Washington takes a toll on Main Street
For a while now, we’ve been working to draw attention to the federal government’s dangerous habit of overspending. Recently, some of the work is being done for us as the adverse effects of overspending are becoming impossible to ignore.
Anyone can talk about a $1 trillion deficit or a $14 trillion debt, but those numbers are impossible to relate to and they’ve reached a point of saturation where they mean very little to most of us. That’s not the reason we do this work. The most unfortunate aspect of Washington’s fiscal irresponsibility is the impact it has on Main Street.
Often the connection between Washington’s overspending and a family’s bottom line is a bit convoluted, more of a chain-reaction. These days, it doesn’t take an economist to see the connection.
For months Washington was deep into a partisan fight over how to raise the debt ceiling and address the nation’s long-term deficit. Tempers flared and Congress fell back into their all-too-familiar sound bites, unwilling to work together toward a substantive agreement. In response to this spectacle, Standard & Poor’s downgraded the nation’s top-notch AAA credit rating for the first time ever.
Financial markets had a knee-jerk reaction to the news. The Dow dropped over 630 points on the first day of trading after the downgrade. It fell another 520 points yesterday.
The Wall Street Journal takes it from here:
Cash-strapped Americans are bracing for a further squeeze following last week’s downgrade of U.S. government debt, as interest rates on deposits continue to fall and some borrowing costs edge higher.
Consumers have already been struggling with high unemployment and elevated levels of personal debt incurred during a pre-recession spending binge. Now they are grappling with shrinking retirement accounts, as major stock indexes nose-dive and yields on U.S Treasurys touch new lows amid the market turmoil.
Some consumers said they were already changing their spending and investing habits as a result of the debt downgrade and the continued uncertainty over the economy.
In a separate article, the Journal continues:
The current predicament, by contrast, is a top-down affair. Governments around the world, unable to stimulate their economies and get their houses in order, have gradually lost the trust of the business and financial communities.
That, in turn, has caused a sharp reduction in private sector spending and investing, causing a vicious circle that leads to high unemployment and sluggish growth.
As the WSJ explains, the downgrade has injected more uncertainty into an already shaky economy. Unemployment was already too high, businesses weren’t hiring, and families were struggling to save – and Washington pushed it over the edge. Congress’ unwillingness to budget and spend responsibly sent ripples directly into mainstream America.
In other words, the economy was already bad; Washington managed to make it worse.