Publisher Steve Forbes says S&P’s downgrading of U.S. credit was a political and “outrageous move.” However, Forbes said Sunday on CNN’s “State of the Union” that, if other credit rating agencies don’t downgrade, the effect of S&P’s action on U.S. stock markets will be minimal.
Appearing on the same show, former economic adviser to President Barack Obama Larry Summers also condemned S&P’s move but blamed the credit rating agency’s rationale behind the downgrading on the House GOP majority.
Forbes said S&P’s action was surprising, in light of the fact that the government can meet its credit obligations.
“I think in a narrow sense it is a political move . . . an outrageous move,” Forbes said. “The government can pay its debts, it is legally obligated to do so, its got the wherewithal to do it. In a larger sense about the economy, I think the U.S. economy is in a perilous state, this recovery has been the worst from a severe recession since the Great Depression.
“But I am surprised S&P would play politics — the U.S. government can pay the interest and principal on the bonds — but in a broader sense we do have severe economic troubles, but we will be able to pay the interest and principal on the bonds,” the one-time GOP presidential hopeful said.
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Summers, who also served as Treasury secretary under President Bill Clinton, said S&P’s track record has been “terrible and as we’ve seen this weekend its arithmetic is worse, so there is nothing good to say about what they’ve done.”
“But that’s not the large issue here — the large issue here is that House majority played chicken with America’s credit worthiness and America’s families are now going to be the losers,” said Summers, who also served as an economic adviser to President Barack Obama.
“We’ve got critical economic problems — the critical economic problem of slow growth and lack of jobs, the critical economic problem of a long-run budget situation that needs to be adjusted, and needs to be adjusted in a rational way, and we’ve got to find balanced approaches going forward,” Summers said.
Host Candy Crowley asks if the S&P downgrading was an unjustified move, how could Summers blame the Republicans.
“This happened because S&P was seeing what most Americans are feeling — which is unhappiness with the solutions that are coming out of Congress for critical economic problems,” Summers said. “To say that S&P is suspect, is not in any way to say that all’s well — and the productive thing here is not to bash on S&P . . . the productive thing is to focus on what we can do going forward.”
Forbes disagreed that House Republicans were to blame, saying they were specifically elected to undo the financial damage incurred by the Obama administration.
“What’s holding this economy back is a weak dollar — you never get a strong, sustained recovery with a weak currency — uncertainty about taxes, massive new regulations coming from healthcare, finance,” Forbes said. “The National Labor Relations Board is doing things it’s never done before — telling companies where they can move and not move — all the regulations are hurting.
“Banks are not lending because of the uncertainty, and that’s why this recovery has been so weak,” he said. “If the administration would changes policies, we would start to see a real recovery.”
Crowley asked Forbes how he thought the markets would react to S&P’s downgrading.
“I think the markets are going to be a little uncertain — the key thing is whether the two other rating agencies are going to follow S&P,” Forbes said. “I don’t think they will — and if they don’t, the reaction is going to be rather minimal.
“It’ll have a slight increase in interest rates, but the key thing on interest rates is the Federal Reserve, which is really punishing savers by its zero interest rate policy . . . the Feds weak dollar policy is the real disaster — we’ll get through the S&P thing,” he said.
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