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Monday, August 8, 2011

Entitlement Programs are the Target of this Downgrade

The following is a special comment by Timothy J. Sinclair, of the UK's University of Warwick. He is the author of The New Masters of Capital (Cornell University Press, 2005) and numerous articles on the credit rating agencies.

What should we make of the decision by Standard and Poor's to apply a
modest downgrade to the US sovereign rating? Outside America this seems
to have been greeted as a recognition of reality, of America's changing
position in the world, although a very unwelcome one given the many
other problems faced by people in Europe, Japan and elsewhere at this
time. There is no doubt that the global financial crisis challenged
America's corporate and government institutions like nothing since the
Great Depression of the 1930s. These organizations have not responded as
effectively as we might have wished. To me, this is hardly surprising
given almost three decades of erosion by partisan forces determined to
roll back the frontiers of state intervention in the US. Part of this
domestic effort to degrade the American government has been determined
attempts to sabotage public finance starting in the Reagan era. The idea
seems to have been to stimulate public outrage at efforts to make the
books balance via tax increases, so as to force elected officials to
reshape government itself. I interpret the S&P downgrade as another
effort to hold America's 'feet to the fire' and force policy change in
the US, to make a public crisis out of the fiscal deficit. Predictably,
this means the gearing up of a budgetary assault on the welfare programs
created by President Johnson and his successors. Medicare as you know it
today will be the ultimate victim of the bankers' folly.

Timothy J. Sinclair
University of Warwick

1 comment:

  1. I presented a very similar view here