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Obama on the Brink of Another Credit Downgrade


Just when the world financial markets had seemed to stabilize after five weeks of the violent convulsions caused by the first credit downgrade in the history of the U.S.; Standard & Poors announced the United States remains on negative credit watch and there is now a one-in-three chance of another U.S. credit downgrade. S&P understands that the President has been politically successful when he refused to cut spending and let the world suffer massive financial losses when S&P downgraded. It appears to be in President Obama’s political interest for America to suffer another credit downgrade crisis.

The new S&P warning follows President Obama’s efforts to sabotage bipartisan cooperation on the “Supercommittee” deficit reduction panel by making confrontational demands for half of a trillion dollars more in stimulus spending and trillions of dollars of new class warfare tax increases on investment and charity.

Most investors prior to August 5, 2011 assumed that the President would be so afraid of voter wrath if the U.S. credit rating was downgraded; that he would wait until the last moment possible before agreeing to just enough Republican spending cuts to save the AAA rating. Those assumptions turned out to be very expensively wrong.

President Obama refused to make any last minute cuts; then calmly left the Capitol for a family vacation on Martha’s Vineyard. On the next trading day, markets around the world suffered $2.5 trillion in losses. The New York Stock Exchange is off 11% from its recent highs; but China’s Shanghai Exchange is down 28% and Germany’s DAX exchange is down 26% from their highs:

Investors mistakenly was assumed President Obama’s opinion polls would suffer from a downgrade. According to the Gallup Poll; President Obama maintains the same 43% voter approval level he held from before the crisis, as he does today. But Congress hit a new all-time low approval rating of 13% during the crisis.

On the eve of the first meeting of Congressional Supercommittee, the Obama Administration leaked to the New York Times their demands for millionaires to lose the favorable tax treatment on capital gains, municipal bonds and charitable donations. This political poison pill to bipartisan cooperation is affectionately referred to as the “Buffett Rule”; in a honor of Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.

The President knows Republicans will staunchly oppose raising taxes on the affluent because, they say, it would be counter-productive to the capital investment needed for private sector job growth. The liberal NYT acknowledges worries about higher tax rates on the rich by “some economists who have disputed Mr. Buffett’s assertion that the megarich pay a lower tax rate over all. Mr. Buffett’s critics say many of the rich actually make more from wages than from investments.” They say if Mr. Buffett truly wants to show his patriotism, he could log on to the Treasury’s website; which allows billionaires or mom-and-pops to voluntarily donate to help pay down the U.S. nation debt; which stands at the same 120% debt to GDP level as Italy.

To create some angry class warfare video; 700 protestors carrying backpacks and sleeping bags marched on New York’s Wall Street to protest greed, corruption and government budget cuts. They say they are prepared to turn Lower Manhattan into an “American Tahrir Square,” public square in Cairo, Egypt where protests that ousted Egypt’s Hosni Mubarak. The protesters organized on website Occupy Wall Street under the motto:

“The one thing we all have in common is that We Are The 99 Percent that will no longer tolerate the greed and corruption of the one percent.”

According to the polls, President Obama is three times more popular than Congress. There also is no Congressional consensus to cut the big government programs of Medicare, Social Security and defense. By asking for more spending and proposing to rabidly tax rich Wall Streeters; President Obama is seeking to undermine prospects for the Supercommittee to find common ground on deficit reductions. Few Americans and virtually no investors took serious thoughts the credit rating of the U.S would be downgraded within four months of April 18, 2011 announcement that S&P had put the U.S. on negative credit watch, without President Obama catastrophically suffering in the polls. But given that President Obama was the political winner when America was downgraded to AA; it appears to be in President Obama’s political interest to let the credit rating fall again.

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