What AA+ Means

US debt has been downgraded to AA+ by Standard & Poors (S&P), which is a notch shy of the top AAA ranking.  Few countries, it should be noted, have that ranking, and a very select few have top-notch finances to boot.  In fact, it seems that the world is converging on Switzerland for that matter.  Their debt is low, the currency quite stable, and more importantly, their politicians get along.  In fact, in Switzerland, executive authority is not vested in one individual, but in a council of individuals.  So, when a dignitary visits Bern (capital of Switzerland), the council meets the dignitary at the red carpet.  I've always thought that to be a rather neat quirk of Swiss politics.

Let us not be glib about this - this downgrade was the product of economic mismanagement and terrible politics that began with the second Bush administration and continued into the Obama administration.  The economic mismanagement did not stem from Keynesian or Libertarian strategies, but the fact that the Keynesian strategies were poorly executed, and the libertarian strategies had poor oversight.  The theological dangers of the libertarian, minimal-government strategy is that it fails to restrain the fact that people are inherently sinful.  For Christians, I suppose, it is a boon in the sense that it allows us to witness human depravity in its most obvious form.  Let's be clear - nobody said we HAD to react to low interest rates by spending.  The government never held a gun to peoples' heads to take on so much credit to finance multiple houses, renovations, etc.   And nobody told the banks to overinvest in subprime-mortgage backed CDOs. When we reject God and are wandering in the darkness of sin, we latch on to whatever gods we find palatable, be it the god of profligate spending, fed by low interest rates, or some other idol.  Thus, libertarian strategies require more than just "minimal government," especially since corporate interests make their presence known on Capitol Hill.

I should say that I do not buy a lot of Christians' views that charity is an individual issue.  If charity is an individual issue, then why are those same people pushing for the state to define marriage as between a man and woman?  And why place restrictions against abortion?  Is that not the state exercising righteousness?  I fail to see how individual charity and state enforcement of morality complement each other.  Or is it because one hurts one's own pockets more than the other?  I will never struggle with abortion, nor am I gay.  So I force through the state those who do not think abortion or homosexuality is sin.  But oh wait, I have money, and I don't want to pay taxes that fund Social Security and MediCare.  So what do I do?  I say charity is an individual thing.  Yes, Social Security and Medicare are amazingly inefficient.  But the key is to reform them, not do away with them!  In my opinion, I don't think Social Security and Medicare should be required for people to pay into, particularly for the wealthy.  Let the wealthier folks buy their own health insurance (and realize that it's thrice the price and a third of the quality of healthcare compared  to the healthcare you get in Taiwan or Singapore).

Not to say Keynesian strategies are that much more effective.  President Obama's stimulus was rigged with earmarks hither and yon.  He should have focused exclusively on infrastructure improvements and expanding certain government divisions (I'm thinking IRS).  And his inexperience allowed GOP leaders to run over him.  Let's be honest - how is it that a Democrat president is the one proposing cuts to social programs?  Furthermore, in retrospect, the first two years of his administration were spent on his Medicare plan which, while commendable, was not what the nation needed at the time.

So I agree with the S&P that the US deserves a debt downgrade.  In fact AA+ might be a wee bit too generous.  In any case, interest rates will rise since the cost of borrowing would be higher.  Consumers will want to hold on to cash given the higher interest rates.  This will depress the economy, although whether it would send the US back into a recession is not certain.  Poor Switzerland will see the CHF increase in value, making shopping for groceries even more expensive than it already is.  The Swiss presidency council will have to continually flood the market with CHF to keep it within sane levels.

I find it notable that there is one economic power that has been staying silent in all this - China.  I know Presidents W. Bush and Obama have tried to encourage China to "get out of their bubble" and participate in global security, etc.  Unfortunately, that's not "the Chinese way".  The Chinese way is to simply shut up, mind their own business, and make sure your house is in order.  China will never contribute to global security unless they are threatened and such a contribution is the only solution.  On an ethical level it is troubling, but economically speaking they're playing a brilliant game.  Why spend money contributing to global peace when the US is spending the money doing so?  We might as well use the money to build sub-standard high speed rails.

Indeed, I wonder if just as this century's was America's to own, the next century is China's to control.  The West will continue to be an influence, but not on a political or military level.  The Western philosophy rooted in individualism, however, will thrive.  After all, how can any philosophy or theology compete with individualism?  It's the perfect god and is so easy to worship.  Not to say that Western individualism is all bad.  Our lives need a dose of individual creativity matched with our roots in community.  The West however has largely veered towards individualism while the East has focused on community at the expense of individual autonomy.

This philosophy of balance will not only guide us in life, but will guide our economic activities.  Yes, it might not be the best way to encourage double-digit GDP growth, but what's wrong with, say, 5%?  I would rather our economy grow 5% regularly than have 5% one year, 10% another, -2% a third.  This moderation leads to financial security since fluctuations are minimized.  The effectiveness of this policy is augmented if coupled with an effective government that is truly for the people.

It's interesting that the Chinese government, while Communist in name, is pursuing a Keynesian strategy.  They have to - to have a conspicuously wealthy class would threaten the philosophical foundations of the Communist Party.  This is a problem that Singapore does not have.  The ruling Peoples' Action Party was never Communist, and so had no philosophical necessity to ensure that the poorer are taken care of. Thus, it can afford libertarianism.  In America, however, given our polarized politics and individualistic philosophies, I think it is exceedingly difficult to move beyond political and economic impasse.  The S&P's downgrade reminds us that this impasse is dangerous.

As a footnote, because the Swiss will find a way to tamp down the CHF, it may end up being gold that benefits.  Those of you with gold lying at home, lucky you.  All I have is my Starbucks "Gold" Card.