budget shortfall of $1.3 trillion. Every year we are in the hole for 1.3T. If we tax everyone making over $250,000 at 100 percent and take every dime they make, it will run government for a grand total of five months out of the year. The Private Jet tax that Obama and Harry Reid keep going on about would bring in a grand total of 7 thousandths of one percent of the debt owed. Now, how again are we going to get out of this mess?
We were downgraded because the Congress didn't cut enough out of the budget to make anyone believe we have learned our lesson.
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Very well done.
I continue to be dumbfounded by each new revelation that comes out of the "flat earth society" most of us know as the Tea Party. In all my years I have never encountered a group so demonstrative in their refusal to learn or accept even rudimentary precepts of science, law, or economics.
The only thing missing from their recollections and interpretations of history are the opening lines "Once upon a time", and the closing "happily ever after".
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Obviously you don't understand what is going on concerning our debt and deficits. What Congress passed the other day was nothing short of them kicking the can down the street.
They said they will cut $2 trillion over the next 10 years. But what most people don't realize is that we will grow our debt over this same period to about $25 trillion. These cuts they promise will never happen and everyone knows it.
Are our representatives paying attention to what Congress said 10 years ago? No, just like they won't 10 years from now.
It is past time that Washington starts cutting spending. Everyone in this country has had to do the same so why not Washington?
I believe the biggest problem we are facing is baseline budgeting. Try looking that up and let me know what you think. When Congress comes out and says they are cutting any program by $1, $2, or $20 trillion dollars they are talking about future spending not actual cuts. But that doesn't stop the President from coming on TV and accusing the Republicans of wanting to kill old people or preventing sick children from getting the health care they need.
We were not going to default on our debt by the way. The country collects enough in taxes every month to service our debt and pay Social Security and more. So this talk about default was mostly due to the media and Obama. He is the one who said Social Security checks might not go out. I never heard one Tea Party member state those words.
Your hatred of the super rich is interesting. How does your boss who lives in poverty pay your check every payday? I have never worked for a poor person and don't plan to. I have never had anything to stop me from being super rich other than my choices. I am not rich, but I don't hold anything against someone who is.
It must be very hard for you to realize you made bad choices and now you must hate those who you feel are better than you.
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Mr. Wrinn, Warren Buffet and China have distinctly different takes on the S&P downgrade.
Would you like to take a guess on which one owns more U.S. debt?
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There is a huge difference between the WW2 and post-war era debt and our current debt. We issued bonds that were held primarily by Americans to pay for a morally-right war.
Currently, we are taking out loans to pay our monthly operating costs. As any good business owner will tell you, you are prolonging the inevitable when you take out bills to make payroll like we're doing right now.
In WW2 we were making capital investments which is good for business.
Neither Republicans or Democrats have done anything to help fix the economy for the last 20 years. The Tea Party, with all of its faults, understands the economy. We have to reign in spending. We cannot continue to spend like sailors on R&R. Services must be cut.
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Recently I came across some interesting info about our debt from the New York Times. It said 6.2 of the 14.3 trillion in U.S. debt is owed by the government to itself. China ranks #6 on the list debtors with 1.2 trillion. The 3.6 trillion held by individuals, corporations, banks, insurance companies, pension funds and mutual funds, and state and local governments is triple what China holds.
Our national debt was 1 trillion before Reagan. He added 1.9 trillion. Herbert Walker Bush added another 1.5 trillion. Clinton added 1.4 trillion but also left us with several years of surpluses that slowed the growth of the debt.
"Dubyah" added 6.1 trillion to debt and Obama is weighing so far with adding 2.4 trillion.
So much for 30 years of supply side economics. Let's call that experiment a failure.
R. W. Young