Rating falls, markets plunge, critics rage. But tea party isn't blinking.
Tea party lawmakers say the S&P's downgrade of the US credit rating and the markets' convulsive reaction on Monday is merely confirmation that they had been right all along.
It was tea party intransigence in debt ceiling talks that led to the first-ever downgrade of the US credit rating, critics say.
But as world financial markets reacted convulsively to the downgrade on Monday, tea party leaders were not blinking.
“Blaming the tea party for America’s debt crisis and downgrade is like blaming the fireman for fires,” said Sen. Rand Paul (R) of Kentucky, whose surprise primary victory in May 2010 put the tea party insurgency on the map.
From Standard & Poor’s stunning downgrade on Friday to a 634-point plunge in US stock markets on Monday, tea party lawmakers saw it all as confirmation that they had been right all along.
The tea party response to the events comes down to two themes: First, the way out of unsustainable debt is deep cuts in spending, no tax hikes, enforceable spending caps, and a balanced budget amendment to the Constitution, period.
And second – in response to S&P’s concern that Washington doesn’t have the political capacity to solve its debt problem – if there is any dysfunction in Washington, it’s the refusal of the White House to adopt the tea party formula.
“While Democrats would like to lay the blame on the tea party for the current economic failure, it is their president who has failed in leadership, failed to lower unemployment, failed to rescue our economy, failed to prevent a downgrade of our debt,” said Senator Paul, in a statement on Monday.
Both tea party lawmakers and their foes claimed justification for their side in the rationale offered by the ratings agency Standard & Poor’s for its decision to drop the US credit rating from the top AAA rate to AA+ on Friday.
Tea party critics focused on the S&P’s criticism that the “prolonged controversy” over raising the statutory debt ceiling signaled that future deficit-cutting agreements, especially over cutting entitlements or raising revenues, would be “less likely.”
Democrats blamed the tea party for political brinkmanship.
Tea party-backed lawmakers, meanwhile, hailed S&P’s call for a more robust deficit-cutting plan. “S&P’s downgrade is a warning shot the whole world saw coming,” said Rep. Jim Jordan (R) of Ohio, who chairs the Republican Study Committee, in a statement on Monday.
“Tinkering around the edges won’t solve the problem,” he added. “Even the Italians, with bigger debt problems than ours, are moving to amend their constitution to require a balanced budget. It’s time the US did the same.”
In a controversial move, chairman Jordan had lobbied outside business groups in July to pressure Republican lawmakers to oppose the “grand bargain” being negotiated between President Obama and House Speaker John Boehner (R) of Ohio. The plan aimed to cut at least $4 trillion over 10 years – a level that would have met the mark set by the ratings agencies. But the negotiations included deficit cuts on the revenue side that were unacceptable to conservatives.
Many tea party lawmakers said during negotiations that they would rather see the nation default on its debt, rather than fail to curb unsustainable deficits. In the absence of a grand bargain, Congress and the White House eventually agreed on $2.4 trillion in cuts only.
“The tea party had a shot at a big deal that avoided a downgrade, but rejected it because it included a tax increase, preferring to roil the markets,” says Stan Collender, a longtime federal budget analyst and partner at Qorvis Communications in Washington.
“S&P’s statement signals that the downgrade has nothing to do with America’s ability pay its debt,” he adds. “It’s all about the apparent unwillingness of the political system to deal with the problem. That only happened after the tea party got elected and held the debt ceiling hostage.”
Meanwhile, Monday’s S&P announcement that it is also downgrading home mortgage giants Fannie Mae and Freddie Mac only reaffirmed the tea partyers’ conviction. “The downgrades of Fannie Mae and Freddie Mac reflect their direct reliance on the US government,” said S&P in a statement. S&P also lowered ratings for 10 of 12 Federal Home Loan Banks.
Sen. Jim DeMint (R) of South Carolina, an early supporter of tea party candidates, say that S&P’s latest decision is not surprising. “It’s a reflection of their direct reliance on the US government, which has delivered the entities over $160 billion in endless bailouts,” he said in a statement on Monday. “Just last week, Fannie Mae requested an additional $5 billion taxpayer bailout.”
“The president should do what conservatives who opposed the original mortgage bailout called for years ago: break up the mortgage giants and privatize them. Forcing taxpayers to prop up these failed entities hasn’t solved the housing crisis; it has prolonged it,” he added.
Opposition to government bailouts was a rallying cry of the tea party movement in the 2010 election cycle. In late 2008, House Republicans initially voted down then-President Bush’s Troubled Asset Relief Program (TARP), but a 740-point drop in the stock market drove lawmakers to reconsider that vote and pass the bill.
Tea party lawmakers say they won’t be pressured by the markets to make a similar course change on the debt. It’s this willingness to take the nation to the brink of default – and beyond – that gave tea party so high a profile during debt talks. Critics say that stand shows no sign of shifting as Congress moves next month to the next phase of deficit reduction through a new joint congressional committee.