HONG KONG – Standard & Poor’s controversial decision to downgrade the credit rating of the United States from AAA to AA-plus brought an instant angry riposte from President Barack Obama that “We’ve always been and always will be a Triple-A country.”
But it is time for Obama to watch his own status: With his popularity dropping below 40 percent for the first time ever, critics are saying that he is fast approaching junk bond status.
It is no longer a whisper but has become a murmur among economic and political commentators that it might be better if Obama steps down after a single term. Some are urging him to fulfill his own promise and be a good single-term president rather than a mediocre man who does two terms. The New York Times ran a “news analysis” posing the question for Obama: “Is he willing to try to administer the disagreeable medicine that could help the economy mend over the long term, even if that means damaging his chances for re-election?”
It may be compelling newspaper copy to cast Obama as a real-life Harry Potter willing to sacrifice himself to save the United States and the world from Lord Voldemort and his dark forces. Unfortunately, life is not as simple as fairy tales.
Ben Bernanke, chairman of the Federal Reserve Board, forecast there is likely to be little or no growth in the U.S. for the next two years. There is no magic wand to wave to get the economy moving, let alone people back to work, government revenues flowing, debts reduced. True, America’s unemployment rate fell to 9.1 percent, but only because almost 200,000 people had stopped looking for work.
The immediate way to lift the economy and create jobs would be for the government to spend money, easily done by improving the rotting U.S. infrastructure, but that would increase debts. The medium-term plan to reduce those debts by a mixture of revenues from higher growth, tax increases and closing tax loopholes has been blocked by Republican opposition.
In the frontline trenches of U.S. politics, the challenge to Obama is coming more from the commentariat than from political rivals. With a war chest for next year’s presidential election of approaching $1 billion growing with every fundraiser, Obama seems safe for his own party nomination unless someone really big challenges him — which can really mean only Secretary of State Hillary Clinton — or unless he gets tired of all the sniping and retires hurt, as President Lyndon Johnson did in 1968.
It is more difficult to assess the fickle mood of the U.S. electorate. The Republican Party, driven by the dangerously naive tea party, has moved so far to the right that it would seem to an outsider that they would have no chance of winning the important centre presidential ground. But the tea party continues its crusade and its shibboleths, wrongheaded and plain wrong as many are, dominate the debate.
In spite of Standard & Poor’s downgrading of the U.S., Treasuries have been very much the flavor of the month in the continuing financial typhoon that is battering the world. Ten-year U.S. Treasury yields fell to a record 2.03 percent at one point. In an uncertain world, U.S. bonds are the preferred havens, whatever S&P or China may say.
The sad aspect is that a globalizing world faces not just an American crisis, but a series of economic crises linked by a failure of political leadership. The rush to U.S. Treasuries was hastened because the major crisis was perceived not to be the U.S. but the eurozone, and fears that Italy was about to join the ranks of the virtually bankrupt and that France would be sucked in because of heavy exposure of its banks.
Prospects for growth in the European Union are poorer than in the U.S. and the pile-up of debts is bigger, with a cascading effect. The common feature is a lack of leadership, with politicians thinking of their own political skin at next year’s election. It would be more realistic to cast French President Nicolas Sarkozy and German Chancellor Angela Merkel as Harry Potter and Hermione: Are they prepared to do the right thing for Europe by showing leadership and taking domestically unpopular measures to rescue the union?
China and Asia generally, apart from Japan, seem in good economic shape. But if growth grinds to a halt in the U.S. and Europe, China’s export model will also look fragile. Perhaps the most dispiriting aspect of the last month has been alternate crowing and hectoring from the official Chinese press, first chortling about the U.S. being enslaved to debt and then demanding that Washington must protect China’s pile of Treasuries.
China made a Faustian bargain — its jobs, exports and undervalued yuan in return for foreign exchange reserves. Yet at a time of global crisis, China’s leaders are nowhere to be seen or heard. No one has called for an emergency meeting of the Group of 20.
But to get back to Obama and the U.S. and Clinton, political scientist Richard Neustadt said that the only real power a U.S. president has is that of persuasion. In the long drawn-out crisis over the debt ceiling, Obama remained brooding in the background. Leaders in his own party are unhappy that at every turn he caved in to Republicans.
Obama is a study in himself: How did this intelligent, thoughtful, decent man, who clearly from his stirring speeches both in the presidential campaign and in his early months in office understands the dangerous issues confronting the world, come to be trapped close to, yes, let’s be honest, junk status? Critics in his own party say it is because he failed to draw his line in the sand and be the nation’s commander in chief of the economy and politics.
Far from being abashed, Republicans, according to the Christian Science Monitor, have new plans to curb the president, by stripping the White House of power to issue executive orders without the blessing of Congress, banning environmental regulations and other regulations already made, and reducing tax rates for businesses and individuals to a maximum 25 percent. Even attempting to achieve this agenda could bring government to a grinding halt.
It is hard to imagine former President Bill Clinton standing on the sidelines. He would be in the thick of the battle oozing charm, knocking heads together, suggesting, cajoling, threatening, using all the persuasion of his office. Perhaps it is time for Bill and Hillary Clinton to remind Obama that the U.S. did not get to AA-plus by uttering mantras about the God-given greatness of the U.S. but by using its brains and initiative and energy and leadership.
Kevin Rafferty edited independent daily newspapers during annual meetings of the IMF and World Bank, and was later managing editor at the World Bank.