The Obama administration provided its political opponents with a powerful image in Monday's remarks about the S&P downgrade of America's credit rating. The White House called the press corps to the State Dining Room for a 1 p.m. ET statement from the president regarding the historic, market-rattling downgrade — just to stare at an empty podium for almost 60 minutes. At one point, CBS correspondent Mark Knoller tweeted that he hoped S&P didn't grade for punctuality, or we might get downgraded again before Obama made an appearance.
When President Obama finally did arrive, it only got worse. He delivered a speech that was only remarkable for its lack of anything new at all. Setting aside a tribute to slain American troops in Afghanistan tacked on at the end, the president failed to provide any new ideas or commitments that would either improve market morale and inspire confidence in his economic leadership, or even pose a new option for further negotiations. NBC's Chuck Todd remarked, "You get the sense, [the White House] knew they had to say something given the news of the weekend but he didn't have much NEW to say."
Let's step back to the conclusion of the debt-ceiling deal last week. Republicans agreed to raise the debt ceiling in exchange for discretionary spending cuts stretched over the next decade, and a commission to produce further cuts on that side of the ledger by Thanksgiving. The deal satisfied no one, but it did allow the Treasury to borrow more funds to meet the requirements of current spending plans, including entitlements.
What the deal did not do is to substantially alter the trajectory of long-term U.S. debt, or even short-term deficits. Both sides accused the other of blocking any such solution. Democrats, including Obama, wanted tax hikes on the table, especially the Bush-era tax rates for higher-income earners that the deal last December extended. However, those revenues would only have resulted in $700 billion of additional income over the next decade, even using the static tax analysis that presumes tax changes produce no effect on behavior. House Speaker John Boehner offered agreement on $800 billion in new revenue through tax reform, and thought he had a deal until Obama upped the demand to $1.2 trillion.
Obama has run out of ideas and has now been reduced to recycling the same meaningless sound bites at an endless series of media appearances.
Many Democrats insisted that entitlement programs be left off the table. Unfortunately, that is where the debt explosion will occur. The Heritage Foundation clearly shows the current trajectory of entitlement spending over the next seven decades, based on CBO numbers, as a percentage of GDP — and it's unsustainable. By 2049, the U.S. will spend its 30-year average of annual tax revenue as a percentage of GDP on entitlements alone. Medicare and subsidies from the new ObamaCare program help amplify the tidal wave of liabilities, which will increase by 50 percent as a percentage of GDP within 20 years.
As the curve builds, the U.S. will either have to borrow more and more money to keep up with the payments, or will have to impose confiscatory tax burdens that will cripple the economy and make the situation even worse. That is the economic reality that S&P and other investors see. The wonder is that we still have an AA+ rating while tens — or perhaps hundreds — of trillions of dollars in unfunded liabilities remain as possible long-term prospects.
In other words, the downgrade isn't just a surprise, it's common sense. Many in the debate predicted exactly this outcome, and yet the announcement on Friday evening took the White House by surprise. Obama himself had spoken earlier in the day at the Washington Navy Yard, insisting that the economy would shortly improve. Three months earlier, Treasury Secretary Tim Geithner had insisted that a downgrade wouldn't happen, and Obama apparently took him at his word.
When the news began to leak in the late afternoon Friday, and the announcement came in the evening that the S&P had indeed downgraded American debt for the first time, the White House spin team tried pushing back, but ended up contradicting itself. Starting on Friday night, Geithner and others at the White House insisted that S&P made a $2 trillion error —ironic, considering that this administration has twice made $2-trillion errors in its economic projections in the last two years — and that the downgrade was entirely invalid. At the same time, Democrats such as Sen. John Kerry, former DNC chair Howard Dean, and Obama's closest political adviser David Axelrod insisted that the S&P downgrade was valid, and was entirely the fault of the Tea Party that bullied Obama into a bad deal.
The only person left out of the debate after the S&P downgrade announcement was Obama himself. He spent all weekend incommunicado at Camp David, and initial reports of his schedule Monday showed only closed-door meetings — and two evening fundraisers for his re-election campaign. The White House changed course mid-morning and promised an Obama statement on the downgrade for 1 p.m. At that point, Obama had about two hours to write a speech after an entire weekend to consider the issue, and that stretched to almost three hours thanks to his 52-minute late arrival at the podium. There was plenty of time to offer new ideas, new approaches, and a specific plan designed to boost confidence in American economic leadership.
Instead, Obama offered nothing new in his speech. Every component of it might just have been copied from the series of media appearances Obama made in the weeks before the debt-ceiling deal. Obama even mentioned more spending as part of the way forward, talking about "repair[ing] our roads and bridges and airports," the kind of "shovel-ready" projects that even Obama knows are myth rather than reality.
Incredibly, even with the market tanking, Obama refused to demonstrate any leadership by committing to putting forward a plan to deal with the structural debt, even on his own terms. Washington has been debating budgeting and entitlements for months, but this was the best Obama could offer at this late date, emphasis mine: "I intend to present my own recommendations over the coming weeks on how we should proceed."
Recommendations? Weeks? During the debt-ceiling negotiations, the White House insisted that Obama had a plan, even if he didn't publish it. That clearly isn't true, because Obama had a perfect opportunity to lay it out Monday. Obama also promised a deficit reduction plan in April in response to the House passing the Paul Ryan budget plan, a plan which got 40 more votes in the Senate the next month than Obama's own initial budget proposal, which hadn't been updated since late January. Now we're down to "recommendations" after a few more weeks.
The empty podium proved to be a powerful message about this presidency. Obama has run out of ideas and has now been reduced to recycling the same meaningless sound bites at an endless series of media appearances. The president signaled to the markets that America has no leadership at the moment — a message that corroborates the S&P analysis.