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Thursday, July 25, 2024

GOP’s ‘Fiscal Vandalism and Political Sabotage’ Prompts Second-Ever US Credit Downgrade

GOP’s ‘Fiscal Vandalism and Political Sabotage’ Prompts Second-Ever US Credit Downgrade

“Republicans were warned that their repeated brinksmanship and deficit-funded tax giveaways for the wealthy and big corporations would have consequences,” said one House Democrat.

The downgrade from AAA—the highest possible rating—to AA+ came months after President Joe Biden and House Republicans reached an agreement to lift the debt ceiling until January 2025, setting the stage for another potentially damaging fight just after the presidential election.

Earlier this year, Republicans—led by House Speaker Kevin McCarthy (R-Calif.)—used the need to raise the debt ceiling and avoid a catastrophic default as leverage to pursue sweeping federal spending cuts, more punitive work requirements for aid recipients, and other right-wing priorities.

Rep. Brendan Boyle (D-Pa.), the top Democrat on the House Budget Committee, said Tuesday that the credit downgrade “rests on the shoulders of Speaker McCarthy and the extreme MAGA Republicans who openly rooted for default.”

“For years, Republicans were warned that their repeated brinksmanship and deficit-funded tax giveaways for the wealthy and big corporations would have consequences and now, for the second time in American history, Republican extremism and recklessness has undercut the American economy,” said Boyle, referencing a 2011 downgrade by the ratings agency Standard & Poor’s.

“We need to address the root cause of this downgrade: Congress must pass my Debt Ceiling Reform Act to put an end to Republican brinksmanship and hostage-taking once and for all,” the congressman added.

Fitch said its decision to downgrade the United States’ credit rating—a move that could increase borrowing costs for the federal government—stemmed from “a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters.”

“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” the agency said.

Justin Wolfers, a professor of economics at the University of Michigan, wrote that the downgrade is “the direct result of a multi-decade campaign of fiscal vandalism and political sabotage by Republicans, and the rest of us are left footing the bill.”

Senate Majority Leader Chuck Schumer (D-N.Y.) expressed the same view, saying in a statement that “the downgrade by Fitch shows that House Republicans’ reckless brinksmanship and flirtation with default has negative consequences for the country.”

“Republicans need to learn from their mistakes and never push our country to the brink of default again,” said Schumer.

The Biden administration, for its part, said it “strongly” disagrees with Fitch’s decision, which rattled global markets. Janet Yellen, the secretary of the U.S. Treasury Department, argued in a statement that the downgrade is “arbitrary and based on outdated data.”

“Fitch’s decision does not change what Americans, investors, and people all around the world already know: that Treasury securities remain the world’s preeminent safe and liquid asset, and that the American economy is fundamentally strong,” Yellen added.

“The debt ceiling was a bad idea when it was first put in place, and it has become the worst idea as the Republicans have figured out how to weaponize it.”

The downgrade came amid continued progressive frustration over President Joe Biden’s refusal to use his constitutional authority under the 14th Amendment to bypass the arbitrary debt limit established by Congress.

Politicoreported earlier this week that “two months after narrowly averting economic disaster, the White House is assembling a team dedicated to heading off yet another debt crisis come 2025.”

“The group will study a range of legal and policy options, the administration said, in an effort to prevent Republicans from once again wielding the threat of catastrophic default to extract political concessions,” the outlet noted. “But there’s reason to be skeptical that concrete action will come soon, if at all. There’s no clear timeline for the project and little in the way of overt direction, outside of analyzing various theories for defusing the debt ceiling.”

Progressive lawmakers and economists have long argued for completely eliminating the debt ceiling, which experts say is unconstitutional.

Sen. Elizabeth Warren (D-Mass.) told Politico on Monday that “the debt ceiling was a bad idea when it was first put in place, and it has become the worst idea as the Republicans have figured out how to weaponize it.”

“I’ll be very blunt,” the senator added. “I don’t care how we get rid of the debt ceiling, so long as we get rid of it.”

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