BY SEN. SAM SLOM – A month ago, I wrote an editorial in Hawaii Reporter in opposition to raising the debt ceiling and conducting government business as usual.
Several professional people, including some friends, argued that I was wrong. if we didn’t take action, we would face a lowered credit rating, a plunging stock market and higher interest rates, they said.
It was the same argument that was used to force passage of the failed TARP bailout in the last days of the Bush Administration and TARP 2 and stimulus subsidies and grants subsequently.
So, at the last minute, a bi-partisan political agreement on our debt was cobbled together. It pleased neither the right nor the left. In my humble opinion, it was a phony agreement with more promises and no meaningful reform. A “super” Congressional Committee? Really?
The ink wasn’t even dry on the new law when the President, true to his beliefs, authorized billions in new spending and more debt. I said publicly that our credit rating would decrease and there would be huge losses in the markets because we did not address the causeof our fiscal problems: excessive government taxation, spending and debt.
In spite of that “grand” debt agreement, or because of it, Standard & Poor’s downgraded the U.S. credit rating last Friday, from AAA to AA+, the stock market plummeted (again), and interest rates will increase.
Billionaire Warren Buffet responded to S&P’s action, saying the US credit rating should be UPgraded to “AAAA.”
Over the weekend, the President’s men were quick to blame S&P, the Tea Party, Republicans in Congress and yes, President Bush. Today, President Obama added to the criticism of the messenger, S&P, quoted Buffet, and again called for raising taxes.
The gist of the attacks was that S&P didn’t know what they were doing, their accounting procedures are wrong, and besides, neither Moody’s nor Fitch downgraded the US credit.
I agree that ratings services are just that: ratings services. They don’t know everything. They do make mistakes. Why didn’t all of them downgrade Fannie Mae and Freddie Mac years ago? Their comments are subject to debate. Kind of like consumer magazine ratings and movie reviews.
But S&P happens to be right at this time. They see no willingness to change government fiscal policies or to improve the investment climate.
In April, Treasury Secretary Timothy Geitner was asked if the US credit rating would be lowered and his emphatic answer on FOX Business Network was, “There is no chance of that.” This knowledgeable member of the President’s Cabinet, who previously “forgot” to pay his own taxes, also announced he was leaving his position, but luckily (?), this past week, he was persuaded to stay.
Who are all these economic and business geniuses on the White House payroll? And the Federal Reserve? They are all in sync with President Obama’s view of the American economy and his absolute desire to redistribute wealth rather than maintaining or creating new American wealth. Most have never met a private payroll.
Everything Mr. Obama has said since ascending the Presidency was aimed at leveling Americans, dethroning America as the world’s number one economy, and a not-so-subtle attack on free market capitalism. The plan seems to be working.
A case can be made that the President has succeeded and that recent actions are neither a surprise nor disappointment to his world view.
During the past week alone, more than $2 trillion in assets have been lost in the market. Gold has surpassed $1,700 an ounce. Interest rates are likely to rise.
In Hawaii, while some argue we are exempt from major economic waves, we are particularly vulnerable to higher costs and government mistakes. More than most other states, we have been dependent on Washington, and affixed to the government trough.
But short term, there probably will not be a major interest impact on Hawaii or its government bond managers. Notably, the under funded Employees Retirement System, has flexibility to deal with a credit downgrade of this magnitude.
Our number 2 industry, behind tourism, is Senator Daniel Inouye. But even Inouye can’t deliver pork if there is no sow. We have overtaxed, over spent and under funded elements of our local economy. The current State Administration is attempting to deal with spiraling costs but they too come from a culture of government spending.
We are not creating private jobs nor improving our business and investment climate. But we can. The futurist and author Joel Kotkin addressed the Council of State Governments—West Conference in Hawaii last week. His admonition was to talk to the private job creators—not government—about adding needed income producing jobs. We need to incentivise private employers to spend more, invest more and add jobs thus creating a bigger wealth and tax pool.
There is nothing wrong with the economy. The problems stem from political mismanagement.
As I remind people, no single Mom, no family, or small business has the luxury of continuing to spend beyond its means; none has the ability to borrow beyond its credit capability, or to impose taxes on their neighbor. And few have begged the government to keep on spending and borrowing.
All economics is cyclical. The markets can rise again. Our problem is with the political leadership in this Nation. It must be changed.