The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.
More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
While the country suffers under the current leadership, and the economy continues it's downward spiral; it should be noted that quite the opposite happened in Alaska after a Palin administration. In November of 2010, Moody's, another one of the three big rating agencies raised Alaska's rating from Aa1 to Aaa:
Alaska had its bond rating raised to the highest investment grade by Moody’s Investors Service after the oil-rich state amassed financial reserves of $14 billion.
Moody’s raised Alaska one level to Aaa from Aa1 before a $200 million bond sale by the state, which currently has about $475 million of general-obligation debt outstanding. Alaska joins 14 other states, including Texas and Maryland that have a top rating from Moody’s.
“We believe the magnitude of reserves, along with conservative financial management, will lead to enduring fiscal strength under all plausible scenarios over the next five to 10 years,” Moody’s said in a news release today.
While it's true that this upgrade happened during a Parnell administration, confidence in Alaska from this major credit agency didn't happen overnight.
Governor Palin served Alaska during a time when oil prices were high, but she put into place measures that allowed the states financial reserves to grow, instead of being grossly mismanaged by undisciplined bureaucrats. She also reduced Alaska's liabilities by 34.6%, as was addressed yesterday. Her forward focused fiscal prudence, in addition to the fact that she addressed Alaska's financial liabilities, likely gave Moody's the needed assurance of the state's fiscal seriousness to increase Alaska's credit rating.Could we expect the current federal leadership to address liabilities to show rating agencies that America is serious about our fiscal health? Is there any question that the United States government would squander large revenues under the current leadership?
Just imagine if this country opened up energy production, while simultaneously taking bold steps, - such as Governor Palin did in Alaska - to get it's fiscal house in order. As you can see, it produces exactly the opposite outcome of what we are currently facing today. In the words of Governor Palin, "2012 can't come soon enough."
Check out this short clip from the CATO Institute on what it means to have our nation's credit rating downgraded, in simple terms: