Standard & Poor’s enforced its demands on the US by downgrading US Treasury debt. We get a good idea of those demands from the press release on the downgrade.
It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.
S&P is treating the US the way the International Monetary Fund treated Greece, making demands for austerity and tax reform. Last year, the IMF entered into an agreement with Greece, calling for:
budget cuts, a freeze in wages and pensions for three years, and tax increases to address Greece’s fiscal and debt problems, along with deep reforms designed to strengthen Greece’s competitiveness and revive stalled economic growth.
Greece is required to report regularly to the IMF on its progress towards meeting specific goals laid out in several documents. The August 6, 2010 report said that Greece anticipated that its GDP would decrease by about 4% in 2010 and 2.5% in 2011. Inflation was running at 4.75%, but wages were stagnant. Greece filed an update in July 2011. The GDP is expected to decline by 3.75% for 2011. Labor costs sank, meaning that wages sank.
Of course, Greece was in sorry shape going into its financial crisis, compared to the US. Our problems are quite minor compared with theirs; and we control our own currency while Greece is in the Euro community. That austerity is hurting Greek society as are similar programs adopted under force in Ireland, and voluntarily in England, which is racked with strife and a miserable economy.
We shouldn’t be surprised that austerity is the word of the day in the aftermath of the downgrade. The downgrade was intended to encourage the political elites to continue to flout the will of the people as expressed in poll after poll, including this one just out, to raise taxes on the rich and cut military spending, while opposing cuts to Social Security, Medicare and Medicaid. There is no mention of jobs or growth in anything put out by S&P, which apparently agrees with the IMF that austerity is its own reward.
The prescriptions of S&P certainly sound like positions taken by the pre-eminent representative of our corporate elites, the Business Roundtable, which makes sense, because the Chairman of the Board of the Business Roundtable is Harold Whittlesey “Terry” McGraw III, currently the CEO of McGraw-Hill Companies. McGraw-Hill owns S&P. Terry McGraw is the grandson of the founder, and took over a few years after his father retired.
And lest you feel that tickle of conspiracy, the New York Times explains today that the rating people are independent from the leadership of McGraw-Hill. That reassures me no end.