Well, that was a bomb. As President Obama delivered his speech—nearly an hour after scheduled—the networks showed the Dow as he spoke. It wasn’t pretty—it went down, and down, and down. So why did his speech fail to reassure the market? Business Insider’s Joe Weisenthal speculates that Obama was conflating the market troubles with the S&P downgrade, when they’re actually two separate problems. In his speech, Obama talked about deficit reduction and the supercommittee—measures that respond to S&P’s long-term worries about American debt, but don’t do anything to stabilize the current turmoil. “See, if we were giving that speech, amid this market, we'd have said: ‘Congress, get back in session, and let's pass some tax cuts,’” Weisenthal writes. But Obama was worried about bonds—and so he bombed.
The problem isn’t that President Obama misunderstands the problem. The problem is that he simply doesn’t have any original ideas for solving it, says conservative blogger Jennifer Rubin. His Monday speech was a good example: He once again called for a “balanced” approach of cuts and revenue increases, and again suggested extended payroll tax cuts and unemployment insurance. But he’s said all those things before, so it’s unclear why he thought reiterating them in a White House press conference would calm investors’ nerves. “This illuminated Obama’s predicament—devoid of ideas, bitter about political opposition and completely in over his head,” Rubin writes on The Washington Post's Right Turn blog. “If the election were held today, I bet he’d lose. By a lot.”
You might think that nearly three years after the financial collapse, with the economy still sputtering, Americans might have developed some economics literacy, but you’d be wrong, argues Chadwick Matlin in New York magazine. Look no further than the pictures of sad and frazzled stock traders that have suddenly reappeared in the news. They’re shorthand for “now we’re really screwed,” and they’re accompanied by neat headlines tying a specific cause to whatever is happening. But of course, this isn’t about the S&P downgrade, or about Congress’ failure to reach a serious grand bargain on debt reduction, or even on the flailing European markets. There’s plenty of iceberg below the surface: stagnant unemployment, a private sector still cutting jobs, sputtering manufacturing, and more. This could be an opportunity to teach Americans about how the U.S. economy loses the ability to function, but instead we get simplistic explanations. That, and pictures of traders with their heads in their hands.
It’s easy to get discouraged about the sorry state of the economy, but there’s a great solution hiding in plain sight, writes Jim Tankersley in the National Journal. Back in September 2010, the director of the Congressional Budget Office laid it out: pass short-term stimulus like unemployment benefits and payroll tax cuts, but pair them with long-term deficit reduction, including entitlement reform and the sunsetting of the Bush tax cuts. That would help the economy regain its footing today—the stimulative measures help to maintain demand—while also taking care of the looming, enormous deficits that made S&P worried about the future health of the American economy. They’re not contradictory, despite what partisans on either side might say. Of course, passing it will still be tough, but the summer’s hectic negotiations proved that there’s a center-right coalition—including a Senate supermajority—ready to deal.
Forget the debate over whether Standard & Poor’s downgrade of the United States was justified, argues statistics whiz Nate Silver of FiveThirtyEight. The bigger point is that all of S&P’s ratings of national creditworthiness are unjustified—or at least underjustified. They don’t serve a very good predictive purpose—just ask anyone who bet on Ireland’s AAA rating in 2006. They’re based on faulty, incomplete, and admittedly objective information about the political scene. And in fact, data suggest an investor who bet against S&P when it downgraded a country would have made money. Instead, the agency seems to simply be following the markets. “The fact that billions of dollars in wealth are tied up in the judgments of a company with such a poor record is all the proof you should require that the global financial system is in need of reform,” he writes.
Lost in all the recriminations against S&P and between the two political parties, there’s a simple truth, says Jonathan Capehart: The agency is right. Despite S&P’s massive failures in the run-up to the financial crisis and despite its $2.1 trillion miscalculation on Friday, the fact is that dysfunction in Washington is a serious danger to America’s ability to pay its creditors on time. “S&P’s blunt assessment of our political system and the debt-ceiling debacle was right on the mark,” Capehart writes on The Washington Post's PostPartisan blog. The downgrade should be a clear indicator to lawmakers that they need to appoint delegates willing to compromise to sit on the supercommittee tasked with reducing national debt—not ideologues like the ones who got us here.
If the election were held today, I bet Obama would lose. By a lot.
The aftermath of S&P’s downgrade has been dramatic—markets in Europe are frantically racing to the bottom, while the Chinese gleefully lecture America on the need to live within its means. But Zachary Karabell writing for The Daily Beast says all of these reactions, whether sell orders or moralizing, are futile. The U.S. economy—and the dollar’s dominance—is just too large for it be removed from its central place in the global economy. China wants to diversify out of Treasury bonds? Too bad: There’s nowhere else to go (and indeed, investors were flocking to Treasuries on Monday, despite the lower credit rating). And there’s no one who can absorb the enormous American debt that’s currently held by the public. Over time, the current trajectory suggests an economy in which the dollar is no longer the anchor of the world system, but for now, the U.S. can expect to remain on top—it’s simply too big to fall.