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Monday, April 18, 2011

The First Consequence Of The Ryan Plan

April 18th, 2011
You can read our critique of the Ryan plan's tax proposals HERE and defense position HERE

ADDITION: My readers made great points after I posted this. Some of them have been included HERE
It's not just our Nobel winners like Paul Krugman and Joseph Stiglitz who are appalled by the supposedly "serious" Path To Poverty. Many on the right who actually study numbers for a living such as former Reagan OMB Director David Stockman, arch-conservative economist and former George W. Bush advisor Douglas Holtz-Eakin as well as Libertarian Tyler Cowen have pointed to its major flaws. The Economist went so far as to call Ryan a liar.

So it was with interest that I watched very little comment from either Moody's or Standard & Poor's regarding the much ballyhooed pamphlet. It seemed clear that the organizations were waiting for a response from the President and the Democrats. Along with the rest of us, they got one last week. S&P stayed largely mum but Moody's liked what they heard:

From Bloomberg 4/13/2011:
"President Barack Obama’s plan to cut $4 trillion in cumulative deficits within 12 years may be a “positive” for the nation’s credit quality and mark a reversal in the budget debate, according to Moody’s Investors Service."

"Cindy Stroller and Mimi Barker, spokeswomen in New York for Fitch Ratings and Standard & Poor’s, respectively, said the firms couldn’t immediately comment."

The following day, Moody's made some damning observations of the Ryan Plan.

From the Fiscal Times 4/15/2011:

"Economist Mark Zandi, chief economist of Moody’s Analytics, forecast on Thursday that Ryan’s plan would eliminate 1.7 million jobs in its first two years, with 900,000 jobs lost next year. Other economists were equally dismissive." 

The real debate was set to begin in sober and deliberative earnest. Or at least it should have been.

This congress is unfortunately in the hands of radicals. To hell with a real discussion. They wanted Ryan's neo-Randian visions brought to the floor immediately. By the end of the day's business on Friday and on a strictly party line vote in the U.S. House of Representatives, the Republican majority passed the Ryan Plan with only 4 of their members joining a unanimous Democratic opposition. Indeed, a political paper riddled with numerical flights of fancy, riven with extreme ideology and with policies that would transform the entire citizen/government relationship in America was put to a formal vote less than 2 weeks after it was unveiled.

Today, in what I believe is a direct consequence of this partisan gamesmanship, S&P made an announcement:

From Bloomberg 4/18/2011:
"Standard & Poor’s put a "negative" outlook on the long-term AAA credit rating of the U.S., citing a "material risk" the nation’s leaders will fail to deal with rising budget deficits and debt. "We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013," New York-based S&P said today in a report. "If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns."

The cost to protect against a default by the government and the nation’s banks jumped and stocks declined after the New York-based firm’s statement, which assigns a one-in-three chance that it will lower the U.S. rating in the next two years. The Standard & Poor's 500 Index tumbled 1.6 percent to 1,298.67 at 12:34 p.m. in New York."

We have been broadsided by the economic equivalent of Scientologists. Just 2 weeks of this particular partisan drive has further damaged our already teetering recovery. Just think what they can do with another 20 months.

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