• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • What the S&P's Warning on Spending Means for America

    United States government, be forewarned: Your credit won’t always be good if you fail to get control of the debt while keeping up your big-spending ways. And merely raising the debt limit won’t be enough to solve your problems.

    That was the message delivered yesterday by Standard & Poor’s (S&P) credit rating firm, which lowered its outlook on the U.S. credit rating. Though the S&P kept the rating at AAA, it expressed a negative outlook for the future, saying, “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.”

    Barclays Bank issued its own analysis of S&P’s announcement, as James Pethokoukis writes. A key point:

    This announcement was not about the debt ceiling; in fact, the debt ceiling is not even mentioned in the S&P release… [E]ven if the debt ceiling debate were to be resolved in the near term, it would not be enough to restore the outlook to stable.

    What’s needed is what many in Washington already knew to be true: the key to the U.S. government’s financial situation is to get spending under control, in both the medium and long term. S&P’s announcement also makes clear how vitally important it is for congressional conservatives to insist on taking action immediately to meet those challenges on the debt limit bill that will be moving through Congress in the May–July time frame.

    Some in Congress are hearing that message. House Majority Leader Eric Cantor (R–VA) responded to the news, calling spending reductions a necessary part of any debt limit action:

    Serious reforms are needed to ensure America’s fiscal health, and today S&P sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit. Today’s announcement 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.

    Wall Street reacted adversely to the news, but the daily ups and downs of the markets aside, Congress and the President must be concerned about what is good for America in the long run. That’s why they should heed this warning and act now to get spending under control.

    The U.S. House took a serious step toward putting America on a sounder fiscal path when it passed House Budget Committee Chairman Paul Ryan’s (R–WI) budget proposal. Heritage’s Alison Fraser says, under the plan, “solving the twin crises of spending and debt is achieved through real spending reductions and reforms—not new taxes or higher rates.”

    Unfortunately, the Senate has failed to pass a budget, and President Obama has not offered a plan—he has delivered only a partisan campaign blast that failed to address the problem. There are things Congress can do to help achieve a stronger America. Fraser writes that to fix the federal budget, Congress should establish spending targets, fix the budget process, provide for a strong defense, implement spending reforms and keep taxes low.

    Posted in Ongoing Priorities [slideshow_deploy]

    8 Responses to What the S&P's Warning on Spending Means for America

    1. LibertyAtStake, Alex says:

      "Congress and the President must be concerned about what is good for America …"

      Oh really? Still not sure about the leadership among the (D) caucus. How they handle the debt ceiling debate will shed more light on this murky subject.

      "Because the Only Good Progressive is a Failed Progressive"

    2. Stirling, Pennsylvan says:

      S&P is just verifying what most of us (outside Washington) already know about the future under this Obama (Greater Deal) spending trajectory. True this is forward looking and not present danger, but it has to be a slap in the face to the legitamacy financially of a Socialist GRE (Government Run Everything) America.

    3. Bobbie says:

      Results of deceptive, inept, unconstitutional, in debt leadership. Nothing to be proud of! Actually embarrassing and wouldn't have come to be if the main goal was for America's recovery back to the people's constitution without distortions. If the President was on the same track to recover the strength of America and her principles, she wouldn't be hurting at such an intentional, unsustainable level.

      He has plenty of money within his means concealed for the illusion to need more.

      The only optimism he has is hope to break the minds of the 112th to his low standards of cover-up, no achievement, heavy burdens and counter productivity! Stand strong! The Constitution is the guide. The President is causing great damage, please protect!

    4. George Colgrove VA says:

      What does the S&P warning mean?

      It means the federal workforce went too far and congress did not have the resolve to stop them. It means that Wall Street recognizes what the American citizenry recognizes. They recognize that there is little will to stop the madness that has developed in the last 10 years. They are saying the federal workforce is out of control and is showing fear that the federal workforce does not have the wherewithal to stop that madness. This was stated by Adm Mike Mullen when he commented on how the DoD had a rush of cash over the last 10 years and lost track of priorities. S&P is starting to show no confidence in the federal government. They however did praise the private sector and in so many words indicated it was not the private sector that was the cause for concern.

      What is in the news today? We learned that due to documents released by the British government workforce, oil firms were in fact behind the invasion of Iraq. The Independent reported that the DoD was used by the Bush administration to fight a war on their behalf to gain access to the oil fields. Yes, it is true that the United States did not directly benefit from the war efforts in Iraq, but oil companies are global and these companies did benefit. These secret documents reveal that Britain was out of the loop with deals that the US federal workforce was making with France, Russia and US oil companies. Britain was able to get in on the deal.

      Once again, the federal workforce in a dead set agenda to ensure their permanence in overpaid positions and privilege needed some wars to start a never-ending flow of cash to DC. We just suffered 9/11 and we gave Afghanistan a tremendous hit. Instead of doing what a war department should and finish the job, the DoD took a step back and let Al Qaida regroup. Why not? If this poorly funded loose group of terrorist were able to regroup the federal workforce could start the massive flow of cash with lucrative defense contracting deals and benefit from the kickback thereafter. Oil companies enter the scene and what do we end up with? A perfect storm of corruption and greed. The administration, the federal workforce and defense contractors know that Americans will never back away from the military so they go for the jugular. Defense spending increases dramatically and people go along with it. It increases even more. Soon the payouts to defense contractors would match the original defense budget of 2001/2002. Chaos is fed and more defenses are needed. Spending increases even more. Today defense contractors will likely get almost $400 billion in taxpayer dollars and National Debt.

      During this time, the left did not want to be left out and knowing neocon congress members were locked and loaded on massive increases to defense spending. To keep things quiet, the left were able to increase entitlement giveaways and other entitlement spending, by placating republicans with desires to to keep their own pots full. Reckless spending began. Elsewhere in the government, budgets doubled or more – transportation, education, the arts, and so on. Not to be out done, many departments scattered about were consolidated in the most inefficient and political branch of the government, DHS and due to fear mongering their budget was bloated instantaneous.

      In short what the federal workforce did was summed up with Rhalm Emanuel’s statement – let us not “let a good crisis go to waste.” Well the federal workforce definitely took advantage of 9/11 by growing their numbers by almost a million and gave themselves a massive 36% pay increase while the rest of us los on average 5%.

      In the news today, we read almost weekly that the Defense secretary Gates starts of most of his answers with “I don’t know . . .” We have the National Security Advisor who perfectly demonstrates that deer in the headlight look. Always struggling for answers. The former National Security Advisor, Panetta, and Gates all agreed that the intelligence community was so big that they could not put their arms around it all. From the citizen point of view, there is no one at the wheel. Waste, fraud and corruption seems to be leading the show. Yet we spend more and more money we do not have supporting the madness.

      Suddenly we have Adm Mike Mullen come out and say on multiple accounts that the National Debt is this countries number one national security concern. Where was everyone? Hording their pots! We had an election and the people spoke. The house decisively switched sides when the Democrats had a super majority. Nearly 700 elected positions nationwide went republican. The Tea Party (which is the American working citizenry) spoke loud. However, where was everyone? Hording their pots! With these two big tsunamis, we could not wake up congress or the federal workforce with this National Security issue facing us.

      With congress and the federal workforce blind, deaf, and mute on stopping spending, where would the next warning to come from? Wall Street. In the same way taxpaying American citizens are, S&P is now expressing their concerned and rightfully so. Since the republicans took control of the purse strings a few months ago, only $38 billion in a $3.8 trillion budget was cut. However, analysis suggests that annual savings were not even that high. We have just lost a half a billion dollars fighting in Libya when Gates just proclaimed that we will be leaving Libya with Qaddafi still in office. $500 million later, nothing changed and the people we were trying to save were killed anyways. We will likely bleed more dollars and lives in these long lasting wars for years to come if Sec Gates in correct in his assessment. It is clear that the federal workforce and congress has zero interest in controlling entitlements and has a thirst for ongoing wars. It is clear the federal workforce will not stop until this country is broke and under totalitarian control.

      S&P is a warning shot at the federal workforce. It is saying stop the spending! We need to start cutting the size, the scope, and the cost of the federal government. Not in 2012, or in 2013, but NOW! It is clear that targeted cuts will not work. We need an across the board cut – today! 15% will cut $500 billion out of annual budgets. Let us get started today with this cut. It need not be political. It need not be over burdensome. It is what every household does to start saving money. You turn down the thermometer. You conserve water. You even eat a little less and what you do eat cost less. The first step in cost reduction is attempting to cut everything. Let us get the legislation started. An across the board cut will encourage (force) the federal workforce to make processed and policies more efficient and cost effective. Once the first 15% cut is made, do a second 15% ABC until the federal workforce is 70% what it is today. While performing these cuts, start working on getting the federal payroll in line with the private sector. Also, while making these cuts, look at consolidation to make the cuts more bearable for each department.

      Once those sequences of cuts are made, the federal budget will be $2.8 trillion. Then we need targeted cuts. We need a serious look at entitlements. We need to make the DoD as efficient as it can be then push them a little more. We need 100% transparency. The federal workforce should not be trusted in any way. Other than immediate national security, concerns, all work done by the feds should be done with an “open door policy.” No more secrecy in the government. This is costing us lives and treasure for no good reason.

    5. George Colgrove VA says:

      The illusion in your graph shows a dip in debt vs. GDP during the “war on terror” – almost justifying fighting wars to aid the economy. OK, well GDP also includes federal spending. So when we hike war spending the GDP goes up – artificially. In the early years of the war federal spending was much more under control than today. However, federal spending (including massive increases to DoD budgets) skyrocketed after 2007.

      With little (comparable) increases in the National debt from 2001 to 2006 and massive increases in federal spending using increases in tax collection, your chart will show a dip in debt vs. GDP. Your graph incorrectly shows that the war on terror ended in 2007/8-ish. We are still fighting it in THREE places now! We have spent more money in the last few years then in your yellow zone. As your graph shows the debt vs. GDP has a near vertical climb. The debts from fighting the wars and losing control on entitlements shot the debt up at alarming rates.

      Though the debt skyrocketed in the last few years, the GDP has not budged, as there is anemic private sector activity. You take out the massive federal spending the GDP will take a dive. It will take years for the private sector to rebound from what he feds have done to it. Therefore, in this sense, your graph likely shows a proper projection into the future. I think it will be worse since all GDP projections are rather rosy.

      I am just concern that the Heritage Foundation as great of an organization it can be, seems to have a focus on obfuscating facts to encourage massive defense spending. Your graph sees to justify defense (war) spending by incorrectly showing the debt vs. GDP goes down when we are at war. The only conclusion then is to say we shall be at war forever! Well we are at war forever and defense contractors and DoD feds have never been so highly compensated from it. People who invest in the military industrial complex (that Eisenhower warned us about) has never made so much money. However, the bottom line is that your chart does not show that we are still fighting wars and the damage of these wars is causing the future and liberty of this nation. You extend that yellow zone out to today and beyond, I think you will see a different story than you are trying to convince us of.

      One thing that needs to be pointed out. The reason my the chart shows a massive decrease in the debt vs GDP after WWII is because the federal government at the time cut spending and paid off the debt for many years after the war. Within two years after WWII, the War department's budget was slashed by more than 75%. Of course it didn't take the scorned DoD that long to engange us in another war by the end of the 1940's. A practice we have been in since – nearly constantly.

    6. Pingback: Must Know Headlines — ExposeTheMedia.com

    7. peter l read Jupiter says:

      I have been listening to the same debate for the last 50 years or more. It is always the same. Can't a group of reasonably intelligent individuals come up with a means to balance the budget without this incessant partisan bickering? Both sides of the aisle are guilty of gross mismanagement and all show signs of intellectual corruption.

    8. Eric, armed forces E says:

      simple, refuse to increase the debt ceiling, then they have to balance the budget

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.