Monday, August 15, 2011

S & P Introduces the Edsel, Some Say

Noman doesn't usually disagree with Holman Jenkins.  But, this time he makes an exception.
Three players—the House, Senate and White House—were required to give their consent to a debt-ceiling hike. All three, by definition, were holding the hike "hostage" to their concerns. The House tea party contingent "won" not because it was more ruthless—but because, with Venn diagram simplicity, it confined itself to a position that overlapped with the positions of the other players, who all agreed that, whatever else needs to be done, spending cuts must be part of the long-term solution. 
And look at the settlement that materialized: The parties agreed to agree on spending cuts at a later date—a remarkably consensual solution that imposed immediate pain on no one in our struggling economy. Even the White House achieved its non-negotiable: The debt-limit issue will now remain buried past next year's election. 
The debt-ceiling battle was the tiniest step on a long road, but it laid down a useful milestone: We're overspending. Not a bad day's work in our democracy. 
Alas, committees are often wisdom-impaired, and the S&P credit committee showed as much when it based its downgrade on the discovery of conflict, brinksmanship and hyperbole in the debt-ceiling fight, as if these aren't a standard accompaniment to political progress. This was to take the angry-idiot shouting of TV, which is epiphenomenon, and make it phenomenon. It was the opposite of insight. It was also instantly refuted by the markets, which understand all the reasons U.S. debt is virtually default-proof.

It may very well be true that U.S. debt is virtually default-proof. Noman, like all sane people, hopes that it is.  And, "conflict, brinksmanship and hyperbole" in DC is no more authentic than are painful grimaces in big-time wrestling or international soccer.

Noman's suspects, however, that the sentiments S&P's downgrade articulated were exasperation and disbelief that DC, media pundits, and all parties concerned played chicken when the country, and world, are fast approaching the precipice.  Context matters.  There is time and season for everything, but not always.  There's a time for politics as usual.  But, this is not one of them.

To use an analogy, imagine a friend whose wife walks out on him.  His initial reactions might be disbelief, intransigence, anger and stubbornness, even while he wants his wife back.  While that response might be unhelpful at first, it is downright stupid three years later when the wife is serving up divorce papers.  A friend will sympathize in the beginning.  By the end, however, disgust will likely have set in.  Analogously, S&P--the capital markets sometimes befuddled watchman--is disgusted.

S&P just emitted a Bronx cheer that America's Nero's are fiddling while DC burns.  President Obama eagerly stepped into a terrifyingly unenviable position in January of 2009, and immediately proceeded to take advantage of a perceived opportunity to transform the nation's institutions and role in the world.  Just think about that.  To an economy drowning in worthless debt and impossible burdens, he added trillions of dollars of debt--each year--and heaped the greatest entitlement burden imaginable onto the backs of traumatized taxpayers.  

A fun game of political chicken is neither fun nor a game under these circumstances.  America totters on the brink.  And, this is no time for self congratulations that useful milestones have been achieved.  S&P to its credit knows so, even if Holman Jenkins doesn't.

Noman refers readers to the chicken scene in "Rebel Without A Cause" to see what happens when the testosterone laden play dangerous games.

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