Mohamed El-Erian, CEO of the bond fund PIMCO, comments in the Financial Times on the S&P downgrade from AAA to AA+ of the US credit rating. There is a long quote below, but please see the original article. I very much hope that our very dysfunctional political establishment does take this unprecedented event as a “Sputnik moment” rather than as a talking point for further bickering, grandstanding, and other self-serving behavior which is destructive of the common good.
All of that said, there a sliver of a silver lining — and an important one. America’s downgrade may serve as a wakeup call for its policymakers. It is an unambiguous and loud signal of the country’s eroding economic strength and global standing. It renders urgent the need to regain the initiative through better economic policymaking and more coherent governance.
There is a risk, of course, that different political factions will use S&P’s action as a vindication of their prior beliefs. Democrats would argue that it is recent Republican political sabotage that pushed S&P over the edge while Republicans would argue that we are here due to irresponsible government spending by the Democrats.
For the sake of their country and the wider global economy, both parties should resist the urge to begin bickering. Instead they should seize this potential “Sputnik Moment” — a visible shock to the national psyche that can unify Americans around a common vision and a renewed sense of purpose — that of halting gradual secular decline by putting the country back on the path of high growth, job creation and financial soundness.
The writer is chief executive of PIMCO
PS. Since revenues and expenditures are the two flows of money that determine deficits, I’ve posted this useful history evolution from the party of fiscal responsibility (e.g. Eisenhower) to the party of no new taxes, enforced by the non-elected party theologian-inquisitor, Grover Norquist. Source: Washington Post.
For further political comment, see What Would Eisenwhower Do?