In the coming days we’ll sort through the repercussions of S&P’s downgrade of our credit rating, including concerns about the impact a potential interest rate increase would have on our ability to service our suffocating $14.5 trillion debt.
I’m surprised that so many people seem surprised by S&P’s decision. Weren’t people paying attention over the last year or so when we were getting warning after warning from various credit rating agencies that this was coming? I’ve been writing and speaking about it myself for quite some time.
Back in December 2010, I wrote: “If the European debt crisis teaches us anything, it’s that tomorrow always comes. Sooner or later, the markets will expect us to settle the bill for the enormous Obama-Pelosi-Reid spending binge. We’ve already been warned by the credit ratings agency Moody’s that unless we get serious about reducing our deficit, we may face a downgrade of our credit rating.” And again in January, in response to President Obama’s State of the Union address I wrote: “With credit ratings agency Moody’s warning us that the federal government must reverse the rapid growth of national debt or face losing our triple-A rating, keep in mind that a nation doesn’t look so ‘great’ when its credit rating is in tatters.”
One doesn’t need a Harvard Law degree to figure this out! Just look across the pond at Europe. European nations with less debt and smaller deficits than ours and with real “austerity” plans in place to deal with them have had their ratings downgraded. By what magical thinking did we figure we could run up perpetual trillion dollar deficits and still somehow avoid the unforgiving mathematics of a downgrade? Nothing is ever “too big to fail.” And there’s no such thing as a free lunch. Didn’t we all learn that in our micro and macro econ classes? I did at the University of Idaho. How could Obama skip through Columbia and Harvard without learning that?
Many commonsense Americans like myself saw this day coming. In fact, in June 2010, Rick Santelli articulated the view of independent Tea Party patriots everywhere when he shouted on CNBC, “I want the government to stop spending! Stop spending! Stop spending! Stop spending! STOP SPENDING!” So, how shamelessly cynical and dishonest must one be to blame this inevitable downgrade on the very people who have been shouting all along “stop spending”? Blaming the Tea Party for our credit downgrade is akin to Nero blaming the Christians for burning Rome. Tea Party Americans weren’t the ones “fiddling” while our country’s fiscal house was going up in smoke. In fact, we commonsense fiscal conservatives were the ones grabbing for the extinguishers while politically correct politicians and their cronies buried their heads in what soon became this bonfire.
With S&P and others now warning that we could face another downgrade if we don’t get serious about our debt problem (i.e., recklessly spending money we don’t have), Washington needs to wake up before things get worse! We’re already hearing murmurs about QE3, which is just madness and will further debase our currency at a time when the dollar’s status as the world’s reserve currency is already being questioned. The loss of the dollar’s reserve currency status would adversely impact us in every conceivable way. Our standard of living would decline as imports become more expensive (including imports of foreign oil), government wouldn’t be able to finance deficits as cheaply, and American corporations – employers – would lose a competitive edge. It would be another crack in our status as a financial superpower.
Last May, I gave a speech at Westhills Community College in Lemoore, California, to an audience that included farmers from California’s Central Valley. I tried to paint a picture for them of where all of this was heading. The following is an excerpt from my prepared remarks:
Now we’re all getting hit with rising food prices too. Back in November of last year, I predicted this would happen when the Federal Reserve dropped a $600 billion money bomb called QE2 on us! That’s short for “quantitative easing 2.” It’s a fancy term for running the printing presses and creating money out of thin air – which drives down the value of the dollar and makes the price of everything more expensive.
As I predicted six months ago, these policies will lead us down a path where for the first time in our history our fate will be taken out of our own hands and placed in the hands of the world’s capital markets. They will force us to make the responsible decisions that our leaders are unwilling to make. Just as the destinies of the Central Valley farms have been taken out of your hands by the federal government’s overreach into your water rights, so the destiny of our nation will be taken out of our hands because our leadership has failed to get our financial house in order.
This isn’t some theoretical threat any more. It’s already happening. The world’s biggest bond investment fund PIMCO announced last month that it was dumping U.S. Treasury bonds. The head of PIMCO, Bill Gross, one of the world’s preeminent debt investors, warned that the U.S. is in serious risk of default with our trillion dollar deficits and no end in sight. And last week, credit rating agency Standard & Poor’s downgraded our credit outlook to “negative” – that’s the first time that has happened to us since the attack on Pearl Harbor. The IMF has even given us formal notice that, unless we do something to deal with our debt problem, we could tip the world economy into another recession.
It is a disgraceful and embarrassing situation when the United States finds itself justifiably chastised in the same tone normally reserved for near-bankrupt economies.
And in this, like in shutting off your water, the federal government has failed you. Their reckless spending and destruction of the dollar will make access to available credit for farmers and small business owners harder to get. And it will make transportation costs higher because it will hit everyone at the gas pump. You see, because the Obama White House won’t let us drill domestically, we’re forced to import oil that we pay for in dollars. So, when the value of the dollar drops, the price of gas goes up. And if you think $4 a gallon is bad, wait till you see what life is like at $6 or $7 a gallon.
Last November, the so-called smart people all laughed at me when I warned them of this. They told me not to make such a big deal about rising prices. Well, guess what – it became a big deal all on its own.
In fact, there was an editorial in the New York Sun that said – and I quote: “As gasoline is nearing six dollars a gallon at some pumps, the cost of groceries is skyrocketing, and the value of the dollars…has collapsed to less than a 1,500th of an ounce of gold. Unemployment is still high. Shakespeare couldn’t come up with a better plot. But how in the world did Mrs. Palin, who is supposed to be so thick, manage to figure all this out so far ahead of the New York Times and all the economists it talked to?”
Well, I’m sure the New York Times writers will remember the famous line: “You don’t need a weatherman to know which way the wind blows.” And right now the American economy is in the howling, hot headwinds of a gathering storm. We’re printing up and buying up our own notes at an unprecedented rate, and the Fed is artificially holding interest rates down to nearly zero. Anyone with commonsense could see what was coming. Unfortunately, common sense is in short supply among our leaders. It’s like they never believe that the rules of common sense apply to them. They think somehow we’ll escape from the consequences of their policies. It’s the same magical thinking that allows them to run up trillion dollar deficits and still think that we can “win the future.”
Every other generation has weathered recessions by sacrifice and belt tightening. But our leaders today decided that they could magically paper over the tough decisions by running the printing presses. A little history lesson might have showed them how well that worked out for Germany in the 1930s. The Weimar Republic inflated its currency so much that it took a wheel barrel full of paper money to buy a loaf of bread. That might be the main thing I remember from Mr. Crum’s history class at Wasilla High, but it told me all I needed to know about the inflationary dangers of a weak currency and why we must avoid it. What a shame Mr. Crum didn’t teach at Harvard.
That was just three months ago, and things have already gotten worse. We have to face this storm head on. It won’t be easy, but there are real solutions to grow our economy and reduce our debt.
First, we need to get serious about our deficit. No more accounting gimmicks. No more cuts in “out-years” that never materialize. The permanent political class in D.C. might be fooling themselves with these Enron-like accounting games, but they’re not fooling the world’s capital markets. And we don’t need any more happy talk from the White House about “investing” in solar shingles and really fast trains. The White House shouldn’t even bother floating these new spending programs. We can’t afford them. Period. We need to stop this deficit spending, balance our budget, repeal Obamacare, cancel all unused stimulus funds, and reform our entitlement programs. We have to have an adult conversation about our spending commitments; circumstances have changed, and we must adapt. I know none of this will be easy, but, “thick” or not, the average American outside the D.C. politico bubble knows that we no longer have a choice! We will have entitlement reform and a balanced budget; it’s just a matter of how. We can do it ourselves in a calm, methodical, and responsible manner, or we can wait for the world’s capital markets to ram it down on us. Let’s be responsible and do it ourselves. And let’s get serious about reducing the size of government across the board and rooting out waste. How many more reports (that today are destined to merely gather dust on the shelf) do we need about duplicative and unnecessary programs before we actually do something about government waste?
We need to get this economy moving again, and the real stimulus we’ve been waiting for is domestic energy development. We must reduce our dangerous dependence on foreign oil by responsibly developing natural resources here. This will provide good paying jobs, reduce our trade deficit, increase federal and state revenue, ensure environmental standards, and actually stimulate our economy without incurring any debt. That’s real stimulus! Affordable, plentiful, and secure energy is the foundation of every thriving economy. Let’s make it the foundation of ours. Let’s do the opposite of President Obama’s manipulation of U.S. energy supplies. Let’s drill here, build refineries, and stop kowtowing to foreign countries in asking them to ramp up energy production which makes us even more beholden to them as we rely on their foreign product. Let’s move on tapping our massive domestic natural gas reserves. Natural gas is the perfect “bridge fuel” to a future when more renewable sources are available. It’s clean, it’s green, and we’ve got a lot of it. Let’s drill. Let’s build an infrastructure for natural gas cars and power plants. Energy development can help kick start our economic engine.
In addition to energy security, I embrace a pro-growth agenda that can make American corporations far more competitive on the global stage. (I will be writing more about this in the coming days.) We need to tell the world, “America is open for business again!” And let’s welcome industry by reducing burdensome regulations. The Obama administration keeps strangling businesses in red tape. From the EPA’s rulings to that nightmare known as Obamacare, the Obama administration is hanging one regulatory albatross after another around the private sector’s neck. Let’s get government out of the way and give the private sector room to breathe, grow, and thrive. We can provide businesses confidence to expand and hire Americans in a stable environment.
Be wary of the efforts President Obama makes to “fix” the debt problem. The more he tries to “fix” things, the worse they get because his “solutions” always involve spending more, taxing more, growing government, and increasing debt. This debt problem is the greatest challenge facing our country today. Obviously, President Obama doesn’t have a plan or even a notion of how to deal with it. His press conference today was just a rehash of his old talking points and finger-pointing. That’s why he can’t be re-elected in 2012.
Our economic news is disheartening and the task before can seem daunting, but we must not lose our sense of optimism. People look around today and may see only the negative. They see a culture and a nation in decline, but that’s not who we are! America must regain its optimistic pioneering spirit again. Our founders declared that “we were born the heirs of freedom.” We are the heirs of those who froze with Washington at Valley Forge, who held the line at Gettysburg, who freed the slaves, carved a nation out of the wilderness, and allowed reward for work ethic. We are the sons and daughters of that Greatest Generation who stormed the beaches of Normandy, raised the flag at Iwo Jima, and made America the strongest and most prosperous nation in the history of mankind. By God, we will not squander what has been given us!
Our destiny is still in our own hands if we pick ourselves up and act responsibly and quickly. We must all get involved. Concerned Americans must seek truth, work harder than ever, and be willing to sacrifice today to ensure freedom tomorrow. Please get engaged in 2012 electoral politics and support experienced, vetted, pro-free market fiscal conservatives who will dedicate all to preserving our Republic and protecting our Constitution.
– Sarah Palin