US downgrade fuels political inferno
2011-08-06 22:33
Washington - It was a historic blow, but even America's loss of its top-notch credit rating could not cool a political feud which some fear could drive the world's largest economy into fiscal purgatory.
Despite being rebuked by ratings blue chip Standard & Poor's for months of "brinkmanship", US politicians dug deeper on Saturday into inflexible positions on spending cuts, deficits and tax policy.
The humiliation of seeing an AAA rating tumble to an AA+ with a negative outlook had the potential to further damage a weakened President Barack Obama and his Republican foes in Congress who have forfeited public trust.
Obama was already diminished by a debt showdown with Republicans which ended just short of a national default this week, and has seen his job approval rating in a Gallup Daily tracking poll hit a perilous 41%.
Congress is even more unpopular. A CBS/New York Times poll taken after the prolonged political tangle over the debt showdown put its disapproval rating at a staggering 82%.
And 72% in the poll, taken on August 2 and 3, disapproved of the performance of Republicans, after they demanding huge budget cuts in return for agreeing to raise the government's borrowing authority this week.
White House calls on rivals to unite
Obama stayed out of sight on Saturday at the Camp David presidential retreat, but the White House chose to take the moral and political high ground, calling for a reality check among Washington's warring factions.
"The president believes it is important that our elected leaders come together to strengthen our economy and put our nation on a stronger fiscal footing," White House spokesperson Jay Carney said, saying they should work to bridge ideological divides.
Yet the immediate reaction to the Friday night surprise from Standard & Poor's showed the deep fissures over how to rein in a $14.3 trillion national debt and an annual deficit tipped to hit $1.6 trillion were as wide as ever.
While the impact of the ratings downgrade on markets and America's stagnant recovery was unclear, it immediately fuelled the political inferno.
Standard and Poor's said it had changed its assumptions because it believed that a repeal of tax cuts for the rich passed by ex-president George W Bush, which could help ease the deficit, will not take place.
"The majority of Republicans in Congress continue to resist any measure that would raise revenues," it said.
Republicans slam 'big spenders'
But Republicans were adamant that no tax rises should be contemplated.
"Big spenders in Washington will surely run out and claim we must raise taxes to solve this problem, but tax increases would only destroy more jobs and leave our economy in worse shape," said Republican Senator Jim DeMint.
DeMint is a favourite of the ultra-conservative Tea Party faction, which Democrats accused of holding America hostage during the debt debate.
Republican presidential candidate Tim Pawlenty signalled his side would use the ratings downgrade to portray Obama as hapless and presiding over American shame and decline as the president seeks a second term in 2012.
"What we should be talking about is downgrading Barack Obama from president of the United States," Pawlenty said in key nominating state Iowa.
"We had, the other day, Vladimir Putin say that the United States is a parasite on the world economy. We had the leadership of China yesterday say that the United States of America is addicted to debt."
Democrats, meanwhile, have also dug in their heels.
Senate Majority leader Harry Reid said the S&P move showed "the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures", again calling for tax hikes.
The partisan warfare will cement a growing view that its gridlocked political system is simply incapable of fixing the debt disaster choking recovery.
Standard & Poor's said the political scene was too polarised to underwrite wrenching decisions needed to nurse the economy back to health.
"The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges," S&P said.
"The political brinkmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed."
