Last Friday afternoon, less than a week after Congress passed a bill that paved the way for at least $2.1 trillion in government spending cuts, Standard & Poor’s (S&P) took the historic step of downgrading the AAA credit rating of the United States to AA+. This is the first credit downgrade in the history of our country by a major certified agency, and it must serve as a wake-up call to Washington that it needs to take immediate action to put our fiscal house in order.
The S&P downgrade may be based on faulty economic analysis, but it should not come as a surprise to anyone. All three credit rating agencies – S&P, Moody’s, and Fitch – have warned for months that our top credit rating would be in danger if Congress and the President fail to enact significant reforms to reduce the deficit and work to lower the national debt. Several actually warned that unless we lowered the deficit by at least $4 trillion, a downgrade would be inevitable. S&P may have used the wrong numbers, but the message remains clear: the United States needs to make serious spending reform a reality.
The long-term implications of a credit downgrade are yet to be seen, but the short-term effects were felt by all Americans. The stock market swung wildly this week, leaving 401(k) plans devastated. Interest rates are likely to climb, making it harder to borrow money for a home or a car. It injected even more uncertainty into an already wary economy, which will ultimately keep unemployment rates high.
One would think the President of the United States would come out with a strong plan to put the nation back on solid financial footing. But instead, the President took to his bully pulpit to lay blame at the feet of Republicans and the Tea Party. Despite the fact that conservatives have offered plan after plan to cut spending by well over $4 trillion, the President continues to yell partisanship as his excuse for a lack of ideas, plans, or actions by him or Senate Democrats. On Monday, in his first remarks following S&P’s announcement, the President said the downgrade should “give us a renewed sense of urgency.” With all due respect, Republicans have had this sense of urgency since last year’s election showed Americans are fed up with the outrageous spending of a Democrat-controlled Congress and Presidency.
The solution to S&P’s downgrade is simple. Reduce federal spending and balance the budget. House Republicans have said this for months. We passed the Cut, Cap, & Balance Act which would have cut trillions of dollars from the budget and required a Constitutional Amendment to balance the budget. Earlier this year, we passed a 2012 budget that would have cut more than $6 trillion in government spending. Conservatives including myself voted for an alternate budget plan that would have cut more than $9 trillion over ten years and balanced the budget within the 10-year budget window. However, instead of working with us to rein in spending and avert a credit downgrade, Democrats played chicken with the American economy, leaving us no choice but to pass a smaller package of cuts to avert a default crisis.
In the end, we took the first step in a very important journey to return our nation to fiscal sanity. We’ve changed the debate in Washington from “how much to spend” to “how much should we cut?” However, this is not nearly enough. Decades of reckless federal spending cannot be reversed overnight, but as Speaker of the House John Boehner put it, “We can no longer afford to tinker around the edges of our long-term debt problem.” It’s going to take entitlement reform for those under age 55. It’s going to take tax reform to lower the rates and produce long-term growth. It’s going to take significant spending cuts and a balanced budget amendment. It’s going to take guts, and it’s going to take courage. But it must happen if we want to put confidence back into the system and leave a better country for our children and grandchildren.
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