Democrats & Republicans See Clashing Views Helped by S&P; Revision
Tuesday, April 19, 2011
By: Julie Hirschfeld Davis, Bloomberg
The divide between Republicans and Democrats in Congress over
combating the nation's debt was spotlighted by Standard &
Poor's lowering of the U.S. credit outlook to "negative," with each
side saying the change bolstered their competing arguments.
Democrats said the revision issued yesterday by New York- based
S&P helps make the case for a broad agreement based on the
debt-cutting plan President Barack Obama outlined last week.
Republicans said the ratings firm's report reinforces their call
for deeper spending cuts than the president and other Democrats
have been willing to consider.
Charles Schumer of New York, the Senate's third-ranking
Democrat, said bipartisan agreement exists on the need to reduce
the debt by $4 trillion over roughly the next decade.
"Now we just need to resolve how to do it," Schumer, who is
traveling in Asia during a two-week congressional break, said in a
statement. Obama's "balanced plan -- which relies on shared
sacrifice, as opposed to simply ending Medicare -- makes a
long-term deal highly possible," the senator said.
Republicans have proposed scaling back entitlement programs such
as Medicare and reject Obama's push for tax increases to help
reduce debt.
'Wake-up Call'
House Majority Leader Eric Cantor, a Virginia Republican, called
the S&P revision "a wake-up call for those in Washington asking
Congress to blindly increase the debt limit" without significant
spending cuts.
The negative outlook on long-term U.S. debt issued by S&P
"makes clear that the debt-limit increase proposed by the Obama
administration must be accompanied by meaningful fiscal reforms
that immediately reduce federal spending and stop our nation from
digging itself further into debt," Cantor said.
Congress is facing a vote as early as next month on raising the
government's $14.29 trillion legal debt limit. The Treasury
Department projects that it will hit the cap on May 16, though it
could use emergency measures to avoid default until about July
8.
Obama and members of his economic team have said that failure to
approve an increase could have catastrophic consequences for the
U.S. economy and financial markets.
S&P's Concern
S&P revised the U.S. government's long-term outlook to
negative on concern the White House and Congress will fail to reach
agreement on cutting medium- and long-term debt.
As part of the debate on the government's spending, which also
includes hammering out a 2012 budget, Obama last week offered the
outlines of a plan to slash the debt by $4 trillion over 12 years
through a combination of spending cuts and tax increases.
A group of six Republican and Democratic senators are trying to
strike a compromise along the lines suggested by the two
co-chairmen of a debt commission Obama set up last year. That plan
recommended trimming the budget by $3.8 trillion over a decade
through a mix of spending reductions and tax increases.
Members of the so-called Gang of Six said the S&P revision
shows the markets are watching for signs that policy makers are
serious about confronting the debt issue.
"I still believe we must act sooner rather than later, and we
should work in a bipartisan way to cut spending, including defense
spending, begin to strengthen and reform entitlement programs and
implement tax reform," Senator Mark Warner of Virginia, the group's
Democratic leader, said in a statement.
'Brinkmanship' Caution
"If we fail to take this seriously, and if our deficit and debt
discussions turn into just another game of political brinksmanship,
this could result in the most predictable economic crisis in our
history," he said.
Senator Tom Coburn of Oklahoma, a Republican member of the
group, said the S&P's change should create a sense of urgency
for tackling "our debt crisis."
"If we refuse to negotiate within our own government, we will
soon find ourselves negotiating with foreign governments and the
international financial community on terms far less favorable than
we enjoy today," Coburn said in an e-mailed statement.
Republican Senator Bob Corker of Tennessee said a proposal he is
pushing to cap federal spending at 20.6 percent of gross domestic
product within a decade should be a condition of any debt-limit
increase, and that the S&P action increases the momentum for
the move.
Good Timing
"I don't think any American likes seeing the outlook for our
country's financial situation downgraded, but it couldn't come at a
better time, if it had to happen, than now, when we're negotiating
about how to get spending under control," Corker said in an
interview.
Senator Lamar Alexander of Tennessee, the Senate's third-
ranking Republican, said the S&P's revision reminds the
president and Congress that "we must deal with Washington spending
money that we don't have."
Speaking in his home state, he said, "We can fix it, but we have
to start now and have the political will to do it."
Republican Representative Kevin Brady of Texas, vice chairman of
Congress's Joint Economic Committee, said the move builds the case
for a budget plan by Republican House Budget Committee Chairman
Paul Ryan of Wisconsin. His proposal would slash spending by $6
trillion over a decade, in part by privatizing Medicare and capping
Medicaid.
Obama "needs to stop ridiculing Representative Ryan's plan,
which begins to seriously address our country's long-term spending
issues, and start supporting it as the best way forward," Brady
said.
Dwindling Confidence
Representative Jeb Hensarling of Texas, head of the House
Republican Conference, said confidence in the U.S. economy is "sure
to dwindle" when Obama "chooses to treat our national debt as
campaign fodder and insists on more spending and more taxes."
House Democratic Whip Steny Hoyer of Maryland said the S&P's
decision "shows the urgent, bipartisan action needed to put our
nation on a serious path to reduce deficits." It "demonstrates that
Republicans cannot hold the debt limit hostage over partisan,
divisive issues," he said.
Representative Chris Van Hollen of Maryland, ranking Democrat on
the House Budget Committee, said in a statement the S&P's
revision "underscores the need to put together a bipartisan plan
now to reduce the deficit in a balanced, steady, and responsible
way as we build the foundation for shared prosperity and long-term
economic growth."
Market Reaction
The S&P 500 index (SPX) was down 1.1 percent at the 4 p.m.
close of trading yesterday to 1,305.14 after declining as much as
1.9 percent. The Dow Jones Industrial Average fell 140.24 points,
or 1.1 percent, to 12,201.59.
The yield on the benchmark 10-year Treasury note jumped as high
as 3.45 percent yesterday in the minutes after the S&P report.
The yield was back down to 3.37 percent at 4:27 p.m. in New York
yesterday as investors focused on speculation that Greece will be
unable to avoid a default, driving them to the relative safety of
U.S. debt.
In trading today, 10-year yields were little changed at 3.38
percent as of 10:27 a.m. in Tokyo, according to Bloomberg Bond
Trader prices, as Japanese Economic and Fiscal Policy Minister
Kaoru Yosano said U.S. Treasuries are "extremely good- quality
securities."
A gauge of the dollar advanced the most since November against
the currencies of major trading partners on increased demand for a
refuge as Europe's debt crisis outweighed the negative S&P U.S.
credit-rating outlook.
IntercontinentalExchange's Dollar Index increased 0.9 percent to
75.508 at 5 p.m. in New York yesterday from 74.832 on April 15. The
gauge, which tracks the dollar against the euro, yen, pound, Swiss
franc, Canadian dollar and Swedish krona, earlier gained 1.3
percent in the biggest intraday advance since Nov. 23 and touched
75.810, the highest level since April 7.
The dollar appreciated 1.4 percent to $1.4235 per euro in New
York from $1.4430 on April 15. The U.S. currency decreased 0.6
percent to 82.66 yen from 83.13.