by Hans Eisenbeis
For a decade now — since the rise of the global economy — political pundits from Mumbai to Madrid, Hamburg to Honolulu have argued about “American exceptionalism”: the idea that the US is unique and can hold itself to different standards than all other nations. When it comes to love and war, you can argue both sides. But when it comes to the hard facts of economics, not so much. Last week Standard & Poor’s downgraded US creditworthiness from a top rating of AAA to a less-than-top AA+. That’s the first downgrade in America’s credit rating since credit rating began, early in the last century (WashingtonPost.com, 8 August 2011). It also puts the US behind many of its European allies, not to mention Canada. (Canada!)
What does it mean? First, we should recognize that credit-rating agencies themselves have been in hot water. There’s evidence that folks like Standard & Poor’s, Moody’s and other credit raters contributed to the Great Recession (and the Not-So-Great Recovery) by rubber-stamping financial instruments and portraying risky investments (mortgage-backed securities, credit default swaps) as safe, easy money. The raters are in a fight for their lives, a fight that depends on reestablishing their credibility as objective, neutral evaluators of creditworthiness. And, as uncomfortable as it may be to admit, signs point to the fact that the US simply is not what it used to be in terms of macroeconomics. We’re $14 trillion in debt, and the people in charge of the federal checkbook can only agree on making a $2 trillion minimum payment. As NPR financial correspondent Heidi Moore succinctly commented, “The US government is like a kid who turns in his homework late and incomplete” (Minnesota Public Radio, 8 August 2011). Lucky the teacher didn’t flunk us.
It’s true that carrying the level of debt that we’ve been carrying is a financial disaster waiting to happen, but we’ve actually carried debt for 60 of the past 71 years. One might easily agree with vice president Dick Cheney, who, seven years ago, famously said, “Reagan proved that deficits don’t matter.” And one might ask: Well, do they matter or not? If they do, then why has the US credit rating never before been downgraded? The answer, at least if you listen to S&P, is straightforward enough. The US government is not acting in a unified, responsible way. Simply put, it’s not acting like a triple-A credit risk, so it doesn’t deserve that rating. Time to play catch-up to the rest of the class: Australia, Austria, Canada, Denmark, Finland, France, Germany, the Netherlands, Norway, Singapore, Sweden, Switzerland and the United Kingdom all still enjoy AAA ratings. So much for American exceptionalism.
A double-dip recession is bound to have political repercussions stateside in the next 18 months. But for consumers in affected markets across the globe, rating-agency jockeying and stock-market woes mostly translate to more of what they’ve already been living through for the past few years. While the Great Recession that started in 2007 forced a seismic shift in consumer attitudes — from a world of ample credit to one of credit scarcity, this economic news won’t immediately make consumers change their minds any more than they already have. Because while nations in North America and Europe are now coming to terms with getting their economic houses in order, regular consumers in homes across the globe have been doing that for some time.