This remains top notch, but there is a warning. Sort out your deficit and borrowing mountain, or face a downgrade. S&P yesterday issued this warning, not to Spain , or Greece, Ireland or Portugal, but to the mighty United States of America. Markets plunged in fright. The world paused for breath. Wow.
Yet this is not straightforward. For years the US has spent more than it earns in tax and imported more than it exported. It seemed to work. But, of course, in the end it cannot. The end is now in sight as a possibility. Before, there was no end, just eternal borrowing. The main worry for S&P is lack of an agreed plan, because of a deadlocked government. A President, stalled by a Republican House, which is in turn trumped by a Democratic Senate. That worries markets and analysts.
At the heart of the matter is a President who believes you can borrow your way out of a recession and has been spending at levels which defy the imagination. The irony of the Obama administration is that it is internationally enlightened and economically foolish. Beneath that there is a real problem: a fault line in the very structure of the United States itself. It has been argued over since the nation was founded. It caused the Civil War. This became about slavery and which was settled. But it was not about slavery, it was about Union. It was about whether Union was voluntary or not. Especially it was about which had authority over the other, the States over the union, or the Union over the states. This question was not settled, only silenced. It has simmered in the century and a half since. It has never gone away. Now it is very much back.
Now the trigger issue is not slavery. It is money. Not any money. Just the money spent by the Federal government. Politically the Parties have switched sides. The Republicans want to cut Federal spending and are for less government, the Democrats the opposite. This cannot be solved by a proclamation. It is not an single issue. It is a whole concept. It is about whether the American dream can afford two levels of spending government. Or whether Americans are willing to pay the level of taxes necessary to pay for two levels of government. When spending was under control they were. Now it is out of control, old wounds and arguments are opening up, an old division is re-forming. A fiscal argument has already become a fundamental one. This has become a clash of what America is, what it is for.
This time the will be no recourse to arms, at least by rival armies. It may not be possible to resolve this dual vision at all. It may have to be converted to productive tension. It will run through the 2012 Presidential election,which the Republicans hope to win. This looks more possible than it did. Because of that, the Republicans need to sort themselves a candidate with the stature and intellect to offer solutions to the biggest challenge to face the country domestically for a hundred and fifty years. Sarah Palin? Dear me!
The markets meanwhile will try to rationalize, the rating agencies will warn. Here George Osborne can feel vindicated, but Ed Balls, Labour’s second disappointment for Shadow chancellor, needs to worry. The main plank of his economic policy, such as it is, has just been blown away, by the warning shot from S&P across the bows of the high spending government across the pond he so very much admires.