I could hardly agree more with John that the downgrade by S&P of the country’s credit rating marked a “terrible day” for the United States and will prove a “colossal disaster” for Barack Obama. As John says, the Republican TV ads practically write themselves and the greatest spinmeisters in the country won’t be able to help the president wriggle free from the blame for this deeply embarrassing debacle. Philip Klein at the Washington Examiner makes clear just how much of the blame belongs to President Obama and the overwhelmingly Democratic Congress of his first two years. So intent were they on turning the United States into a social democracy à la (bankrupt) Europe, that they didn’t even try to limit spending or address the skyrocketing deficits.
A plentitude of warning signs about the unhappiness of the electorate was ignored and explained away, usually with an elitist disdain that would have made the inhabitants of Louis XVI’s Versailles look like Mother Teresa: The Tea Party’s birth in the summer of 2009 with the raucous town hall meetings, the results in New Jersey and Virginia of the election of 2009, the election of Scott Brown in deepest blue Massachusetts in January 2010. Even the nationwide Republican electoral tidal wave in November 2010 apparently did not really get Obama’s attention. In February he produced a budget that wasn’t even a rearrangement of the deck chairs on the fiscal Titanic. It called for borrowing trillions more in order to buy additional deck chairs. Even the Senate, still controlled by Democrats, rejected it by a vote of 97-0. In April he called for a “clean” debt ceiling increase, i.e., not coupled with any spending cuts.
The arrogance and obliviousness has not been limited to President Obama, of course. As the estimable Peter Berkowitz points out in the Wall Street Journal, it is the whole liberal end of the American political spectrum that, in its death spiral, has been lashing out at all who dare to criticize it, American politics’ remake of King Lear.
But I’m afraid this credit downgrade will prove more than embarrassing to the country and to the president whose feckless arrogance made it inevitable. Europe’s debt crisis is getting worse by the day and no one knows what to do about it. As Peter Osborne of The Telegraph (h/t Instapundit) relates the European leaders are out of their depth.
We are in uncharted waters here. In all previous financial crises, no matter how greedy and stupid investors, bankers, brokers, and industrialists might have acted, there was always the power of the state, armed with state resources, to come to the rescue. That is no longer the case. This is a sovereign debt crisis. It is the lenders of last resort who need to be bailed out now. Unless God is willing to cut a really big check, this could get very ugly very fast.
Market crashes always come about because of a build up of long-term problems. But they are usually precipitated by a particular, not always important, event. In 1873 it was the sudden, totally unexpected bankruptcy of Jay Cooke, perhaps the most prominent banker in the country, thanks to his extraordinary (and extraordinarily successful) efforts to help finance the Civil War. In 1929, it was a talk by an obscure stock market analyst named Roger Babson, speaking at a luncheon in Wellesley, Massachusetts, who predicted that “sooner or later a crash is coming.” When news of the speech crossed the broad tape at 2:00 PM on September 3rd, 1929, the mood on Wall Street changed in an instant from the-sky’s-the-limit to the-sky-is-falling. The market declined sharply in the last two hours of trading that day, bumped downhill for the next six weeks, and crashed on October 29th.
Was the S&P downgrade of the creditworthiness of the government of the richest and most economically dynamic country the world has ever known the “Babson break” of 2011? We’ll soon find out.
