This editorial will appear in Tuesday’s print edition.
Wall Street gripped by panic is not a pretty sight.
On Monday, stocks plummeted, with the Dow Jones Industrials falling 634 points, the sixth-worst point decline in 112 years. The S&P 500 index also fell more than 6 percent in what was the worst day on Wall Street in two years.
It is tempting to pin blame on Standard and Poor’s and its unprecedented move late Friday to downgrade American debt.
But S&P’s decision to yank the United States’ triple-A rating was widely expected. The rating agency had warned that it was looking for a much bigger debt-reduction plan than Congress was able to muster.
Losing S&P’s top rating apparently didn’t make U.S. debt any less desirable. The price of Treasury securities rose sharply Monday as investors fleeing stocks dumped their money there instead.
Moody’s affirmed that choice Monday, announcing that it would not follow its rival’s lead because it hasn’t given up hope that the U.S. will take decisive action to cut the deficit.
On that score, Congress and the White House must not disappoint.
Wall Street’s troubles have many causes – Europe’s debt problems and a slowing U.S. economy among them – but a slide doesn’t become a stampede without an acute crisis of confidence. S&P’s downgrade is but an expression of that concern.
Investors aren’t reassured when the president tells them “our problems are eminently solvable and we know what we need to do to solve them.” That much has been obvious for some time now.
What Wall Street and average Americans doubt is not politicians’ ability to identify the problem (the federal deficit) and potential solutions (less spending, more taxation or some of both).
What they question is those leaders’ will to act in the nation’s interests even if it means acting against their own self interests.
The debt deal that was supposed to restore faith in the fiscal sobriety of Washington, D.C., was anything but a serious approach to resolving the nation’s debt. It did the minimum necessary, putting off the difficult task of reconciling the federal budget and the inevitable political reckoning that will accompany it.
Americans are just beginning to experience the fallout from such irresponsibility. It will continue until Congress proves itself capable of putting aside partisan pandering to offer prudent fixes for the country’s financial future.