west coast – february 2012 policy update · web viewfiscal discipline is high. vincent del...

West Coast 2012February Update

West Coast – February 2012 Policy Update


Table of Contents West Coast – February 2012 Policy Update................................................................................................................................1

Table of Contents...................................................................................................................................................................2

Credit Downgrade DA..................................................................................................................................................................3

Credit Downgrade DA 1NC 1/3...............................................................................................................................................4



Yes Sequestration – General...................................................................................................................................................7

Yes Sequestration – Obama Veto...........................................................................................................................................8

No Spending – General...........................................................................................................................................................9

No Spending – Defense........................................................................................................................................................10

No Spending – AT: Foreign Aid Now.....................................................................................................................................11

Link – Chopping Block...........................................................................................................................................................12

Link – Sacred Cow.................................................................................................................................................................13

Link – Earmarks....................................................................................................................................................................14

Spending Ratings Downgrade..........................................................................................................................................15

Debt Reduction Key To Rating..............................................................................................................................................16

Sequestration Key Rating.....................................................................................................................................................17

Credit Downgrade Hurts Economy.......................................................................................................................................18

AT: S&P Already Downgraded US.........................................................................................................................................19

Ratings Decrease Bad – Dollar Impact..................................................................................................................................20

Dollar Dumping Bad – Hegemony.........................................................................................................................................21

Ratings Decrease Bad – Chinese Currency Impact................................................................................................................22

Chinese Revaluation Bad – Oil Prices Impact........................................................................................................................23

Ratings Decrease Bad – Hegemony......................................................................................................................................24

AT: Defense Spending Impact Turn......................................................................................................................................25

AT: Econ Resilient—General.................................................................................................................................................26

Economic Decline War.....................................................................................................................................................27

AT: Other Countries Check US Decline.................................................................................................................................28

Credit Downgrade DA Answers.................................................................................................................................................29

Moody’s Won’t Downgrade The US.....................................................................................................................................30

Deficit Reduction Bad – Warming.........................................................................................................................................31

Credit Downgrade Doesn’t Cause Econ Decline...................................................................................................................32

Yes Credit Downgrades.........................................................................................................................................................33

Economy Is Resilient.............................................................................................................................................................34

Yes Spending........................................................................................................................................................................35

No Sequestration..................................................................................................................................................................36

No Economy Impact.............................................................................................................................................................37

No Economy.........................................................................................................................................................................38


US Not Key To Global Economy............................................................................................................................................39


Credit Downgrade DA


Credit Downgrade DA 1NC 1/3

Sequestration will happen now – ensures across the board budget cutsMarketNews International, 2-2-2012, “US’s Reid: Hammers GOP on Sequestration, Payroll Tax-Cut Stall,” https://mninews.deutsche-boerse.com/index.php/uss-reid-hammers-gop-sequestrationpayroll-tax-cut-stall?q=content/uss-reid-hammers-gop-sequestrationpayroll-tax-cut-stallUnder the budget agreement reached last year, since the Super Committee failed to agree on $1.2 trillion in deficit cuts, across-the board spending cuts of this size will be implemented over the next decade, with about half coming from the discretionary part of the budget and half from the defense budget. House Speaker John Boehner said earlier Thursday that he has "concerns" that the spending cuts that are set to be triggered next January will "hollow the military." But he did not endorse legislation that seeks to delay the first year of the across-the board spending cuts required by the failure of the Super Committee by cutting federal employment and extending a pay freeze for federal government employees.

Congressional appropriators powers have been stripped – new spending empowers them and kills the sequestration processNPR, 10-23-2011, “Congressional Strongmen, Stripped Of Superpowers,” http://www.npr.org/2011/10/23/141616737/congressional-strongmen-stripped-of-superpowersSince the supercommittee was formed in August to find federal deficit cuts, the House and Senate appropriations committees have seen their responsibilities wane. But not too long ago, they were the most exclusive clubs in Congress and it took years to get assigned to one. Appropriations 'Lost Its Luster' Rep. Jeff Flake, R-Ariz., finally landed a spot on the House Appropriations Committee last fall. That's because few others wanted the job — he jokes to Guy Raz, host of weekends on All Things Considered. "It's kind of lost its luster for most people," Flake says. In a recent issue of the The New Republic, reporter Eliza Gray says it is quite possibly "the least fun time to be an appropriator on the record." For most of the past few decades, appropriators decided how the federal budget would be spent, and consequently had a lot of power. In fact, the subcommittee chairmen were known around

Capitol Hill as the "cardinals" — like those who run the Catholic Church. But over the summer, President Obama and congressional

Republicans took that power away from appropriations and put six Democrats and six Republicans on the new Joint

Selection Committee on Deficit Reduction — the official name for the supercommittee — to do the work instead. Rep. Jim

Moran, D-Va., a senior member of the House Appropriations Committee, says "the supercommittee is an indictment of the whole congressional process." "It shows that the system is dysfunctional today," Moran says. "What we have is a system that's been turned upside down." 'The System Worked' Moran remembers when being on the committee was a mark of serious power. After Mt. Saint Helens erupted in 1980, Sen. Warren Magnuson, D-Wa., who was chairman of the Senate Appropriations Committee at the time, was able to get $1 billion in emergency aid for his home state. Another senator, Daniel Inouye of Hawaii, wondered why he couldn't get that kind of money, Moran recalls. "Sen. Inouye said, 'Maggie [Magnuson], I have thousands of volcanos. Why can't I get a billion dollars for each volcano?' And Maggie put his hand on Dan Inouye's hand, who was young at the time, and said, 'Danny, your time will come.' "Well, Danny's time has come. He takes very good care of Hawaii. You know, the system worked," Moran says. Although appropriators earned a reputation for pork-barrel politics, Moran says that's an oversimplification. He says major projects we now take for granted could never get off the ground because the Republican leadership has banned so-called earmarks. Moran points to a project he successfully funded while on the committee — fixing the Woodrow Wilson Bridge, a major thoroughfare that connects Virginia to Maryland. "We pushed for three years to get that earmark in place. We did it. And the whole country benefits," he says. "We're proud of it. But there was no conceivable way you could have ever built the Woodrow Wilson Bridge to handle the East Coast traffic unless it had been an earmark." Biding Time In addition to their diminished power, House appropriators have been displaced from their room in the Capitol with a view of the National Mall; a women's bathroom is being built there. Moran says it's symbolic. "It's a diminution of the power of appropriators," Moran says. Rep. Flake agrees. "I'm not saying there's not things to do. But I think we could certainly make use of our time better if we were conducting more oversight and doing more hearings," Flake says. Flake and his fellow appropriators are more or less biding their time until Nov. 23, when the supercommittee has to present Congress with a spending plan. The plan is expected to lay out billions of dollars in spending cuts. "That's pretty sad commentary on where we've come to as a Congress in not being able to prioritize, but if it's the only way we can cut spending, then that may be what we have to do," Flake says.



Following through with sequestration is key to maintaining the US AAA credit ratingDaniel Bases, Staff Writer, 12-22-2011, “Fitch Warns U.S. Of Credit Downgrade Unless Debt Problem Is Solved,” Huffington Post, http://www.huffingtonpost.com/2011/12/22/fitch-warns-us-credit-downgrade-debt-problem-solved_n_1164972.htmlFitch Ratings on Wednesday warned again that the United States' rising debt burden was not consistent with maintaining the country's top AAA credit rating, but said there would likely be no decision on whether to cut the rating before

2013. Last month, Fitch changed its U.S. credit rating outlook to negative from stable, citing the failure of a special congressional committee to agree on at least $1.2 trillion in deficit-reduction measures. "Federal debt will rise in the absence of expenditure and tax reforms that would address the challenges of rising health and social security spending as the population ages," Fitch said in a statement. "The high and rising federal and general government debt burden is not consistent with the U.S. retaining its 'AAA' status despite its other fundamental sovereign credit strengths," the ratings agency said. In a new fiscal projection, Fitch said at least $3.5 trillion of additional deficit reduction measures will be required to stabilize the federal debt held by the public at around 90 percent of gross domestic product in the latter half of the current decade. Fitch, when it lowered its outlook to negative, had said it was giving the U.S. government until 2013 to come up with a "credible plan" to tackle its ballooning budget deficit or risk a downgrade from the AAA status. "A key task of an incoming Congress and administration in 2013 is to formulate a credible plan to reduce the budget deficit and stabilize the federal debt burden. Without such a strategy, the sovereign rating will likely be lowered by the end of 2013," Fitch reiterated. Rival ratings agency Standard & Poor's cut its credit rating on the United States to AA-plus from AAA on August 5, citing concerns over the government's budget deficit and rising debt burden as well as the political gridlock that nearly led to a default. On November 23, Moody's Investors Service, warned that its top level Aaa credit rating for the United States could be in jeopardy if lawmakers were to backtrack on $1.2 trillion in automatic deficit cuts that are set to be made over 10 years. The plan for automatic cuts was triggered after the special congressional committee failed to reach an agreement on deficit reduction. Moody's said any pullback from the agreed automatic cuts to take effect starting in 2013 could prompt it to take action.

Credit rating is key to heg—future economic and military successReuters, 11-12-2011, “Some see hope as US battles to bring debt under control”, Gulf News, http://gulfnews.com/business/economy/some-see-hope-as-us-battles-to-bring-debt-under-control-1.928435The narrative of US decline gained force over the past year as Washington's domestic battles over government spending led another ratings agency, Standard & Poor's, to downgrade the country's AAA credit rating in August. Robert Hormats, the State Department's top official for international economic policy, said the chief US challenge now was to refocus its spending on education and infrastructure to keep up with cash-flush competitors such as China, which are rapidly modernising. "Whether we're the primary, competitive power in the world 10 to 15 years from now depends on what I call the law of long lead times," Hormats said. "We have to demonstrate our political system can deliver results ... We need to invest." Those investments could depend on decisions reached by the congressional "super committee" tasked with finding at least $1.2 trillion in budget savings within two weeks. With Republicans and Democrats at odds over tax hikes and the future of mandated spending for social safety net programmes, such as Social Security and Medicare, discretionary spending on everything from foreign aid to the military is in focus. Most participants at the Summit agreed that how the debate is resolved could have a major impact on US global power. Republican Senator Lamar Alexander said the US future as a global power depended on a deficit reduction agreement , saying bluntly that "failure is not an option." "Our standing will suffer worldwide most if we can't take care of business at home, and the first order of business at home is to stop borrowing 40 cents of every dollar we spend," he said.



Collapse of heg causes regional nuclear wars, massive proliferation, economic collapse and forces US reengagement. Robert J. Lieber, Professor of Government and International Affairs @ Georgetown University. The American Era: Power and Strategy for the 21st Century. 2005. Pg. 53-54.Withdrawal from foreign commitments might seem to be a means of evading hostility toward the United States, but the consequences would almost certainly be harmful both to regional stability and to U.S. national interests. Although Europe would almost certainly not see the return to competitive balancing among regional powers (i.e., competition and even military rivalry between France and Germany) of the kind that some realist scholars of international relations have predicted,2’ elsewhere the dangers could increase. In Asia, Japan, South Korea, and Taiwan would have strong motivation to acquire nuclear weapons — which they have the technological capacity to do quite quickly. Instability and regional competition could also escalate, not only between India and Pakistan, but also in Southeast Asia involving Vietnam, Thailand, Indonesia, and possibly the Philippines. Risks in the Middle East would be likely to increase, with regional competi tion among the major countries of the Gulf region (Iran, Saudi Arabia, and Iraq) as well as Egypt, Syria, and Israel. Major regional wars, eventually involving the use of weapons of mass destruction plus human suffering on a vast scale, floods of refugees, economic disruption, and risks to oil supplies are all readily conceivable. Based on past experience, the United States would almost certainly be drawn back into these areas, whether to defend friendly states, to cope with a humanitarian catastrophe, or to prevent a hostile power from dominating an entire region. Steven Peter Rosen has thus fittingly observed, “If the logic of American empire is unappealing, it is not at all clear that the alternatives are that much more attractive.”22 Similarly, Niall Ferguson has added that those who dislike American predominance ought to bear in mind that the alternative may not be a world of competing great powers, but one with no hegemon at all. Ferguson’s warning may be hyperbolic, but it hints at the perils that the absence of a dominant power, “apolarity,” could bring “an anarchic new Dark Age of waning empires and religious fanaticism; of endemic plunder and pillage in the world’s forgotten regions; of economic stagnation and civilization’s retreat into a few fortified enclaves.”23


Yes Sequestration – General

Sequestration will happen despite attempts at repeal – any spending will be offset with other reductionsTrish Turner, 2-2-2012, “Senators Unveil Sequester Repeal,” Fox News, http://politics.blogs.foxnews.com/2012/02/02/gop-unveils-bill-prevent-mandatory-defense-cutsWhile President Obama has threatened to veto any effort to ditch the so-called sequester, saying there would be "no easy off ramps here," some red-state Democrats may be inclined to support the GOP effort. Still, a battle is expected. Senate Majority Leader Harry Reid, D-Nev., blasted the GOP effort Thursday, telling reporters, "I believe an agreement is an agreement. A handshake - a handshake...They should keep their word." And though Reid's lieutenant, Sen. Patty Murray of Washington, did not close the door to a replacement of the scheduled cuts, the senator, who also chairs the Democrats' campaign committee, made clear that she intends to bring a popular Democratic political message to the fight. "This plan isn't about avoiding sequestration, it's about avoiding having millionaires pay their fair share," Murray accysed in a statement. "If Republicans are serious about replacing the automatic spending cuts then they are going to need to work with Democrats to find an equal amount of balanced deficit reduction that doesn't simply increase the pain for the middle class."

No chance auto cuts are removed—GOP can’t win senate and electoral politics impedeJohn T. Bennett and Jeremy Herb, Staff Writers, 12-14-2011, “GOP hawks face vigorous fight to avert billions in automatic Defense cuts,” The Hill, http://thehill.com/homenews/senate/199537-gop-hawks-face-vigorous-fight-to-avert-defense-cuts “Any path forward must put everything on the table,” Sen. Chris Coons (D-Del.) told The Hill on Wednesday. “That includes spending cuts, entitlement reform and new revenues. And there are a lot of ways to accomplish that.” Coons said rather than simply allowing sequestration to take effect, “I would far rather get a big, bold, bipartisan deal.” Gordon Adams, who oversaw national security budgeting for the Clinton administration, called the McCain-Kyl plan “pure PR” and said “this is all about electoral politics, not legislating.” “The bottom line is they can’t even get 60 votes in the Senate ,” Adams said. “Why would anyone think that the [Defense] authorizers are going to stop this? They don’t even control their own caucus. “This exercise will land in the same bonfire” that others have “for the last two years. This issue is not resolvable until the [day] after the first Tuesday in November 2012.”

No Rollback—Dems will block and no consensusTrish Turner, Staff Writer, 12-13-2011, “Republicans Poised to Unravel Mandatory Defense Cuts,” Fox News, http://politics.blogs.foxnews.com/2011/12/13/republicans-poised-unravel-mandatory-defense-cutsA group of Republican senators are set to announce Wednesday a concerted effort to unwind the effects of the mandatory

defense spending cuts, part of what is known as the "sequestration," set to go into effect in 2013, a byproduct of failed negotiations of the joint congressional super committee charged under the original debt ceiling agreement with finding at least $1.2 billion in deficit reduction. Sens. John McCain and Jon Kyl of Arizona, Lindsey Graham of South Carolina, and New Hampshire's Kelly Ayotte plan to announce a concerted effort to find offsets for the roughly $600 billion in defense cuts embedded in the Budget Control Act compromise which raised the nation's debt ceiling earlier this year, a move the Pentagon has said would devastate the U.S. military. Graham has been working on legislation

practically from the moment the super committee failed, if not before. But it is sure to be an exceedingly difficult task. Finding offsets has become something of an Olympic sport in Congress these days, with lawmakers

constantly fretting about the scarcity of items to cut, particularly since many are loathe to take a knife to big ticket items, like mandatory health spending programs, and discretionary spending accounts have been thinned significantly.


Yes Sequestration – Obama Veto

Auto cuts are safe—Obama will veto any reversal and dems will fightJeremy Herb, Staff Writer, 12-15-2011, “House Democrats blast GOP efforts to avoid automatic defense cuts,” The Hill, http://thehill.com/blogs/defcon-hill/budget-approriations/199697-house-dems-trash-gop-efforts-to-change-defense-sequestration-cutsHouse Democrats on Thursday panned Republican efforts to change the automatic cuts to defense spending, beginning a contentious debate that’s set to play out over the next year. Sens. John McCain (R-Ariz.), Jon Kyl (R-Ariz.), Lindsey Graham (R-S.C.) and Kelly Ayotte (R-N.H.) said Wednesday they will propose legislation early next year that would stop sequestration defense cuts, while House Armed Services Committee Chairman Buck McKeon (R-Calif.) introduced a bill to kill the first year of cuts to both defense and non-defense spending. House Democrats responded Thursday with a letter signed by 92 members supporting President Obama’s veto threat if Congress tries to avoid the $600 billion in defense cuts without replacing them. Just as the debate in the supercommittee stalled over raising taxes, the fight over changing the defense cuts will be waged over how to mix spending cuts and raising revenues to cut $1 trillion from the budget. Rep. Peter Welch (D-Vt.), who circulated the letter, acknowledged that many Democrats agree the automatic defense cuts should be lessened, but said that new revenues had to be included in the conversation.

No rollback—Obama vetoLibby Leist, NBC Senate Producer, 12-14-2011, “GOP defense hawks say they'll try to undo automatic defense cuts,” First Read: MSNBC, http://firstread.msnbc.msn.com/_news/2011/12/14/9445557-gop-defense-hawks-say-theyll-try-to-undo-automatic-defense-cuts?chromedomain=nbcpolitics"We wanted to make it clear what our intention is so that there is absolutely no doubt in anybody's mind that the across the board [cuts] to defense spending will not have to happen," Kyl said. Whether the legislation advances is another story. And even if it did, President Obama has threatened to veto any attempt to undo the so-called "sequester" of cuts contained as part of the supercommittee agreement.

Obama still vetos despite changesReuters, 12-14-2011, “US defense cuts could cost 1.5 mln jobs – lawmaker,” Malaysia Times, http://thestar.com.my/news/story.asp?file=/2011/12/14/reutersworld/20111214084355&sec=reutersworldObama has threatened to veto the bill over concerns that the new provisions reduced the president's flexibility in dealing with enemy combatants, possibly creating a presumption that they would be dealt with by military tribunals rather than civilian courts. Top House and Senate negotiators on the bill said they had added changes sought by the White House and hoped the final measure would be approved by the president. But they said they had not received any assurances from the White House that the new language would avoid a presidential veto.


No Spending – General

Fiscal discipline is highVincent Del Giudice, Staff Writer, 11-10-2011, “U.S. Budget Gap Narrowed to $98.5 Billion in October on More Tax Receipts”, Bloomberg, http://www.bloomberg.com/news/2011-11-10/u-s-budget-deficit-narrowed-to-98-5b-in-oct-.htmlThe U.S. government’s budget deficit narrowed in October, the first month of the new fiscal year, reflecting a calendar-related reduction in spending and an increase in tax receipts. The $98.5 billion shortfall is smaller than the $140.4 billion deficit posted in the same month last fiscal year, according to Treasury Department data issued today in Washington. Economists projected a $102.5 billion gap, according to the median estimate in a Bloomberg News survey. The narrowing comes as a 12-member

congressional supercommittee of Democrats and Republicans tries to find $1.5 trillion in savings over the next decade before an approaching deadline triggers spending cuts. America’s budget deficit was 8.7 percent of gross domestic product in fiscal 2011, the third- highest since 1945. “There is precious little progress being made on cutting back the mountain of red ink,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “If the supercommittee is going to be the bust that everyone is talking about, the U.S. could be saddled with increasingly hard-to-finance deficits from now on.” Today’s report showed federal spending dropped 8.7 percent in October from a year earlier to $261.5 billion. Some $31 billion in recurring benefit payments that would have been made in October were instead shifted to September because Oct. 1 fell on a Saturday, Treasury said.

Fiscal discipline is high—trend will continueRobert Schroeder, Staff Writer, 11-10-2011, “U.S. starts fiscal 2012 with $98 billion shortfall”, Market Watch, http://www.marketwatch.com/story/us-starts-fiscal-2012-with-98-billion-shortfall-2011-11-10?reflink=MW_news_stmpThe federal government began its fiscal year with a $98 billion budget deficit, the Treasury Department reported Thursday, marking a year-over-year improvement that’s still bound to add to pressure on lawmakers trying to agree on a savings and taxes plan before Thanksgiving. The shortfall for October, the first month of fiscal 2012, was down 30% from the $140 billion deficit recorded in October 2011. The government spent $262 billion last month, while taking in $163 billion. Receipts were 12% higher year over year, while spending fell 9%. Treasury also projected that the deficit for fiscal 2012 will be $956 billion, a drop from last year’s $1.3 trillion, which was the second highest on record. Treasury’s report comes about two weeks before six Democrats and six Republicans on the congressional supercommittee are required to come up with recommendations about saving $1.2 trillion from the budget over 10 years. Read questions and answers about the supercommittee.

Fiscal discipline high—low discretionary spendingHeidi Przybyla, Staff Writer, 10-27-2011, “Supercommittee Flirts With Failure as Deficit Deadline Nears”, Bloomberg, http://www.businessweek.com/news/2011-10-27/supercommittee-flirts-with-failure-as-deficit-deadline-nears.htmlCongressional Budget Office Director Doug Elmendorf told the panel that members need to find agreement by the first week of November to give his agency enough time to measure the savings of any large-scale plan. “Lawmakers have already taken significant steps to constrain discretionary spending,” Elmendorf said. Such programs account for less than 20 percent of the federal budget. Total discretionary funding in 2011 was the lowest, as a share of gross domestic product, since 2002, and a new budget law established spending caps for the fiscal years 2012 through 2021, said Elmendorf.


No Spending – Defense

Defense sequestration is already happeningLoren B. Thompson, PhD, Defence Professionals, 1-18-2012, “Specter of Sequestration Paralyzes Pentagon,” http://www.defpro.com/news/details/31427/?SID=31a54efc33f41ef77e3734804bd37263The U.S. Department of Defense is facing the prospect of massive spending cuts beginning next January as a result of the Budget Control Act. The law mandates automatic cuts to military spending beyond the $490 billion already planned because a special congressional committee failed to identify $1.2 trillion in budget savings over the next ten years. Many observers think the automatic cuts, known as "sequestration," will never occur because Congress and the White House will find some way of repealing or amending the law. Well, guess again. Insiders say stealthy sequestration has already begun, because the services are dragging their feet on awarding new contracts in the expectation that the money may be needed to cover the automatic cuts. Even though the law says that sequestration doesn't begin for another year, military budgeteers are looking ahead and trying to hoard money to cope with that eventuality. It's almost as though the Pentagon has created its own de facto continuing resolution.

Defense cuts are unavoidable and necessaryJohn Glaser, Staff Writer, 10-2-2011, “State Department Bullies Congress on Budget Cuts”, Antiwar.com, http://news.antiwar.com/2011/10/02/state-department-bullies-congress-on-budget-cuts/The State Department is complaining about expected cuts from Senate and House appropriations committees for next

years budget, going so far as to claim national security would be at risk if proposed cuts are made law. The recent warnings by top officials in the State Department echo the public relations effort by the Defense Department to bully Congress into avoiding necessary cuts by warning of a weakened defense. Secretary of State Hilary Clinton said proposed cuts would be “devastating” and Andrew Shapiro, assistant secretary of state in its Bureau of Political Military Affairs, said that the 2012 funding bill for State Department and foreign operations – proposed to be cut by 8 percent in the full Senate Appropriations Committee and by 18 percent by the House Appropriations State and Foreign Operations subcommittee – would compromise national security. But these proposed cuts come after a decade in which the State and Defense departments’ budgets have ballooned to hundreds of billions of dollars more than what they were pre-911. The national security budget of the United States for FY 2012 totals around $1.2 trillion, or approximately one-third of the entire budget. Much of this has been in so-called “hollow growth,” like personnel costs and expanded diplomatic services. Furthermore, both appropriations committees approved the administration’s separate request for $8.7 billion for the wars in Iraq, Afghanistan, and Pakistan, which actually increases overall funding for the department and foreign assistance compared to last year. So the proposed cuts are more about the wars crowding out budget space than about Congress actually imposing serious cuts.

Defense cuts are inevitable in the squoAlexandra Schwappach, Medill News Service, 10-5-2011, “Military official: Defense spending part of solving U.S. deficit”, UPI.com, http://www.upi.com/Top_News/Special/2011/10/05/Military-official-Defense-spending-part-of-solving-US-deficit/UPI-90321317844713/?spt=hs&or=tnFaced with a new array of threats, including a thorny deficit problem, the United States needs to make immediate but significant cuts to its military budget, U.S. Deputy Secretary of Defense William J. Lynn III said Wednesday. "The central challenge we face today in defense planning is how to manage a defense slow-down without endangering our

national security," Lynn said during a speech at the Center for American Progress. Spending decisions, he said, have to put everything on the table. Cuts to defense spending alone cannot solve the U.S. deficit problem but it has to be part of the solution, Lynn said. "It would be impossible to justify excluding 20 percent of federal spending that goes toward defense as we wrestle with this deficit problem," Lynn said.


No Spending – AT: Foreign Aid Now

Foreign aid will be cut in the squo John Norris, the Executive Director of the Sustainable Security and Peacebuilding Initiative at the Center for American Progress, 10-11-2011, “Foreign Aid Cuts Can Be Reasonable”, US News, http://www.usnews.com/debate-club/given-the-current-deficit-crisis-should-foreign-aid-be-cut/foreign-aid-cuts-can-be-reasonable-foreign-aid-cuts-can-be-reasonableEven though foreign aid makes up only about 1 percent of the total federal budget, it is impossible to imagine

that it will not be cut given the harrowing overall budget situation . And that is reasonable. The challenge will be to avoid cutting so

deeply that we actually undermine our long-term national interests, such as helping the poorest of the poor, combating disease, establishing better disaster early warning systems, or creating tomorrow's markets for American industry. [Read more about the deficit and national debt.] How we go about implementing these cuts may be every bit as important as their overall scale.

The worst approach would be to simply lop off the same percentage from all aid programs equally. Instead, we need to use these budget pressures to be much more selective in how we deliver aid and who we deliver it to. That means Congress needs to have the discipline to set aside pet projects like our assistance to Ireland and subsidies for the maritime industry that make it much more expensive to deliver lifesaving humanitarian assistance. The administration will need to do its part as well, and large expensive programs like aid to Pakistan will be under fierce scrutiny given the often troubling behavior of the Pakastani government. Increasing numbers of countries in Eastern Europe and Latin America simply no longer need U.S. assistance and some, like Brazil, are becoming donors themselves.

USAID cuts coming in the squoCarol Giacomo, former diplomatic correspondent for Reuters in Washington and senior fellow at the U.S. Institute of Peace, 10-9-2011, “No Time to Get Stingy”, The New York Times, Lexis 10/9Military and security aid to fight terrorism abroad, combat drug trafficking and underwrite foreign arms purchases and military training amounted to $8 billion in 2011. Israel gets about $3 billion annually, with money also going to Egypt, Afghanistan, Iraq and Pakistan. This is one category the House would increase. The State Department's salaries, embassy construction and security, and contributions to international institutions make up most of the rest of the budget. At least four critical areas would suffer disproportionately from cuts proposed by the House. The Obama administration opposes those cuts and is seeking limited increases. As chart B shows, food aid, which was $1.7 billion in 2011, would fall 28 percent to $1.2 billion in the House plan. A global health initiative, which is reducing malaria in Africa and preventing the spread of H.I.V./AIDS, under that plan would lose $700 million from its $7.8 billion budget. The United States Agency for International Development (Usaid), which oversees aid programs and ensures that funds are properly spent, faces a $400 million cut -- and likely staff layoffs. Money for development projects like water filtration plants would be sliced by 18 percent by the House.

Foreign aid is being cut in the squoRebecca Lefton, Masters in Public Policy from U Chicago and Researcher for Progressive Media at American Progress, 9-13-2011, “The Debt Deal and Budget Process Threaten Critical Climate Aid Funding”, Center for American Progress, http://www.americanprogress.org/issues/2011/09/climate_aid.htmlThe debt ceiling legislation also created a super committee tasked with finding another $1.5 trillion of deficit reduction by Thanksgiving. The super committee’s recommendations must be voted on in the House by December 9, 2011, and no later

than December 23 in the Senate. There are no limits on the committee’s recommendations. If the super committee’s legislation is not approved by congressional leaders and the administration and enacted by January 15, 2012, $1.2 trillion in automatic spending cuts will be triggered. Discretionary spending is capped at $1.043 trillion for fiscal year 2012 ($7 billion below FY 2011).

Discretionary accounts, which represent one-third of the budget, took far and away the biggest hit. For the first two

years, the deal assigned caps to two categories of discretionary spending: “security” and “nonsecurity.” International affairs, which includes climate assistance, humanitarian aid, and disaster response, is grouped in the security category. It’s appropriate that foreign aid is considered under security. Approaches to national security should integrate diplomacy, defense, and development in order to address new complex threats such as climate change. An

integrated approach addresses the impacts of climate change—which are more expensive and risky for troops that are sent in to respond to crises and disasters—and aims to prevent the cause—in this case greenhouse gas emissions—in an economically productive and equitable way that will improve livelihoods.


Link – Chopping Block

Plan reverses perception that anything is on the chopping block—crushes fiscal disciplineDonna Cassata, Staff Writer, 4-13-2011, “Budget Cuts In Deal Hit Defense Spending, Foreign Aid”, Huffington Post, http://www.huffingtonpost.com/2011/04/13/budget-cuts-foreign-aid_n_848535.htmlTea partyers insistent on cutting military spending and foreign aid will find plenty to like in the deal

struck by President Barack Obama and congressional leaders. No money for an alternative engine for the multibillion-dollar Joint Strike

Fighter. Millions of dollars in cuts for the United Nations. A major reduction in spending on the Global Agriculture and Food Security Fund. It all

adds up to billions less for the Pentagon and the State Department than what Obama had requested for the budget year

ending Sept. 30, a reflection of the widespread congressional belief that every element of government spending is on the chopping block in an era of trillion-dollar-plus deficits. The hard-fought deal negotiated by the president, House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nev., calls for $513 billion for defense, a cut of $18.1 billion from what the administration envisioned but $5 billion more than last year's amount. War costs for Iraq and Afghanistan would be covered separately at a cost of $158 billion. The State Department and foreign operations would get $48.3 billion, an $8.4 billion reduction from Obama's proposal and a cut of $504 million from last year. The House and Senate are expected to vote this week on the overall package of $38 billion in cuts. The alternative engine was the target of a battle cry for cost-cutting Republican newcomers in February. House GOP freshmen led the charge to cancel $450 million for a second engine for the nearly 2,500 F-35 fighters the Navy, Air Force and Marine Corps plan to buy and fly over the next 40 years. Neither Obama nor Defense Secretary Robert Gates wanted the second engine, with Gates telling Congress that it required an additional $3 billion to develop and that spending such money "in a time of economic distress" was a waste. But Boehner and other House GOP leaders backed the extra engine built by General Electric and Rolls Royce in Ohio and Indiana. Fears that it would be revived in the compromise bill proved unfounded. "Given the overwhelming bipartisan support my amendment enjoyed in the House, I appreciate Speaker Boehner and Majority Leader Reid including this cut in the final agreement they negotiated," said two-term Rep. Tom Rooney, R-Fla. "The extra engine is a luxury we simply cannot afford." Said Sen. Susan Collins, R-Maine, a member of the Armed Services Committee: "Not only did they not fund the alternate engine ... but they rescinded money from a previous year. I thought that represented the kind of elimination of duplicative spending that we need to address."

Plan destroys the perception that congress is truly committed to deficit reduction – every program is keyDonna Cassata, Staff Writer, 4-13-2011, “Budget Cuts In Deal Hit Defense Spending, Foreign Aid”, Huffington Post, http://www.huffingtonpost.com/2011/04/13/budget-cuts-foreign-aid_n_848535.htmlLast month, the Pentagon ordered a halt to work on the second engine. It plans to buy engines solely from Pratt & Whitney of Hartford, Conn. Still, officials in the defense industry say proponents of the alternative engine may try to restore the money in future military budgets, long after Gates has retired as defense secretary. In the interim, the company would use its own money to try to keep the production line open. In February, Gates said his bottom line number for the defense budget was $540 billion, tens of billions more than what the White House and congressional leaders worked out. Sen. Jack Reed, D-R.I., a member of the Armed Services Committee, said resolution was critical. "The most important thing is getting a budget for the year. It lowers the level of uncertainty," Reed said. "The consequences of not having a budget are delay and maybe even deferring important projects at a cost of more money. It's very inefficient." But he added that if lawmakers are " truly committed to reducing the

deficit ," they have to look at every program. The bill calls for cuts in 759 defense programs. Consistent with recent defense

legislation, the bill bars the transfer of terrorist suspects held at the Navy-run prison at Guantanamo Bay, Cuba, to the United State and prevents construction of facilities in the U.S. to house detainees. On foreign aid, the White House and congressional leaders agreed to significant across-the-board cuts. The U.S. contribution to the United Nations and other international organizations would be cut by $377 million. Pay for foreign service officers would be frozen. The Global Agriculture and Food Security Fund, created to fight world hunger and poverty, would get just $100 million, far less than the $408 million than Obama sought. The negotiators agreed to cuts in the millions for international banks, the U.N. Population Fund and international narcotics control and law enforcement programs.


Link – Sacred Cow

Fiat kills sequestration—the sequestration process requires every sector to be eligible cutsTodd Harrison and Barry Watts, senior fellows at the Center for Strategic and Budgetary Assessments, 12-13-2011, “DOD must protect industrial base from cuts,” Politico, http://www.politico.com/news/stories/1211/70369.htmlThis new fiscal reality will require hard choices . The department will have to rethink its roles and missions, adjust its strategy and target budget cuts accordingly. But even if cuts are targeted and informed by strategy, the timing of sequestration and the abruptness with which cuts must be implemented further constrain DoD’s options. It takes time to reduce personnel costs, close bases and implement efficiencies — many of which will likely prove ephemeral. This means that weapon systems funding could be hit hardest — which could adversely affect the defense industrial base and, ultimately, jobs. But the hardest choices may not be what to cut but what to keep. Washington cannot, and should not, protect all sectors of the domestic defense industry, nor can it assume that the defense industry will always be ready to produce whatever national security requires.

Fiat kills sequestration—creates sacred cows which mean no sequestrationTrish Turner, Staff Writer, 12-13-2011, “Republicans Poised to Unravel Mandatory Defense Cuts,” Fox News, http://politics.blogs.foxnews.com/2011/12/13/republicans-poised-unravel-mandatory-defense-cutsDemocratic leaders, by and large, oppose the effort to unravel the defense sequester, which was triggered by Congress' inability to find common ground on spending cuts and revenue increases. And Democratic leadership aides have said the defense cuts, when

spread out over 10 years, are merely a fraction of DOD's overall budget, essentially about $55 billion a year. Senate Majority

Leader Harry Reid, D-Nev., issued a statement after the super committee flop, saying, "The sequester was designed to be painful, and it is. But that is the commitment to fiscal responsibility that both parties made to the American people. In the absence of a balanced plan that would reduce the deficit by at least as much, I will oppose any efforts to change or roll back the sequester." So far, no such "balanced plan" has materialized. A similar set of mandatory cuts will hit a number of Democratic sacred cows, like education and healthcare. As yet, there appears to be no similar effort afoot to scrap those cuts. But Republicans are determined that DOD will not take the hit. Across the Capitol, House Armed Services Committee Chairman Buck McKeon, R-Calif., has also vowed that he "will not let these sequestration cuts stand" and has said he will soon introduce legislation to that effect. One thing is certain, the fight over defense funds will carry into a hotly-contested election. What happens then is anyone's guess.

Fiat turns the trigger option into a paper tiger – can’t be cutDavid Welna, staff writer, 10-3-2011, “Debt Committee's Fail-Safe Might Already Be Undone,” NPR, http://www.npr.org/2011/10/03/140998884/debt-committees-failsafe-might-already-be-undone?ps=rs"It's all hypothetical, but if a trigger were in effect, you would see an immediate action on the floor of both houses by those of us who are not ready to see the dismantling of our defense establishment," McCain said. If across-the-board spending cuts were triggered, they would be spread out over a decade and not even begin until January 2013. That would leave lawmakers plenty of time to undo this consequence for inaction that is now written into law, according to GOP strategist and former top Republican aide Ron Bonjean. "It sounds great at the time when you make a deal, like on the debt [ceiling]," Bonjean said. "But when it actually comes down the pike, and if Congress has something to do about it, they may be [like] Lucy trying to take the football away from Charlie Brown." And the less Congress believes such a spending cut trigger would really be carried out, the less reason the supercommittee has to reach a deal.


Link – Earmarks

Plan will get marked up with earmarks – costs billions moreRon Nixon, Staff Writer New York Times, 9-27-2010, “Lawmakers Finance Pet Projects Without Earmarks”, Center for a New American Security, http://www.cnas.org/node/5527Mr. Flake said he had raised the issue with Mr. Boehner, adding, “I’m confident that he heard me and will address these things, too.” Soft earmarks alone accounted for billions of dollars in spending in 2006, the last year they were examined, according the Congressional Research Service. They occur most often in spending bills for State Department, the

United States Agency for International Development and other foreign aid programs. In 2010, the soft earmarks included suggestions to finance the Esperanza International, a micro-lending organization based in Washington State that was started by David Valle, a former major league baseball player, and the Real Property Foundation, a group in Chicago made up of American real estate agents that promotes private property rights around the world. Patrick M. Cronin, a senior adviser at the Center for a New American Security and a former administrator at the Agency for International Development, said soft earmarks were commonly used by members of Congress, especially appropriators. “They would tell you that they wanted money to go to a particular university or group or the next time you wouldn’t get the funding in the budget you wanted,”

Dr. Cronin said. “So it’s true that you can ignore some soft earmarks, but others you have to take more seriously. Agency heads are not going to put their budgets in jeopardy because of a few line items.”

Pork spending kills government’s ability to reduce the deficitRichard Farr, Staff Writer, 9-7-2011, “7 Common Sense Ideas to Fix America's Financial Crisis”, Associated Content from Yahoo, http://www.associatedcontent.com/article/8368517/7_common_sense_ideas_to_fix_americas.html?cat=3The problem with the financial situation of America is founded on the incompetence of our politicians in their failure to understand economics, general accounting, and business practices. If any business or even taxpayer ran their company or home like our politicians run the Federal government, we would be bankrupt and homeless by the end of the year. It is unconscionable that they continue to act so irresponsible in the face of this financial crisis in America. However, it is not unexpected as

most, if not all, politicians are millionaires, therefore have no clue what living paycheck to paycheck means. The root cause of our financial situation is the blatant spending on pet projects, foreign aid, corporate subsidies, unnecessary bailouts,

excessive waste, and fraud. Most of this is unregulated with no oversight. The lack of common sense decision-making is overwhelming in Washington. Americans are already at their financial breaking point yet Washington is suggesting we need to raise taxes to bail out the country

because of the foolish decisions they made. Accusations that Social Security , Medicaid, and Medicare costs are too high and need to be

overhauled is just a smoke screen to cover up the real problem. What is eating up America's budget is the mismanagement of revenue and underhanded additions the politicians add into bills to fund various pork projects they want.

Pet projects empirically happenRiccardo Faini, Co-Director of our International Trade Programme, May 2006, “CENTRO STUDI LUCA D’AGLIANO DEVELOPMENT STUDIES WORKING PAPERS”, Centro Studi Luca d’Agliano, http://www.dagliano.unimi.it/media/WP2006_212.pdfSecond, policy makers bow to pressures and, as result, the size of the budget deficit deteriorates markedly. What would be the ultimate effect on foreign aid under this scenario? For the sake of illustration effect let assume (quite optimistically, given the exceedingly long list of exceptions and their sheer

size in the budget) that the budget deterioration is equal to 1% of GDP. There will then be two negative repercussions on foreign aid. First, the direct effect of a larger budget deficit means that foreign aid will be curtailed. We have seen however that this

direct effect, while potentially relevant, is harder to identify econometrically. Second, a permanently larger budget deficit will fuel the growth in the stock of public debt. With a nominal growth in GDP equal to 4% - a reasonable value for the EU as a

whole – the steady state stock of public sector debt would increase by 25% of GDP. Our estimates suggest that


by itself this would lead to a fall of 0.1% of the GDP share of foreign aid. This is a fairly large value that is equivalent to a third of the EU total development assistance and would virtually wipe out the Italian budget for foreign aid.


Spending Ratings Downgrade

Unexpected spending tanks the credit ratingKaren Dunn Kelley, Senior Managing Director of Invesco, 2011, “A U.S. default is averted, but the work is not over”, Invesco Insights, https://www.invesco.ca/publicPortal/ShowDoc?nodePath=/BEA%20Repository/common/document/pdf/Deficits_Debt_Ceiling.pdfThe Budget Control Act of 2011 has been signed into law, raising the U.S. debt ceiling and forging a path for long-term deficit reductions. We applaud Congress and the White House for avoiding a default, which we believe could have

triggered enormous unintended consequences. We also recognize that the work is not over. The legislation outlines $917 billion in deficit reduction between 2012 and 2021, to be achieved through caps on domestic and defense spending. It also creates a bipartisan committee to identify another $1.2 trillion to $1.5 trillion in deficit reduction, potentially including spending cuts, entitlement reform and tax reform. The committee must recommend its deficit reduction proposal by Nov. 23, and Congress is required to vote on it by Dec. 23. If a reduction is not agreed upon by the deadline, automatic procedures will be triggered that reduce spending by as much as $1.2 trillion, starting Jan. 15, 2012. Half of the cuts would come from national security and defense. Medicare would receive limited cuts, but Social Security and Medicaid would be exempt. Bottom line: Deficit reduction should total between $2.1 trillion and $2.4 trillion over 10 years. Waiting for the ratings Once the deal was signed, the question turned to the reaction of the three ratings agencies —

Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — and whether they would maintain the country’s AAA credit rating, the highest rating possible. At the end of the day Tuesday, Moody’s issued a press release confirming the country’s Aaa government bond rating, with a negative outlook. Moody’s noted that the debt deal has ‘virtually eliminated” the risk of default. In assigning its negative outlook, Moody’s said there would be a risk of downgrade if any of the following occur: • There is a weakening in fiscal discipline in the coming year • Further fiscal consolidation measures are not adopted in 2013 • The economic outlook deteriorates significantly • There ¡s an appreciable rise in the U.S. government’s funding costs over and above what is currently expected

Ability to reduce debt in the future is key to avoid a downgradeRichard Cowan and Walter Brandimarte, Staff Writers Reuters, 9-27-2011, “Calculating the odds of a U.S. deficit deal”, http://www.reuters.com/article/2011/09/27/us-usa-debt-idUSTRE78Q5AA20110927?feedType=RSS&feedName=topNews&rpc=71The super committee finds a way to thread the needle and get enough votes to back a mix of spending cuts and some revenue increases that total $1.2 trillion over a decade. The revenue increases probably would be sold as closing tax loopholes. Ending a special break for ethanol blenders that is set to expire at the end of the year anyway is a possible example. While not total failure, this would be a disappointment to ratings agencies looking for a more ambitious product. Their rating decisions would probably depend on the chances of further deficit-reduction measures in the future and on the performance of the economy.

Extra spending forces cuts—makes compromise impossible and kills debt reductionRussell Berman, Staff Writer, 9-8-2011, “Debt panel co-chairman Hensarling criticizes Obama plan to pay for jobs proposal”, The Hill, http://thehill.com/homenews/house/180487-debt-panel-co-chair-criticizes-obama-jobs-proposalThe Republican co-chairman of the congressional supercommittee on deficit reduction sharply criticized President

Obama’s call for the panel to find additional budget savings to pay for his $447 billion jobs plan. “By

asking the Joint Select Committee to increase the $1.5 trillion target to cover the full cost of his plan, the president is essentially tasking a committee designed to reduce the deficit to pay for yet another round of stimulus ,” Rep. Jeb Hensarling (R-Texas) said in a news release after the president’s Thursday night speech to a joint session of Congress. The 12-member committee is tasked with finding $1.5 trillion in deficit reduction over 10 years as part of an agreement to lift the federal debt ceiling. Obama on Thursday urged the panel “to increase that amount so that it covers the full cost of the American Jobs

Act,” the proposal he introduced during his speech. “Deficit reduction is part of job creation,” Hensarling said. “This proposal would make the already-arduous challenge of finding bipartisan agreement on deficit reduction nearly impossible, removing our options for deficit reduction for a plan that won’t reduce the deficit by one penny. It’s not the role of this committee to spend more money we don’t have on jobs we don’t get.”


Debt Reduction Key To Rating

Effectively reducing the deficit is key to avoid a credit downgradeGail Russell Chaddock, Staff writer, 10-4-2011, “Congress's new brinkmanship: Better or worse than politics as usual?”, The Christian Science Monitor, Lexis 10/8Congress usually deals with raising the national debt limit by criticizing the president and then passing a bill with as little fanfare as possible. It would be inconceivable for any Congress to jeopardize the full faith and credit of the US, said officials from both Republican and Democratic administrations. In fact, Congress had raised the national debt

ceiling 78 times since 1960, 49 times at the request of Republican presidents and 30 at the behest of Democrats. But many House GOP freshmen had pledged to oppose raising the $14.3 trillion national debt limit by even a dime. Boehner declared on May 9 that no increase would clear the House unless the legislation included spending cuts equal to the size of the debt-limit increase - and no tax hikes. Then, he stuck to it. The House tied a higher debt ceiling to a "cut, cap, and balance" bill, which would require Congress to cut current spending, cap future spending, and pass a balanced budget amendment to the US Constitution. Senate majority leader Harry Reid (D) of Nevada dubbed the bill "weak and senseless ... perhaps the worst legislation in the history of this country." Democrats said any big plan to shrink debt and deficits should include tax hikes and shared sacrifice. Moreover, they said, the hike in the debt limit was for spending that Congress had already authorized, and Congress had an obligation to cover its checks. With the US government on the brink of default, Congress on Aug. 2 approved a debt-limit hike that met Boehner's terms. But the drama alarmed world financial markets. On Aug. 5, the US lost its top-tier AAA credit rating, in part because of concern that Congress was not capable of getting the nation onto sound fiscal footing. Public approval plummeted, too.

Failure to reduce the deficit tanks the credit rating—political compromise is on the brinkPatrick J. O'Hare, the Chief Market Analyst for Briefing Research, 10-3-2011, “Briefing.com: Market View”, Breifing.com, Lexis 10//8We have a big deficit problem but everyone already knows that. President Obama has acknowledged it; Congressional leaders have acknowledged it; Federal Reserve Chairman Ben Bernanke has acknowledged it; Treasury Secretary Geithner has acknowledged it; the IMF has acknowledged it; the G20 has acknowledged it;

and anyone reading the news has been made aware of it. The rub of course is that no one has come up with an agreeable solution. Finally, some plans are being presented where the blueprint for cutting the deficit over the long-term is couched in terms of trillions of dollars and not billions of dollars, and where the need to reform entitlement programs is entering the conversation. Still, politicians on both sides of the aisle are muddying the outlook with the same denunciations of the other party's plan that make a compromise seem unlikely at this point. Risks: Congress fails to agree to raise debt ceiling -- a low

probability, very high risk scenario. Failure to reach credible compromise to cut long-term deficit risks inviting a downgrade of the U.S. AAA credit rating, which would lead to a higher cost of borrowing. Budget shortfalls at local, state, and federal level raise the specter of major spending cutbacks and higher taxes that

can adversely affect economic growth. Potential for class warfare (middle class/poor vs. rich), age warfare (young vs. old), and worker warfare (private vs. public) builds with need for fiscal reform.

Fitch rates AAA now but sequestration is key to maintaining the ratingEyder Peralta, staff writer, 12-22-2011, “Fitch: U.S. Needs To Get Its Financials In Order, Or Face Downgrade,” NPR, http://www.npr.org/blogs/thetwo-way/2011/12/22/144136643/fitch-u-s-needs-to-get-its-financials-in-order-or-face-downgradeThe credit rating agency Fitch Ratings has issued another warning to Washington. If it doesn't come up with a plan to reduce the nation's budget deficit, Fitch might yank its AAA rating by the end of next year. "Without such a strategy, the sovereign rating will likely be lowered," Fitch said in a statement today, according to Bloomberg. "Agreement will also have to be reached on

raising the federal debt ceiling, which is expected to become binding in the first half of 2013." Fitch had already assigned the U.S. a negative outlook in November. And as you may remember, Standard & Poor's slashed the country's credit rating to AA-plus in August. Bloomberg has a bit from an analyst about what all this means: "'The debt situation is a slow moving train wreck,' said Jason Brady, a managing director at Thornburg Investment Management Inc., which oversees about $73 billion from Santa Fe, New Mexico. 'The


risks are apparent, but the benefits or strengths are also apparent. The strength of the U.S economy, the strength of the U.S financial system, is more apparent right now.'"


Sequestration Key Rating

Sequestration is key to the AAA ratingDaniel Bases, Staff Writer, 12-22-2011, “Fitch Warns U.S. Of Credit Downgrade Unless Debt Problem Is Solved,” Huffington Post, http://www.huffingtonpost.com/2011/12/22/fitch-warns-us-credit-downgrade-debt-problem-solved_n_1164972.htmlFitch Ratings on Wednesday warned again that the United States' rising debt burden was not consistent with maintaining the country's top AAA credit rating, but said there would likely be no decision on whether to cut the rating before

2013. Last month, Fitch changed its U.S. credit rating outlook to negative from stable, citing the failure of a special congressional committee to agree on at least $1.2 trillion in deficit-reduction measures. "Federal debt will rise in the absence of expenditure and tax reforms that would address the challenges of rising health and social security spending as the population ages," Fitch said in a statement. "The high and rising federal and general government debt burden is not consistent with the U.S. retaining its 'AAA' status despite its other fundamental sovereign credit strengths," the ratings agency said. In a new fiscal projection, Fitch said at least $3.5 trillion of additional deficit reduction measures will be required to stabilize the federal debt held by the public at around 90 percent of gross domestic product in the latter half of the current decade. Fitch, when it lowered its outlook to negative, had said it was giving the U.S. government until 2013 to come up with a "credible plan" to tackle its ballooning budget deficit or risk a downgrade from the AAA status. "A key task of an incoming Congress and administration in 2013 is to formulate a credible plan to reduce the budget deficit and stabilize the federal debt burden. Without such a strategy, the sovereign rating will likely be lowered by the end of 2013," Fitch reiterated. Rival ratings agency Standard & Poor's cut its credit rating on the United States to AA-plus from AAA on August 5, citing concerns over the government's budget deficit and rising debt burden as well as the political gridlock that nearly led to a default. On November 23, Moody's Investors Service, warned that its top level Aaa credit rating for the United States could be in jeopardy if lawmakers were to backtrack on $1.2 trillion in automatic deficit cuts that are set to be made over 10 years. The plan for automatic cuts was triggered after the special congressional committee failed to reach an agreement on deficit reduction. Moody's said any pullback from the agreed automatic cuts to take effect starting in 2013 could prompt it to take action.

AAA now but the sequestration process is key to the ratingJohn Detrixhe, Staff Writer, 12-21-2011, “U.S. Faces 2013 Fitch AAA Downgrade Unless Deficit Cuts Made,” San Francisco Chronicle, http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/12/21/bloomberg_articlesLWKO3Y0D9L35.DTLThe U.S.'s AAA rating will probably be cut by Fitch Ratings by the end of 2013 unless lawmakers are able to formulate a plan to reduce the budget deficit after next year's congressional and presidential elections. "Without such a strategy, the sovereign rating will likely be lowered," New York-based Fitch said in a statement today. "Agreement will also have to be

reached on raising the federal debt ceiling, which is expected to become binding in the first half of 2013." Fitch assigned a negative outlook on the U.S. in November after a congressional committee failed to agree on budget cuts. The rating firm

forecast federal public-debt will exceed 90 percent of gross-domestic-product by the end of the decade unless the government addresses rising health and social security spending through tax increases or reductions in expenditures. "The debt situation is a slow moving train wreck," said Jason Brady, a managing director at Thornburg Investment Management Inc., which oversees about $73 billion from Santa Fe, New Mexico. "The risks are apparent, but the benefits or strengths are also apparent. The strength of the U.S economy, the strength of the U.S financial system, is more apparent right now."


Credit Downgrade Hurts Economy

A decreased credit rating causes economic collapseMarc Goldwein, senior policy analyst for the fiscal policy program at the New America Foundation and was Associate Director of the National Commission on Fiscal Responsibility and Reform, 8-11-2011, “Drawing a AAA-Road Map for Post-Downgrade America”, http://www.theatlantic.com/business/archive/2011/08/drawing-a-aaa-road-map-for-post-downgrade-america/243463/What are the consequences of further downgrades? The most direct one could be higher interest rates, as

investors insist on a risk premium. Even a 0.1 percent increase in interest rates would mean an additional $130 billion in government spending on interest over the next 10 years that we would have to offset in hiring taxes or fewer investments to meet the same debt goal. A 0.7% increase in interest rates would be enough to erase all of the gains from the recent debt deal. In addition, higher interest rates could reverberate throughout the market, impacting everything from mortgages to small business loans - and ultimately leading to something economists call "crowd out," where fewer dollars go into growth-driving investments. The biggest

concern, though, should be that these rating downgrades could advance the day of a fiscal crisis. At some point, if we don't make some changes, investors will lose confidence in our nation's ability to make good on its debt. When that occurs, it is possible we could experience a global economic crisis akin to the financial crisis of 2009,

except with no one available to bail out the U.S. government .

A ratings decline causes economic collapseRep. Phil Gingery (GA), M.D. Medical College of Georgia, 9-1-2011, “Real Economic Recovery Demands a Balanced Budget Amendment”, Economic Crisis.US, http://economiccrisis.us/2011/09/real-economic-recovery-demands-balanced-budget-amendment/For the first time in our country’s history, our credit rating was downgraded from its AAA standing to a AA+ rating. This has many repercussions – instability in U.S. and international markets, uncertainty for businesses and investors, and the erosion of consumer confidence. These ramifications are profound, but instead of discouraging the American people, they should serve as a wakeup call and a reminder of the heavy lifting needed in the weeks and months ahead if we’re to clean up this mess. Simply put, this downgrade is the final indicator that Washington’s spending spree must end, not just because House Republicans think so, but for the first time in our history one of the world’s leading credit-rating agencies does too. Standard & Poor’s (S&P) downgraded the

United States credit primarily because the government failed to provide policies necessary to stabilize its debt payments. Although the recent deal struck by Congress and

President Obama provides a down payment on reducing the debt, there is still a long road ahead to recovery.

What’s worse, if there are not more substantial reductions in spending over the next few years, they could downgrade our standing again, sending another round of shock waves through the global markets and sinking our own economy further into recession. The bottom line is that we need more effective policies that will ensure the efforts made to cut spending today aren’t undone by politicians in the future.

Decreases in fiscal discipline mean S and P downgrade crushes the economyMotoko Rich, and Graham Bowley, Staff Writers, 8-7-2011, “Markets Expected Credit Ruling, but Risks Remain, Analysts Say”, The New York Times, http://www.nytimes.com/2011/08/07/business/how-the-sp-downgrade-of-united-states-credit-rating-will-affect-the-country.html?_r=1&scp=1&sq=If%20the%20political%20%E2%80%A6%20mortgage%20rates.&st=cse“If the political situation does not improve past the next election and the fiscal situation gets worse, then people might start to agree with S.& P.’s decision,” said Ajay Rajadhyaksha, head of United States fixed income strategy at

Barclays Capital in New York. “If investors around the world then start shunning Treasuries, diversifying away from the U.S. dollar, that will show up in higher yields” — and higher mortgage rates.


AT: S&P Already Downgraded US

Downgrades by two agencies force a massive sell off of US bondsJessica Irvine, Economics Staff Writer, 8-8-2011, “Rating cut won't count for much”, Sidney Morning Herald, http://www.smh.com.au/opinion/rating-cut-wont-count-for-much-20110807-1ihqo.htmlIt's a conclusion available to even the most casual observer of US politics and the reckless debate about lifting the US government's debt ceiling. Indeed, conservative Tea Party forces openly advocate the US government should do just that, and default on its debts. But even so, Friday's downgrade represents the opinion of just one of three major credit rating agencies. Moody's still rates it as AAA - the highest rating available - as does Fitch. Crucially, this means investors governed by investment rules stipulating they must only hold AAA rated assets are unlikely to be forced to sell their Treasury bonds and push up the cost of US borrowing. Similarly, the biggest foreign holders of US Treasury bonds, China and Japan, are unlikely to sell out of US bonds altogether. What would they buy instead? Indeed, perversely, by heightening market jitters, S&P's downgrading of US government debt might spark an investor flight towards US Treasury bonds, increasing their price and lowering the yield payable on US borrowing, as investors seek the comfort of their old safe haven. International investors have demonstrated a certain Stockholm syndrome-like relationship with US assets, falling in love with the very currency and bonds of the country that has caused them so much trouble in the first place. Having clung to the apron strings of the US government in times of uncertainty for decades, this could prove a hard habit to break. That is why the US dollar tends to rally in times of uncertainty (US bonds must be bought in US currency). This will limit any increase in US government debt servicing

costs. So in the short term, the credit downgrade potentially means next to nothing. However, from a longer term perspective, the embarrassing removal of the US government's prized AAA rating says everything. It serves as a stark reminder that the situation is bleak. The US economy is staring down the barrel of, at worst, another recession and, at best, a lost decade of sluggish growth and high unemployment. In this context, events such as Friday's downgrade can quickly become a lightning rod for justifiably negative market sentiment towards the prospects for American and world growth

A second downgrade causes dollar dumpingKen Frankel, managing member at KIF Capital Management, 8-10-2011, “Action In The Equities Markets More Important Than S&P”, Business Insider, http://www.businessinsider.com/action-in-the-equities-markets-more-important-than-sp-2011-8As for the S&P credit rating issue, I don't expect rates to rise much because of this. Japan lost its AAA rating years ago and in fact, a decade ago S&P rated Japan sovereign debt lower than Botswana and look at how low rates are for Japanese bonds, they are lower than ours currently by some magnitude. My only concern would be if the rating changes triggered contractual actions, something I addressed in my latest blog entry. In most cases, and S&P rating change won't trigger an avalanche of events so long as Moody's retains a higher ratings because most mutual funds and other things driven by credit ratings are allowed to take the higher of a split rating. If Moody's follows S&P, we may have a larger problem.

The big three agencies outweigh othersLinda McMaken, Investopedia Writer, 10-24-2011, “The Scary Truth About Downgrades”, San Francisco Chronicle, http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/24/investopedia62977.DTLThere are five major agencies that decide a country's credit worthiness: Fitch Ratings, Moody's, Standard & Poor's

(S&P), Business Monitor International and CTRISKS. Of these, S&P, Fitch and Moody's are widely known and lead the others in their decisions. In essence, they determine how well a country can pay back its debt. Countries With Downgrades This year, for the first time in its history, the United States had its AAA rating downgraded by S&P. After the downgrade, S&P stated they'd made a mistake, but let it stand.


Ratings Decrease Bad – Dollar Impact

Ratings decrease causes dollar sell-off – won’t happen nowWalter Brandimarte and Daniel Bases, Staff Writers Reuters, 8-6-2011, “United States loses prized AAA credit rating from S&P”, Reuters, http://www.reuters.com/article/2011/08/06/us-usa-debt-downgrade-idUSTRE7746VF20110806The impact of S&P's move was tempered by Moody's Investors Service's decision earlier this week confirming, for

now, the U.S. Aaa rating. Fitch Ratings said it was still reviewing its AAA rating and would issue its opinion by the end of the month. S&P's move is also likely to concern foreign creditors especially China, which holds more than $1 trillion of U.S. debt. Beijing has repeatedly urged Washington to protect its U.S. dollar investments by addressing its budget problems. "China will be forced to consider other investments for its reserves. U.S. Treasuries aren't as safe anymore," said Li Jie, a director at the reserves research institute at the Central University of Finance and Economics. One currency strategist, however, did not think there would be wholesale selling by foreigners. "One of the reasons we don't really think foreign investors will start selling U.S. Treasuries aggressively is because there are still few alternatives to the Treasury market in terms of depth and liquidity," said Vassili Serebriakov, currency strategist at Wells Fargo in New York. He said there was likely to be weakness in the U.S. dollar but a sharp sell-off was unlikely.

Now is key—markets are watching US action because of previous downgradeLayna Mosley, Professor of international relations, international political economy, and comparative political economy UNC Chapel Hill, 8-6-2011, “From AAA to AA+: Markets, Governments and the Downgrade”, The Monkey Cage, http://themonkeycage.org/blog/2011/08/06/from-aaa-to-aa-markets-governments-and-the-downgrade/Second, the S&P action reminds us that a specific assumption long held by markets – that the bonds issued by governments of wealthy countries are free from default risk – may be changing. In the early 2000s, I argued that governments of wealthy democracies have a good deal of policymaking autonomy vis-à-vis capital markets. As long as governments do well in terms of macro-outcomes, such

as low inflation and small fiscal deficits, markets were content to charge them relatively low interest rates. Investors paid little attention to the finer details of government policies – how they allocated spending across categories, or whether left or right-leaning governments were in office. This was in marked contrast to the broader pressures that markets placed on governments of developing countries. In such places, a concern with default risk led to a greater set of pressures from private investors. But now, as it has become clear that membership in EMU does not lead necessarily to stable fiscal policies, and as some developed countries have deficit and debt levels that rival or exceed those of economies in Latin America, southeast Asia and sub-Saharan Africa, this easy shortcut – “developed country sovereign debt is safe”—may no longer apply. So some governments may find themselves more exposed to financial market pressures than in the past. And these governments could find that political events – including wrangling over a debt ceiling – provoke a greater market response than they once did. Whether this is a short-term pattern or a longer-term change remains to be seen.

Dollar collapse causes heg collapseChas Freeman Jr., retired diplomat, former Minister in Beijing and Bangkok, and ambassador to Saudi Arabia, and Assistant Secretary of Defense for International Security Affairs, 7-13-2011, “The Incapacitation of US Statecraft and Diplomacy,” The Hague Journal of Diplomacy, volume 6 page 413-432The risks entailed in failing to meet these challenges are not trivial. At least one is almost existential. A dollar-based global monetary system that is long past its prime and overdue for correction cannot much longer sustain the spendthrift fiscal policies to which Americans have become accustomed.3 The inevitable adjustment to fiscal and monetary realities could include not just global financial collapse but the sudden decline of both US prosperity and the worldwide military power and political prestige that this has long underwritten. This linkage to the possibility of a dollar sovereign-debt crisis is well understood in the Pentagon,4 even if not reflected in fiscal and monetary policy or debate in the US Congress. It could bring on a sudden, radical reduction in US economic power and military prowess.


Dollar Dumping Bad – Hegemony

US dollar hegemony is key to power projectionRohini Hensman, writer and independent scholar and social activist, and Marinella Correggia, activist and writer, 1-30-2005, “US DOLLAR HEGEMONY: THE SOFT UNDERBELLY OF EMPIRE (AND WHAT CAN BE DONE TO USE IT!)”, South Asia Citizens Web, http://www.sacw.net/free/rohini_marinella30012005.htmlWhat we intend to argue below is that if the US's ability to undertake imperial conquests like that of Iraq depends on its obvious military supremacy, this in turn is ultimately based on the use of the US dollar as the world's reserve currency. It is

the dominance of the dollar that underpins US financial dominance as a whole as well as the apparently

limitless spending power that allows it to keep hundreds of thousands of troops stationed all over the world. Destroy US dollar hegemony, and "Empire" will collapse . David Ludden's article 'America's Invisible Empire' (1) sums up the problem of the world's most recent empire with remarkable clarity. Constituting itself at a time when decolonisation was well under way and other empires were disintegrating, US imperialism could never openly speak its name. Initially, it disguised itself as the defender of democracy against communism; when the Soviet Union ceased to exist, the pretext became the "war against terror". National security and national interest were invoked as the rationale for global dominance.

Dollar hegemony underpins all of American hegemonyRohini Hensman, writer and independent scholar and social activist, and Marinella Correggia, activist and writer, 1-30-2005, “US DOLLAR HEGEMONY: THE SOFT UNDERBELLY OF EMPIRE (AND WHAT CAN BE DONE TO USE IT!)”, South Asia Citizens Web, http://www.sacw.net/free/rohini_marinella30012005.htmlThe core advantage of the US economy, the source of its financial dominance, is the peculiar role of the US currency. It is because the dollar is the world's reserve currency that the US is able to maintain its twin deficits (fiscal and trade) and depend on the world's generosity. It needs a subsidy of at least 1.2 billion dollars per day to keep up its level of spending. Its military superiority is one reason why it it is unlikely ever to face an embargo, but

more importantly, it can continue to live beyond its means because of US dollar hegemony. But for long? The dollar mechanism has been described extensively elsewhere,(3) so we will merely summarize here. The strength of the US economy after World War II enabled the US dollar, backed by gold, to become the world's reserve currency. When the US abandoned the gold standard in 1971, the dollar remained supreme, and its position was further boosted in 1974 when the US came to an agreement with Saudi Arabia that the oil trade would be denominated in dollars.(4) Most countries in the world import oil, and it made sense for them to accumulate dollars in order to guard against oil shocks. Third World countries had even more reason to hoard dollars so as to protect their

fragile economies and currencies from sudden collapse. With everyone clamouring for dollars, all the US had to do was print fiat dollars and other countries would accept them in payment for their exports. These dollars then flowed back into the US to be invested in Treasury Bonds and similar instruments, offsetting the outflow. As a reserve currency fulfills world needs in addition to the functions of a domestic currency, the favoured country can build up debt for a protracted period on a scale that would wreck any other country's currency. But

this advantage is a double-edged sword.(5) It allowed the US economy to decline unnoticed, its fiscal and trade deficits to climb steeply: by 2004 the US trade deficit had reached $503 billion, the current account deficit $413 billion, the gross national debt around $7 trillion. Globalization destroyed the US as a manufacturing nation; the outsourcing of services means that even this

sector is gradually being shifted out of the US.(6) Only its pre-eminence in the global financial services industry remains intact.(7) And this is underpinned by US dollar hegemony.


Ratings Decrease Bad – Chinese Currency Impact

Credit downgrade causes Chinese currency appreciationJo Coghlan, PhD and lecturer in Australian Politics and International Relations at the School of Social Sciences and International Studies at the University of New South Wales, 8-9-2011, “U.S. Credit Rating: American Hegemony in Decline?”, Journal of Foreign Relations, http://www.jofr.org/2011/08/09/u-s-credit-rating-american-hegemony-in-decline/#.TqETmmt1l8FA larger concern will be whether the appetite for U.S. debt might change among foreign investors, in particular China, the world’s largest foreign holder of U.S. Treasuries. In 1945, foreigners owned just 1 percent of US Treasuries. Today, they own a record high 46 percent. U.S. Treasury bonds, once undisputedly seen as the safest security in the world, are now rated lower than bonds issued by countries such as Britain, Germany, France, or Canada. Prior to the S&P decision, Dagong, China’s Global Credit Rating agency, had already pushed the U.S. rating from A+ to A, and placed the rating on negative watch (indicating the potential for a further cut).

Other than the U.S. Federal Reserve, China is the biggest holder of American debt, with $1.16 trillion. It maintains the value of its currency through buying U.S dollars: a monetary policy that is likely to continue if only to protect its own currency. The

downgrade, accompanied by a continuing weak U.S dollar, could affect Chinese exports and this will directly affect the

Australian economy. Less demand for consumer goods in both the regional and global economy would directly lead to weaker demand for China’s exported goods; this then weakens demands for imports, particularly in the

energy sector. If the Chinese currency appreciates as a response to the weakening U.S dollar, it will make Chinese goods more expensive. This will result in China shifting its focus away from export production to production for domestic consumption. With China continuing to buy U.S debt and shifting its focus to domestic economic production, the results will mean less Chinese currency floating in the regional and global economy. This coupled with contractions in Eurozone spending, bodes badly for any economy that is being driven by exports: as Australia currently is.

Revaluation hurts government efforts to solve the rich-poor gap – sparks instabilityNhu-Nguyen Ngo, Economist @ BNP, June-July 2005, “A difficult middle way,” Conjoncture,http://economic-research.bnpparibas.com/applis/www/RechEco.nsf/0/A3C686E8B35688A4C12570490048F6AB/$FileC0506_A2.pdf?OpenElementIncome inequalities are widening, not only between the rural and urban zones, but also between the still mostly

underdeveloped interior of the country and the more dynamic coastal regions. Therefore a latent social discontent exists, especially in the countryside. The government’s current efforts(47) are aimed at improving incomes in the rural zones. There are two main objectives: firstly, to reduce the income gap between the rural and urban zones; and secondly, to rebalance growth and diversify its sources by stimulating rural consumption. In fact, the consumption potential of the 700 million strong rural population(48) would give considerable support

to the rate of growth. In this context, a revaluation of the yuan could compromise the success of the policy to revive rural areas, by increasing competition from imported agricultural goods, to the detriment of Chinese farmers. Nevertheless, the final impact is difficult to

estimate in the absence of data. Generally, although the Chinese authorities recognise that a more flexible exchange rate policy is an undeniable long-term objective, the weaknesses of a financial sector in the process of restructuring, the fragilities of the current economic cycle and the latent social tensions must increase the government’s tendency to prefer financial stability, at least in the short term.


Chinese Revaluation Bad – Oil Prices Impact

Revaluation spurs more oil consumption, raising prices – empirically provenBloomberg, 7-22-2005, “China’s Demand for oil,” p http://www.bloomberg.com/apps/news?pid=10000101&sid=aDwU_ZE8RvqE&refer=japanChina, the world's biggest user of copper, soybeans and steel, may increase consumption of raw materials after a revaluation of the yuan made dollar-priced commodities cheaper to import. ``Since commodities are traded in U.S. dollars, a yuan appreciation makes commodities more affordable for Chinese consumers,'' said Tobias Merath, a commodities

strategist with Credit Suisse in Zurich. ``Therefore we expect Chinese demand for commodities and especially for oil to increase.'' China Petroleum & Chemical Corp., the biggest oil refiner in Asia, and Jiangxi Copper Co., China's biggest producer of the metal, are among companies that will benefit from lower import costs. China is the biggest oil consumer after the U.S. and the biggest nickel buyer after Japan. Cheaper raw materials may accelerate demand already up from last year with the expansion of China's economy, which grew 9.5 percent in the second quarter and helped fuel a four-year surge in commodity prices. The Reuters/Jefferies CRB Index of 19 commodities rose to 24-year high in March. Oil reached a record $62.10 a barrel on July 7, and copper touched a 16-year high last month. China will value the yuan against a basket of currencies, the central bank said on its Web site yesterday. The new yuan rate strengthens the currency by 2.1 percent to 8.11 per U.S. dollar immediately, the People's Bank of China said. Until now, the yuan had been pegged at about 8.3 per dollar. Stimulate Demand ``Anything that makes commodities cheaper for China will stimulate demand,'' said Nick Moore, a metals analyst at ABN Amro Holding NV in London. ``The revaluation is a lot smaller than expected. We were hoping for 6 percent.''

High oil prices crush the Indian economyBusiness Line, 8-24-2004, p lnTHE sudden spurt in inflation is threatening to upset the country's economic equilibrium. While the runaway rise in prices witnessed recently is largely a consequence of factors beyond the Centre's control, namely, uncertainty about the monsoon and excessively high international prices of crude oil and petroleum products, the new United Progressive Alliance regime will nevertheless have to bear the consequences of the sharp increase in the inflation rate that translates into political unpopularity during what should have been its "honeymoon" period. What is worse for the Manmohan Singh Government is that it can do little or nothing to contain prices simply because the circumstances responsible for the recent increase in the inflation rate are external in nature. The fiscal measures initiated so far - the reduction in taxes on petroleum products and steel - can at best cushion consumers from the shock of high oil prices but would eventually prove to be palliatives that provide temporary relief and not cure the bigger problem - India's dependence on imported crude oil, which in turn makes the country highly vulnerable to volatile energy prices.

Indian economic growth is crucial to stabilize South Asia, which goes globalJeffrey Garten, Under Secretary of Commerce for International Trade, FDCH, 3-7-1995, p lnParamount among those interests are the commercial opportunities that are increasingly at the heart of the Clinton Administration's foreign policy. But it is impossible to separate those commercial interests from our broader interests. Economic reforms enable our companies to take advantage of the opportunities within the Indian market and enable Indian companies to better enter the global marketplace. Economic growth in India is a powerful stabilizing force in a region of the world where stability is of supreme.importance. Stability and growth in India are of enormous importance through southern Asia, from the Middle East to Indochina. Peace and prosperity in that part of the world are essential to the peace and prosperity of the world.


Ratings Decrease Bad – Hegemony

Credit downgrade symbolically kills US hegJo Coghlan, PhD and lecturer in Australian Politics and International Relations at the School of Social Sciences and International Studies at the University of New South Wales, 8-9-2011, “U.S. Credit Rating: American Hegemony in Decline?”, Journal of Foreign Relations, http://www.jofr.org/2011/08/09/u-s-credit-rating-american-hegemony-in-decline/#.TqETmmt1l8FApart from the economic impact of the downgrade on American and international economies, the downgrade has a political context. The world’s economic superpower has been sharply criticised for its political handling of the debt ceiling issue. S&P issued a “sharply worded critique of the American political system”. There is a view that the U.S. does not deserve a triple-A rating, and the reason has nothing whatsoever to do with its debt ratios. America’s ability to pay is not the issue: the problem is its willingness to pay. It is not entirely clear that this is the position of

Barack Obama and the Democrats, rather is likely being driven by those in Washington who are willing to “drive the U.S. into default.” It is possible that the S&P factored in the machinations of the Republican Party, and in particular the

Tea Party, that took the U.S. to the brink of default. A smaller deficit-reduction deal was on offer, but was refused by the

Republicans possibly hyped up by the Tea Party, who are desperate to remain relevant is a rapidly changing political landscape. This being the case, the S&P have punished America because of the action of recalcitrant Republicans for refusing to accept any legislation that would increase taxes. The political machinations of Washington confirmed to S&P the debilitating state of American politics. America emerged as the dominant, hegemonic power at the end of the Cold War. It played a preeminent role in shaping the post-war international economic system and was a key actor in many of the international organisations that now shape global economic and monetary policy. The decision to downgrade its credit rating is economic,

political but also powerfully symbolic. In New Zealand, the downgrade was reported as “a dramatic reversal of fortune for the world’s largest economy.” The Australian media is reporting it as “a symbolic embarrassment for

President Barack Obama, his administration and the Americans” and as a “symbolic blow.” As one American commentator has said:

“The symbolism is undeniable.” The downgrade is a “blow to U.S. prestige.” The downgrade to America’s credit rating is a historic assault on the superpower’s prestige and a symbol of the changing world order: that is, the demise of the U.S. and the rise of China.

Perception of a healthy economy is key to hegLeslie H. Gelb, former New York Times columnist and senior official in the state and defense departments and is currently president emeritus of the Council on Foreign Relations, Summer 2010, “Fashioning a Realistic Strategy for the Twenty-First Century A Conversation with Leslie H. Gelb”, The Fletcher Forum of World Affairs, http://ui04e.moit.tufts.edu/forum/archives/pdfs/34-2pdfs/Gelb.pdfPower is what it always has been. It is the ability to get someone to do something they do not want to do by means of your resources and your position. It was always that. There is no such thing in my mind as “soft” power or “hard” power or “smart” power or “dumb” power. It is people who are hard or soft or smart or dumb. Power is power. And people use it wisely or poorly. Now, what has changed is the composition of power in international affairs. For almost all of history, international power was achieved in the form

of military power and military force. Now, particularly in the last fifty years or so, it has become more and more economic. So

power consists of economic power, military power, and diplomatic power, but the emphasis has shifted from military power

(for almost all of history) to now, more economic power. And, as President Obama said in his West Point speech several months ago,

our economy is the basis of our international power in general and our military power in particular. That is

where it all comes from. Whether other states listen to us and act on what we say depends a good deal on their perception of the strength of the American economy. A big problem for us in the last few years has been the perception that our economy is in decline.


AT: Defense Spending Impact Turn

Spending decreases eliminate redundancies and increase interdependences—key to heg Lieutenant General David W. Barno USA (Ret.), is a Senior Advisor and Senior Fellow at the Center for a New American Security, Nora Bensahel, Deputy Director of Studies and a Senior Follow at the Center for a New American Security, and Travis Sharp, Bacevich Fellow at the Center for a New American Security, October 2011, “Hard Choices: Responsible Defense in an Age of Austerity”, Center for New American Security, http://www.cnas.org/files/documents/publications/CNAS_HardChoices_BarnoBensahelSharp_0.pdfSecond, the U.S. military should strive to increase interdependence across the four services and to strengthen the continuum of service between the active and reserve components. The U.S. military is over-invested in expensive and often redundant capabilities that discourage interdependence among the services. All four military services currently operate their own air forces, with limited sharing of aircraft. Some services have acquired substantial assets beyond the requirements of their core mission. For instance, the U.S. Marine Corps – the smallest U.S. service – today boasts more tanks, artillery, fixed-wing aircraft and uniformed personnel than the entire British military. 33 Given the changing operational environment, today’s force has too many heavy armored formations, short-range strike fighters, amphibious capabilities and manned aircraft. While some redundancy provides a useful hedge against risk, today’s extensive overlap among and within each service is unnecessary and no longer affordable, especially when joint interdependencies – such as Army helicopters flying off Navy carriers or Air Force C-130s supporting Marines – can yield comparable warfighting effectiveness at less expense. The Army and Marines, in particular, should transfer more of their expensive heavy capabilities – such as armor, artillery and fixed-wing aircraft – to their reserve components to save money and maintain a strategic hedge in the event of a large ground war. 34 Implementing this change will require DOD and Congress to continue improving the policies that support an operational reserve component.

Defense cuts are key to solving future threats to heg—deficits are key to a strong economyAlexandra Schwappach, Medill News Service, 10-5-2011, “Military official: Defense spending part of solving U.S. deficit”, UPI.com, http://www.upi.com/Top_News/Special/2011/10/05/Military-official-Defense-spending-part-of-solving-US-deficit/UPI-90321317844713/?spt=hs&or=tn"It would be impossible to justify excluding 20 percent of federal spending that goes toward defense as we wrestle with this deficit problem," Lynn said. Lynn suggested four ways the government should make cuts in defense spending in the federal budget -- a budget that needs to be cut by $450 billion over the next 10 years. The first two are bringing force levels down as troops draw back from Afghanistan while prioritizing key missions and knowing where the government can take risks. "It is better to have a smaller, but ready, force and fewer, but more helpful, programs," he said. "Keeping programs alive in the hope that there will be more funds for them in the future is reckless and intemperate behavior." An area that isn't likely to see reduction is counter-terrorism, Lynn said. He said that mission is a critical one, which will continue to remain important in the future. Lynn also suggested leveraging technology to make those smaller forces more effective and agile. This would in turn reduce the U.S. presence in some areas of the world while expanding it in others. Lynn said the deficit truly is an overall imbalance of revenues and expenditures in a decade dictated by war. "Security begins with a strong economy," he said. "The economy is truly the wellspring of our military might."


AT: Econ Resilient—General

High credit rating is key to resiliencyRobert Freeman, History and economics analyst, 3-16-2009, “United States Economic Collapse Facing Its Weimar Moment,” Market Oracle, http://www.marketoracle.co.uk/Article9446.htmlThe failure of right wing policy and leadership over the past eight years, especially in matters economic, is comparable to Germany's right-wing failure in World War I. It is catastrophic, undeniable, and

complete. Consider: According to the World Economic Forum, forty percent of the entire world's wealth has been destroyed in the recent financial collapse. In the U.S. alone, between housing and the stock market, more than $18

trillion in wealth has already been destroyed. The private mega-banks that anchor the financial systems of the western world

are bankrupt. This makes it all but impossible to jump-start the western world's economies which are heavily dependent on bank-system credit to operate. More than 10,000 homes go into foreclosure every day. More than

20,000 people lose their job every day. And the collapse is accelerating, developing its own self-reinforcing dynamic. Job losses breed foreclosures, reducing demand, leading to more job losses and further degradation of the financial system. None of the stopgaps designed to stanch the bleeding have yet worked. There is no bottom in sight.

Meanwhile, debt has risen to astronomical levels. Reagan and Bush I quadrupled the national debt in only twelve years. Bush II

doubled it again in only eight. It is now ten times higher than it was in 1980 when Reagan was elected. Total public and private

debt exceeds 300% of GDP, half again higher than it was in 1929. The government's unfunded liabilities, promises it has made

to the American people but for which no payment source can be identified, now exceed $60 trillion, a literally inconceivable sum that can never, will never, be paid. Federal Reserve economist Lawrence Kotlikoff has suggested that the U.S. government is "actuarially bankrupt." The full measure of the nation's plight is revealed in Hillary Clinton's first trip as Secretary of State. It was to China, to beg them to fund Obama's new fiscal deficits. Without loans from China, the U.S. economy cannot be revived. The significance of this cannot be overstated: the U.S. no longer exercises sovereignty over its own economic affairs. That sovereignty now resides in the hands of China, the U.S.'s greatest long-term rival. Thanks to Republican policies of massive debt and shipping jobs abroad, the U.S. has technically become a colony of China. It exports raw materials and imports finished goods, together with the capital to make up the difference. Should the Chinese decide not to lend the trillions of dollars the U.S. is begging for, the U.S. economy will implode, plummeting onto itself in a World Trade Center-like collapse that will leave dust clouds circling the planet for decades.

Economy not resilient – no consumer spending ensures downward spiralJon Nadler, senior market analyst, 2-13-2009, “Easy Money. Who Needs It?” IBT Commodities, http://www.ibtimes.com/articles/20090213/easy-money-who-needs-it_2.htmThe first line of defense is gone. The economy is not resilient and is not stable . And the second line of defense is eroding. The Fed already has taken interest rates to zero, and lent out nearly $2 trillion in fruitless attempts to revive demand. In his speech, Bernanke proposed that the central bank "can always generate higher spending and hence positive inflation" by simply printing money as fast as possible. We're nowhere near that point yet. But the Fed hasn't demonstrated convincingly that lowering rates to zero and lending out trillions of dollars has had any impact on increasing final demand. It turns out that the Fed can print all the money it wants, but it can't make anyone spend it." Therein lies the rub. Consumer have shifted towards savings. Consumers are avoiding borrowing. Banks will eventually turn to making more credit available than they now

are, but if there are no takers for their loans, well, you know the rest. It's called the waiting game. Waiting for prices to fall, and watching employers not hiring. And thus, the spiral whirls until it becomes a hypnotizing, self-perpetuating fall into an abyss. Once again, we are hearing the desirability of 'positive inflation' - what a label.


Economic Decline War

Econ decline causes democratic back sliding and resurgence of illiberal governmentsEarl Tilford, PhD in history from George Washington University and served for thirty-two years as a military officer and analyst with the Air Force and Army, 2008, “Critical Mass: Economic Leadership or Dictatorship,” The Cedartown Standard, Lexis Could it happen again? Bourgeois democracy requires a vibrant capitalist system. Without it, the role of the individual shrinks as government expands. At the very least, the dimensions of the U.S. government economic intervention will foster a growth in bureaucracy to administer the multi-faceted programs necessary for implementation. Bureaucracies, once established, inevitably become self-serving and self-perpetuating. Will this lead to “socialism” as some conservative economic prognosticators suggest? Perhaps. But so is the possibility of dictatorship. If the American economy collapses, especially in wartime, there remains that possibility. And if that happens the American democratic era may be over. If the world economies collapse, totalitarianism will almost certainly return to Russia, which already is well along that path in any event. Fragile democracies in South America and Eastern Europe could crumble. A global economic collapse will also increase the chance of global conflict. As economic systems shut down, so will the distribution systems for resources like petroleum and food. It is certainly within the realm of possibility that nations perceiving themselves in peril will, if they have the military capability, use force, just as Japan and Nazi Germany did in the mid-to-late 1930s. Every nation in the world needs access to food and water. Industrial nations—the world powers of North America, Europe, and Asia—need access to energy. When the world economy runs smoothly, reciprocal trade meets these needs. If the world economy collapses, the use of military force becomes a more likely alternative. And given the increasingly rapid rate at which world affairs move; the world could devolve to that point very quickly.

Economic decline causes nuclear warCesare Merlini, nonresident senior fellow at the Center on the United States and Europe and chairman of the Board of Trustees of the Italian Institute for International Affairs, 5-30-2011, “A Post-Secular World?”, Survival, Vol. 53 Issue 2, http://www.tandfonline.com/doi/full/10.1080/00396338.2011.571015Two neatly opposed scenarios for the future of the world order illustrate the range of possibilities, albeit at the risk of oversimplification. The first scenario entails the premature crumbling of the post-Westphalian system. One or more of the acute tensions apparent today evolves into an open and traditional conflict between states, perhaps even involving the use of nuclear weapons. The crisis might be triggered by a collapse of the global economic and financial system, the vulnerability of which we have just experienced, and the prospect of a second Great Depression, with consequences for peace and democracy similar to those of the first. Whatever the trigger, the unlimited exercise of national sovereignty, exclusive self-interest and rejection of outside interference would self-interest and rejection of outside interference would likely be amplified, emptying, perhaps entirely, the half-full glass of multilateralism, including the UN and the European Union. Many of the more likely conflicts, such as between Israel and Iran or India and Pakistan, have potential religious dimensions. Short of war, tensions such as those related to immigration might become unbearable. Familiar issues of creed and identity could be exacerbated. One way or another, the secular rational approach would be sidestepped by a return to theocratic absolutes, competing or converging with secular absolutes such as unbridled nationalism.


AT: Other Countries Check US Decline

BRICs won’t solve US decline—no interest and won’t maintain institutionsRobert J. Lieber, Professor of Government and International Affairs at Georgetown University, 2011, “Can the US Retain Primacy?”, Israel Journal of foreign Affairs V : 3, http://israelcfr.com/documents/5-3/5-3-4-RobertJLieber.pdfNotwithstanding the belief that “… [T]he continuing rise of economic and security interdependence is creating new incentives for the expansion of institutionalized cooperation,”21 the actual performance of the BRICs suggests not a benign, cooperative orientation toward strengthening global governance, but a far more self-interested and less collaborative set of attitudes and policies across a wide range of economic, political, and security issues. The US position thus remains unique. It has been the world’s principal provider of collective goods and has played a crucial role in promoting a liberal trading and monetary order, in upholding freedom of the seas, in creating and maintaining institutions, and in sustaining regional security. 22 No country or organization is emerging to play a comparable role, and none is likely to do so in the foreseeable future. Hence, the consequences of a lessened American presence or even outright disengagement would mean not that other countries would become more engaged, but that shared forms of world order would be more likely to weaken.

China can’t solve—structural economic problems and competitiveness Robert J. Lieber, Professor of Government and International Affairs at Georgetown University, 2011, “Can the US Retain Primacy?”, Israel Journal of foreign Affairs V : 3, http://israelcfr.com/documents/5-3/5-3-4-RobertJLieber.pdfArguments about American decline inevitably rest in large part on assumptions about the rise of China. Observers marvel at its extraordinary economic dynamism, formidable export-led growth, and massive modernization and development projects. They are awed by China’s sheer size, appetite for resources, ruthless competitive behavior, growing geopolitical influence, and potential to surpass the US as the world’s leading power. Illustratively, Harvard historian Niall Ferguson depicts the PRC’s inevitable rise as bringing the “end of 500 years of Western predominance.”23 Yet any assessment of China needs to be tempered with caution, and some of the sense of foreboding bears an uncanny resemblance to worries about Japan a mere two decades ago. At the end of the 1980s, Akio Morita, a co-founder of Sony, and Shintaro Ishihara, a leading Japanese politician, authored a widely circulated book entitled, The Japan that Can Say No. In that work, Morita asserted, “We are going to have a totally new configuration in the balance of power in the world,” and Ishihara added, “There is no hope for the US.”24 Indeed, as recently as 1993, Samuel Huntington expressed alarm, writing that “Japanese strategy is a strategy of economic warfare.”25 Yet Japan was already entering an era of economic stagnation and demographic decline by the time Huntington’s article appeared in print. Granted, China today is far more formidable than was Japan, but it remains essential to assess China’s vulnerabilities as well as its impressive strengths. These vulnerabilities are both internal, in social, economic and political terms, and external, as China’s neighbors develop increased qualms about what was supposed to be its “peaceful rise.”26

China has been the subject of much uncritical observation, while in reality Beijing faces a host of serious problems that it will need to overcome,

and for which the solutions are difficult or uncertain. These include the likelihood that the economic model of export-led growth cannot be sustained indefinitely, as well as increasing raw material costs, demands for higher wages, pressures for revaluation of the yuan, and widening foreign resentments over the PRC’s predatory and mercantilist behavior. China’s extraordinary growth has taken place with enormous damage to its environment, as evident in severe pollution of the air, ground water, and food chain. Banks hold a large number of bad loans, and an enormous commercial and residential real estate bubble carries the potential for future financial disruption. China lacks an adequate social safety network, and in the next ten to fifteen years will also face a major demographic problem. Due to its one child policy, China’s population is expected to peak near 1.4 billion and then enter what a leading demographer cites as an era of “prolonged, even

indefinite, population decline and a period of accelerated ageing.”27 Higher education is also a realm in which China’s emergence has been widely touted but overstated. Despite enormous expansion of higher education,

China does not yet have institutions comparable to the best research universities in the US, and the problem is exacerbated by a widespread emphasis on quantity over quality. Columnists and pundits are fond of citing China’s achievement in annually graduating 600,000 engineering majors compared with a mere 70,000 in America. Yet half of China’s graduates have only associate degrees (i.e., some post-secondary training, but not the real undergraduate BA or BSc degree) and a widely cited 2005 report by the McKinsey Global Institute found that a mere 10 percent of these engineers were “employable,” as contrasted with 81 percent of American graduates. 28 Moreover, as China has ramped up higher education, hundreds of thousands of recent college graduates are unable to find jobs that meet their expectations.


Credit Downgrade DA Answers


Moody’s Won’t Downgrade The US

AAA rating is secure regardless of the super committee—prefer our ev. It’s the only card from Moody’sFrank Thorp, Staff Writer, 11-1-2011, “Ratings agency: No change in U.S. credit”, MSNBC: First Read, http://firstread.msnbc.msn.com/_news/2011/11/01/8582525-ratings-agency-no-change-in-us-creditThe nation's AAA credit rating will likely stay put no matter what the outcome of the Deficit Supercommittee later this month, according to a report released today by the ratings agency Moody's. On Aug. 2nd, just days before S&P's downgrade of the nation's credit rating from AAA to AA+, Moody's confirmed it's AAA rating but assigned it a negative outlook. According the Moody's report, due to the fact that the nation's deficit will be reduced both if the Supercommittee reaches an agreement or not, Moody's does not anticipate any change in their credit rating of the U.S. "Agreement by the Joint Select Committee and the Congress as a whole on a larger amount of deficit reduction would be favorable,” the report states, “but the smaller amount triggered by the spending caps is still a step in the same direction. Thus, the committee outcome will not necessarily lead to any change in our rating stance." According to the Budget Control Act passed in August, if the Supercommittee does not come to an agreement on at least $1.2 trillion in deficit reduction by Nov. 23rd, an automatic "trigger"

Super committee failure isn’t a decisive factor in a downgradeTom Petruno, Staff Writer, 11-12-2011, “Europe mess gives U.S. a reprieve on debt comeuppance”, Los Angeles Times, http://www.latimes.com/business/la-fi-1112-petruno-markets-20111112,0,2382307.columnS&P's main rival, Moody's Investors Service, still rates the U.S. Aaa. But Moody's has a negative outlook on its rating, meaning that a cut is possible. Even so, Moody's said earlier this month that the success or failure of the super committee wouldn't by itself be a "decisive" factor in whether the U.S. retains the Aaa grade. For now, it appears that neither S&P nor Moody's is poised to react quickly even if partisan politics keep Democrats and Republicans on the super committee from agreeing on serious budget cuts.

Moody’s isn’t on the brink of downgrading, and ratings drops are empirically denied by EuropePaul Wiseman, 1-15-2012, “Downgrading Europe,” Time Business, http://www.time.com/time/business/article/0,8599,2104519,00.htmlThe decision by Standard & Poor's to strip France of its prized AAA credit rating and downgrade eight other European countries slammed a continent struggling with a debt crisis and an economic slowdown. But beleaguered Europeans can take some comfort: It could have been worse. Investors had plenty of time to brace for the bad news. S&P put 15 countries, including Germany and France, on notice last month that they faced potential downgrades. The advance notice means the downgrades likely won't panic financial markets and drive up European governments' borrowing costs much higher than they already are. "People knew it was coming, and it was only one rating agency," said Marc Chandler, head of global currency strategy at Brown Brothers Harriman. Moody's and Fitch Ratings have yet to follow S&P.


Deficit Reduction Bad – Warming

Deficit focus destroys US ability to stop warming - can’t regulate developing countriesRebecca Lefton, Masters in Public Policy from U Chicago and Researcher for Progressive Media at American Progress, 9-13-2011, “The Debt Deal and Budget Process Threaten Critical Climate Aid Funding”, Center for American Progress, http://www.americanprogress.org/issues/2011/09/climate_aid.htmlEvidence of climate change is mounting as impacts are already being felt here at home and in developing countries that have contributed the least to the cause. The acceptance by all major economies that global temperatures should rise no more than 2 degrees Celsius was a major milestone in the international climate change negotiations process in recent years, but scientists are advising that reductions will need to be higher. Here in the United States, Congress has still not passed comprehensive climate and energy legislation, and climate deniers are unwilling to tackle problems that they don’t believe even exist. But whatever progress is made on cuts in developed countries, they will not be enough to achieve climate safety. In conjunction with

more ambitious actions in developed countries, the only way to stabilize emissions is to ensure developing countries grow in a more sustainable manner as these are the countries that will see the largest population increases this century. Consequently, our international climate financial commitments are even more critical for achieving emissions reductions by leveraging climate action in fast-rising greenhouse-gas-emitting developing countries. Further, in the absence of a binding international climate treaty, the flow of

climate finance is necessary for keeping parties at the table. But the United States’ ability to meet our climate aid goals is endangered by shortsighted vision as evidenced by the debt deal and ongoing budget process. What follows is an outline of how the deal and budget negotiations could affect climate assistance and CAP’s proposals for appropriate U.S. funding going forward.

Warming causes extinction. [Gender Paraphrased]Bill Henderson, Environmental Scientist. 8-16-2006. Counter Currents, “Runaway Global Warming Denial.” http://www.countercurrents.org/cc-henderson190806.htmThe scientific debate about human induced global warming is over but policy makers - let alone the happily shopping general public - still seem to not understand the scope of the impending tragedy. Global warming isn't just warmer temperatures, heat waves, melting ice and threatened polar bears. Scientific understanding increasingly points to runaway global warming leading to human extinction. If impossibly Draconian security measures are not immediately put in place to keep further emissions of greenhouse gases out of the atmosphere we are looking at the death of billions, the end of civilization as we know it and in all probability the end of [hu]man's several million year old existence, along with the extinction of most flora and fauna beloved to man in the world we share.

We can still stop the worst of global warming – developing country emissions cuts key David Doniger et al, policy director of the Climate Center for the Natural Resources Defense Council, Antonia V. Herzog and Daniel A. Lashof, 11-3-2006, “An Ambitious, Centrist Approach to Global Warming Legislation,” Science, http://www.sciencemag.org/cgi/content/full/314/5800/764 There is growing concern that global warming of more than 2°C from pre-industrial levels could have dangerous climatic consequences (1, 2). It is estimated that, to avoid exceeding this 2° target, heat-trapping gas and aerosol concentrations need to be stabilized so that their net radiative effect is less than that of 450 parts per million (ppm) CO2 (3). This could be achieved if the United States and other industrial

nations cut current emissions by 60 to 80% by 2050, and if developing countries limit emissions growth and impose similar reductions later in the century.


Credit Downgrade Doesn’t Cause Econ Decline

Credit downgrade doesn’t lead to decline—American economy is structurally strongRobert J. Lieber, Professor of Government and International Affairs at Georgetown University, 2011, “Can the US Retain Primacy?”, Israel Journal of foreign Affairs V : 3, http://israelcfr.com/documents/5-3/5-3-4-RobertJLieber.pdfTrue, there has been a degree of erosion in America’s economic and military power relative to other countries. However, the margin of strength vis-a-vis other international actors has been so wide that despite some attrition, the US still remains in a unique position as compared with other countries. In contrast to the British experience of

imperial decline a century ago, America continues to possess a substantial edge, whether measured in terms of its share of world GDP, depth and size of financial markets, technology, demography, or military power projection. In the percentage of GDP devoted to defense it is not truly overstretched. Even with the costs of

war in Afghanistan and continuing military commitments in Iraq and elsewhere, current defense spending at 4.9 percent of GDP

remains well below Cold War levels, which averaged 8.7 percent in the 1960s, 5.9 percent in the 1970s, and 5.8 percent in the

1980s. 2 Those who focus on current problems and bitter political debates often lose sight of America’s strengths: The US has the world’s third largest population, enjoys a more favorable demographic profile than China and most other major countries except India, and is the one country in the world that is simultaneously big and rich. America’s great research universities and its scientific facilities are unrivaled. Its competitiveness remains in the top rank, matched only by a few smaller countries such as Singapore and

Finland. America continues to be a magnet for talented immigrants from all over the world. The American political system, warts and all, remains flexible and accountable to the public while maintaining

constitutional liberties and the rule of law. Time and again, when faced with serious crises, the country has eventually found a way to respond. And contrary to Fareed Zakaria’s claim that success has made it “sclerotic,” a capacity for flexibility, adaptability, and innovation is likely to continue to serve it well.

Predictions of American domestic decline are alarmist and empirically denied—flawed methodologyRobert J. Lieber, Professor of Government and International Affairs at Georgetown University, 2011, “Can the US Retain Primacy?”, Israel Journal of foreign Affairs V : 3, http://israelcfr.com/documents/5-3/5-3-4-RobertJLieber.pdfLong-term predictions are notoriously hard to get right, as evident in repeated warnings and prophecies about American decline from the late eighteenth century to the present. Samuel Huntington, writing nearly a quarter century ago, identified no fewer than five waves of contemporary declinism: in 1957–58 after the

Soviet launching of Sputnik; in 1969–71 when President Richard M. Nixon proclaimed the end of the bipolar world and abandoned the gold standard; in 1973–74 in the aftermath of the Yom Kippur War and a disruptive oil shock; in the late 1970s after Vietnam, Watergate, and a surge in Soviet assertiveness; and in 1987, with major budget and trade deficits, the rise of Japan, and an October 1987 stock market crash. 3 Yet, the decade ended not with the demise of the US, but with the collapse of the Berlin Wall, the end of the Cold War, and an emerging consensus about American primacy and unipolarity. Since that time, assessments of the US have continued to oscillate, whether expressed in terms of its extraordinary power and influence or in warning of its vulnerability and

weakness. With the beginning of the 1990s, in the aftermath of the defeat of Saddam Hussein’s forces in Kuwait and the breakup

of the Soviet Union, observers of America who only a few years earlier had offered gloomy forecasts now described the US as the lone superpower, not just in military and geopolitical terms, but in the triumph of the American model of market capitalism and liberal democracy.


Yes Credit Downgrades

Future downgrades are inevitable – status quo spending is enough to trigger the linkNicholas Ballasy, senior reporter, 2-1-2012, “Sen. Sessions: ‘We’ll continue to see downgrades’” Daily Caller, http://dailycaller.com/2012/02/01/sen-sessions-%E2%80%98we%E2%80%99ll-continue-to-see-downgrades%E2%80%99-of-u-s-credit-rating-video/Alabama Republican Sen. Jeff Sessions, the ranking member of the Senate Budget Committee, told The Daily Caller that the U.S. will “continue to see downgrades” if the federal government keeps spending at its current level. Sessions also expressed disappointment in President Barack Obama for failing to mention the nation’s $15.2 trillion debt during his State of the Union address. On Wednesday, TheDC asked Sessions if he thinks the U.S. would be downgraded again, as Standard & Poor’s has warned. “Well, that’s very possible because we’re not altering the debt course we’re on,” Sessions replied. “The experts who are looking at our economy — and we’ve had a number of them testify before the budget committee — basically have said we should have started last year.”

US has already been downgraded – more is inevitableNicholas Ballasy, senior reporter, 2-1-2012, “Sen. Sessions: ‘We’ll continue to see downgrades’” Daily Caller, http://dailycaller.com/2012/02/01/sen-sessions-%E2%80%98we%E2%80%99ll-continue-to-see-downgrades%E2%80%99-of-u-s-credit-rating-video/“The president in his State of the Union message, I was just deeply disappointed that he made no reference to the threat that debt places, America faces, so it’s going to be hard to do it without the president’s leadership, without looking the American people in the eye and saying, ‘we really do have a problem.’” “If we don’t change this course, we’ll continue to see downgrades,” Sessions added, calling the nation’s debt crisis “predictable.” S&P downgraded the U.S. for the first time in August. U.S. debt is now equal to size of the entire economy.

US has been downgraded and will stay that wayJohn Detrixhe and Sara Eisen, 2-3-2012, “U.S. Lacks Fiscal Plan to Regain AAA Grade,” Bloomberg, http://www.bloomberg.com/news/2012-02-03/u-s-lacks-fiscal-plan-to-regain-aaa-grade-s-p-s-chambers-says.htmlThe U.S. lacks a medium-term fiscal plan that would remove the negative outlook on the nation’s rating, let alone help it regain its top credit grade, according to John Chambers of Standard & Poor’s.America has had an AA+ rating with a negative outlook since Aug. 5 when the New York-based unit of McGraw-Hill Cos. stripped the nation of its AAA ranking, citing the government’s failure to agree on a plan to reduce deficits. Countries that lose the top ranking historically have taken about 9 years to regain the grade. “To get back to stable you would have to have some confidence that a medium-term plan would be brought forward, a bit more robust than we have to date,” Chambers, managing director of sovereign ratings at S&P, said today on Bloomberg Radio’s “Bloomberg on the Economy” with Sara Eisen and Michael McKee. “We don’t expect too much before the election. You could have some positive moves after November.”


Economy Is Resilient

Double bind – either the econ is resilient or alt-causes outweighGavyn Davies, 1-4-2012, “US immune from Eurozone contagion so far,” Financial Times, http://blogs.ft.com/gavyndavies/2012/01/04/us-immune-from-eurozone-contagion-so-far/#axzz1lMZv46UHIn the second half of 2011, the US economy appeared to buck the impact of the eurozone crisis, with American

economic data surprising on the strong side in the final quarter of the year. But, as the new year begins, it seems improbable that economic activity in the US and the eurozone can remain so divergent for much longer. Will the weakness in the eurozone eventually bring the US economy to its knees? Or will the greater resilience of the US win the day? The answer to these questions will determine whether the global economy will experience a double-dip recession in 2012.

US economy is resilient – ambitious, adaptive work forceRobert Samuelson, analyst, 1-4-2010, “The Great Recession’s Aftermath,” Newsweek, http://www.newsweek.com/id/229210"Younger people . . . tend to be more innovative, more willing to take risks, more willing to do things differently," Stanford University economist Paul Romer says in an interview for the book "From Poverty to Prosperity" by Arnold Kling and

Nick Schulz. As noted, today's turmoil could make even the young more risk-averse. Or older and middle-aged people could increasingly dominate corporate hierarchies and university research grants, as Romer worries. An aging society could become a stand-pat

society, protective of the status quo and resistant to change. Against this glum prospect, the standard rebuttal evokes history. The U.S.

economy is amazingly resilient , the argument goes. It has been a consistent job creator: 21 million in the 1970s, 18 million in the 1980s, 17 million in the 1990s, 12 million in the past decade through 2007. (Lower

gains reflect slower labor-force growth, not less dynamism.) A "can-do" culture—combining intense ambition with a flexibility to adapt and an instinct for innovation—ensures that the economy will ultimately rebound strongly. The harsh recession may have actually improved the long-term outlook by purging high-cost firms and forcing efficiencies. Productivity (output per hour worked) has risen 4 percent in the past year. Profits are already up 21

percent from their low; surviving firms will soon expand.

Empirically denied – terrorist attacks, accounting scandals, war and presidential election prove the economy is resilientSean McKibbon, economic analyst, 1-14-2009, “Obama Stimulus Plan Will Likely Soften Blow From U.S. Recession, CBOC Report Says,” CEP News, http://www.actionforex.com/latest-news/us-economy/obama-stimulus-plan-will-likely-soften-blow-from-u.s.-recession,-cboc-report-says-2009011475063/The CBOC report forecasts the U.S. current account deficit will improve to $346 billion in 2009 on the back of a

combination of weak oil prices and weak import growth. Exports will grow, but weakly, slackening from the 8.1% growth observed in

2008 to an anticipated 2.1% in 2009, the report says. "The United States is quickly dealing with the crisis engulfing its financial sector; and while an economic recovery is many months away, the flexible nature of the economy should enable it to eventually emerge largely intact. It is important to remember that the

U.S. economy is incredibly resilient , as evidenced by its ability to emerge relatively unscathed from terrorist attacks, accounting scandals, wars, and a contested presidential election in the first half of this decade alone," the report says.


Yes Spending

We’re spending on aid to Morocco nowJennifer Rubin, 12-27-2011, “U.S. foreign aid done right,” Washington Post, http://www.washingtonpost.com/blogs/right-turn/post/us-foreign-aid-done-right/2011/12/27/gIQAIGY2KP_blog.htmlMore important, the foreign aid given to Morocco, according to new language in the omnibus, can now be used in all “regions and territories administered by Morocco,” including the southern, developing region of the Sahara controlled

by Morocco. This affords Morocco the ability to direct funds to promoting civil society, education, legal reform, democracy building and assistance with the training politicians and educating local officials, who under the newly ratified

constitution will have increased power and responsibilities which they, frankly, are not presently equipped to handle. This is a signal that the United States is concerned with the troubling developments in that region and is willing to show some staying power. The expectation is now that European countries, which have hung back waiting for Washington to act, will also step forward with economic, political and technical assistance.

We’re already spending on a huge civil society package for MyanmarThan 12-5-2011 [Zaw Win Than, staff writer for the Myanmar Times, “US to increase assistance to civil society groups,” December 5-11, http://www.mmtimes.com/2011/news/604/news3160406.html]

THE United States will beef up funding for civil society organisations as part of efforts to promote reform in Myanmar, Secretary of State Hillary Clinton said at the end of her three-day visit. “I am pleased to announce we will take a number of steps to demonstrate our commitment to the people of Myanmar. These are in addition to the more formal government-to-government actions that I announced on December 1 in Nay Pyi Taw,” Mr Clinton said at a press conference at the US embassy in Yangon on December 2. She said the US government would increase assistance to civil society organisations that provide micro-credit lending, healthcare and other critical needs throughout Myanmar, particularly in ethnic minority areas. A particular focus will be the provision of assistance to those who suffer from the consequences of internal conflict, especially land mine victims. Mrs Clinton also announced several capacity-building initiatives. The US government will support American universities and foundations to increase academic exchanges and collaboration on health, governance, and other matters. “We will launch a people-to-people exchange program that will include a substantial English language teaching initiative in partnership with ASEAN and the East-West Center” in Hawaii, she

said. A senior US official who accompanied Clinton told news agency AFP that the new funding would be US$1 million. Another $200,000 will go to supporting landmine survivors and other victims of internal conflict, with a goal of raising that funding to $800,000, the official said. The senior official, who

requested anonymity, expected millions of dollars for the language initiative and said the money would come from Brunei, which like many Southeast Asian nations has welcomed US engagement with Myanmar. Clinton had also announced small steps on December 1 after visiting Nay Pyi Taw, including support for an international assessment of aid needs and resuming searches for missing US dead from World War II. The US provides more than $38 million annually to various programs related to Myanmar, AFP reported. Mrs Clinton said on December 2 that the US was “prepared to go further if the reforms maintain momentum”. “I will once again reiterate to the leaders that the US is prepared to walk this path of reform with you if you choose to keep moving in that direction. Reformers both inside and outside of the government will have our support, and it will increase as we see actions taken that will further the hopes and aspirations of the people for a better future.”

We just spent more on Iraq and AfghanistanReuters, 12-19-2011 (“U.S. foreign aid escapes slashing cuts in fiscal 2012,”http://www.reuters.com/article/2011/12/19/us-usa-aid-idUSTRE7BI1KO20111219)The legislation provides $42.1 billion in regular funding for the State Department and foreign aid in 2012, which is a cut of more than $6 billion from the 2011 level. But when another $11.2 billion in war-related foreign aid for Afghanistan and Iraq is added in, such as money for counterterrorism and humanitarian assistance, the total for 2012 is $53.3 billion. That total is actually an increase of some $5 billion over the comparable amount for 2011. House and Senate aides said the increase was partly fueled by more spending in Iraq, where U.S. troops are leaving and the State Department is taking over pay for some security forces and police training previously funded by the Pentagon.

http://www.reuters.com/article/2011/12/19/us-usa-aid-idUSTRE7BI1KO20111219

http://www.mmtimes.com/2011/news/604/news3160406.html


No Sequestration

Sequestration won’t happen – senators are repealing it nowTrish Turner, 2-2-2012, “Senators Unveil Sequester Repeal,” Fox News, http://politics.blogs.foxnews.com/2012/02/02/gop-unveils-bill-prevent-mandatory-defense-cutsAs promised, a group of senior Republican senators influential on defense policy unveiled a bill Thursday to divert

a portion of the $1.2 trillion in mandatory cuts set to take effect in January 2013. "I believe the cuts are a threat to national security," said lead bill sponsor John McCain of Arizona, top Republican on the Armed Services Committee. The "Down Payment to Protect National Security Act," whose ultimate goal is to unwind the full reduction, achieves $127 billion in savings over 10 years, to cover $110 billion in scheduled cuts to defense and certain domestic programs in 2013 alone, by continuing a freeze on federal government worker pay as well as by slicing the workforce by 5 percent through attrition. The $1.2 trillion in across-the-board cuts, falling equally on defense and domestic budgets, came about as part of a bipartisan compromise to raise the nation's debt ceiling. The failure of the deficit reduction super committee triggered the cuts, called a "sequestration." "You don't eat a steak in one bite. You try to do it in bite size pieces," said the Senate's No. 2 Republican, Jon Kyl of Arizona, who worked with McCain and four other GOP senators on the plan, which would buy time for lawmakers to find the remaining offsets, an Olympic-caliber task which members have, to date, failed. The measure also contains a national emergency and national security waiver. Some Democrats will, no doubt, find themselves in a difficult position in this crucial election year in which control of the Senate and White House hangs in the balance.

Congress won’t let sequestration happen – they always avoid itPaul M. Johnson, Auburn U, 2005, “Sequestration,” Glossary of Political Economy Terms, http://www.auburn.edu/~johnspm/gloss/sequestrationThe prospect of sequestration has thus come to seem so catastrophic that Congress so far has been unwilling actually to let it happen. Instead, Congress has repeatedly chosen simply to raise the Budget Resolution spending caps upward toward the end of the legislative session in order to match the actual totals already appropriated, thus largely wiping out the incentives that the reformed budget procedures were expected to provide for Congress to get better control of the budget deficit.

Sequestration won’t actually stop spendingLoren Adler and Shai Akabas, 8-23-2011, “The Budget Control Act,” Bipartisan Policy Center, http://www.bipartisanpolicy.org/blog/2011/08/budget-control-act-doesn%E2%80%99t-come-close-solving-debt-problemA couple weeks ago, we took a look at the effects that the recently enacted Budget Control Act might have on the debt. However, graphically illustrating the effects of the law over only ten years fails to convey how little was done to combat the long-term debt problem. We have since extended our projections out to the second decade. The graph below makes clear that unless the Joint Select Committee on Deficit Reduction substantially exceeds its mandate, America’s debt will remain on an unsustainable path.


No Economy Impact

No wars from econ collapseMorris Miller, Winter 2000, Interdisciplinary Science Reviews, “Poverty as a cause of wars?” V. 25, Iss. 4, p pqThe question may be reformulated. Do wars spring from a popular reaction to a sudden economic crisis that exacerbates poverty and growing disparities in wealth and incomes? Perhaps one could argue, as some scholars do, that it is some dramatic event or sequence of such events leading to the exacerbation of poverty that, in turn, leads to this deplorable denouement. This exogenous factor might act as a catalyst for a violent reaction on the part of the people or on the part of the political leadership who would then possibly be tempted to seek a diversion by finding or, if need be, fabricating an enemy and setting in train the process leading to war. According to a study undertaken by Minxin Pei and Ariel Adesnik of the Carnegie Endowment for International Peace, there would not appear to be any merit in this hypothesis. After studying ninety-three episodes of economic crisis in twenty-two countries in Latin America

and Asia in the years since the Second World War they concluded that:19 Much of the conventional wisdom about the political impact of economic crises may be wrong ... The severity of economic crisis - as measured in terms of inflation and

negative growth - bore no relationship to the collapse of regimes ... (or, in democratic states, rarely) to an outbreak of violence ... In the cases of dictatorships and semidemocracies, the ruling elites responded to crises by increasing repression (thereby using one form of violence to abort another).

Historical data proves the Depression didn’t spark WWII.Niall Ferguson, Professor of History at Harvard University. September/October 2006. “The Next War of the World.” Foreign Affairs. New York: Sep/Oct 2006. Vol. 85, Iss. 5; pg. 61. Proquest. Nor can economic crises explain the bloodshed. What may be the most familiar causal chain in modern historiography links the Great Depression to the rise of fascism and the outbreak of World War II. But that simple story leaves too much out. Nazi Germany started the war in Europe only after its economy had recovered. Not all the countries affected by the Great Depression were taken over by fascist regimes, nor did all such regimes start wars of aggression. In fact, no general relationship between economics and conflict is discernible for the century as a whole. Some wars came after periods of growth, others were the causes rather than the consequences of economic catastrophe, and some severe economic crises were not followed by wars.

Economy is self-correctingBill Conerly, principal of Conerly Consulting LLC and chairman of the board of Cascade Policy Institute, 1-11-2009, “Economic Stimulus: More Harm Than Good,” http://businomics.typepad.com/businomics_blog/2009/01/economic-stimulus-more-harm-than-good.htmlThe consensus of the economic forecasting profession, as surveyed by the Philadelphia Federal Reserve and The Wall Street Journal, is that economic growth will resume this summer. This point may need some

explanation, because many of us have trouble believing that things will ever be different. (Digging out from a major

snowstorm it's hard to believe that we'll be sweltering come August.) Here's how the economic recovery will unfold. First, the economy tends to be self-correcting. If not, we would have spiraled out of control many times already. Second, the Federal Reserve has pushed a tremendous amount of stimulus into the economy. There's a long time lag between

cause and effect, but monetary policy always works -- it just appears not to be working for months before it finally kicks in. Third, consumers are cutting their spending disproportionately to the decline in incomes. Eventually, the money they are saving will burn a hole in their pockets, leading to a resumption of spending.


No Economy

Worst global economy in a decadeThe Economist, 01-07-2011, “Self-induced sluggishness,” http://www.economist.com/node/21542411The euro zone is thus the darkest shadow hanging over the world economy; but it is not the only one. Emerging markets may stumble. China’s economy is clearly cooling. And even if, as seems likely, Beijing loosens macroeconomic policy deftly enough to prevent a sharp slowdown, growth this year is likely to be no more than 8%. Slower growth in China is dampening commodity prices, hitting exporters in Latin America. Add in some home-grown problems (India, for example, faces a big budget deficit, declining confidence and high inflation—see article) and the ripple effects of the euro crisis (which will hit growth in eastern Europe and Turkey hard) and it is plausible that emerging economies will grow by only about 5%. That would be their weakest performance in a decade, aside from the global slump of 2009. If there is a positive surprise, it is likely to come from the United States. That is not because growth there will soar, but because expectations for the world’s biggest economy are so low. The consensus among professional forecasters is that America’s GDP will grow by 2% in 2012, below its underlying speed limit, and far too slow to bring the jobless rate down.

Major global economies are in decline due to Eurozone crisisWall Street Journal, 1-3-2012, “Disconnect of Economies and Equities”, http://blogs.wsj.com/eurocrisis/2012/01/03/the-disconnect-between-economies-and-equities/The U.S. is in theory moderately insulated from European developments; after all, the American economy is mostly domestically oriented and trade is heavily concentrated on Canada, Mexico and Asia. But theory goes out the window if euro-zone banks start falling down. The U.S.’s financial sector would be grievously wounded. What’s more, it seems clear that the pace at which the U.S.’s fiscal deficit is expanding must slow and will probably go into reverse. This will prove a drag on growth. Elsewhere, China could well be facing a reckoning on its egregiously unbalanced economy. Investment just can’t continue to grow at the pace it has done over recent years. Any Chinese slowdown will have a disproportionate impact on its commodity suppliers, particularly Australia. Meanwhile, India is struggling with high inflation and slowing growth. And Brazil’s economic miracle is also bumping up against economic reality; not least the huge disparity between its richest and poorest citizens.

Collapse of the Eurozone causes US economic downfallImogen Lloyd Webber, Political commentator, 01-06-2011, “Euro Collapse and the American Impact”, Huffington Post, http://www.huffingtonpost.com/imogen-lloyd-webber/euro-collapse-and-the-ame_b_1189254.htmlWe live in a globalized economy. There would be contagion -- what happens in Europe doesn't stay in Europe. Soros called the consequences of the Euro's failure to the global financial system, "catastrophic". America will inevitably hurt. The EU is America's largest trading partner. If it is in deep recession, American companies will suffer and more American jobs will disappear. To compound the problem, the dollar, as the world's reserve currency, will become extremely strong (people and countries will be trying to find "safe" places for their cash), making it harder for American companies to sell their goods abroad. Meanwhile, some estimates have put American banks and market funds as holding more than $2 trillion in European banks. Those European banks hold a lot of European sovereign debt that could go bad. We're talking the possibility of banks, bankrupting. Of runs on banks. That means that American banks could suffer big losses -- and

stop lending to fellow Americans. Basically, what happened when Lehman Brothers fell but far worse. MF Global would be the tip

of the iceberg. To add to all this misery, the financial markets -- so your pension fund, money in equities -- will likely nosedive. You also cannot underestimate what the disintegration of the Euro would do to confidence. Companies will be even less likely to hire, consumers even more unlikely to spend. So economically, the Eurozone collapses and America -- which currently looks like it's out of recession, will probably be in another one. Politically that could mean that Obama loses in 2012 because of a financial crisis he had no control over. Legend has it that 2012 will be the end of the world. It won't be that, but in 2012 there would seem to be a twenty percent chance that we are likely to see the end of the world as we know it.


US Not Key To Global Economy

No impact to economic decline – other nations stabilize marketsJohn Ross, Econ Professor, 1-3-2009, “The decline in US asset prices and the perspectives for the global economy,” Key Trends in the World Economy, http://ablog.typepad.com/key_trends_in_the_world_e/2009/01/the-decline-in-us-asset-prices-and-the-perspectives-for-the-global-economy.htmlThe world economy has already been saved once from the consequences of US financial crisis in the last economic period. Following the 1987 US stock market crash the export of financial resources from Japan, carried out via an ultra-expansionary monetary policy, played a crucial role in stabilising both US

and world financial markets. Whether Japan was wise to purse these policies in the particular form it did, in light of the consequent

Japanese 'bubble economy' and financial crash which commenced in 1990, is another issue, but it showed that there was now an 'economic backstop' for the US in the world economy in a way that one had not existed in 1929. This economic strength of China, and to a lesser extent India, therefore significantly alters the situation of the world economy compared to 1929 - despite any apparent parallels on financial markets. Provided there are not disastrous economic policy miscalculations by the US, which of course are possible, international macro-economic fundamentals mean there need be no 1930s style depression. However there will be, instead, a deep recession of the global economy out of which China and India will emerge significantly strengthened in their relative weight in the world economy. This is therefore the conclusion which flows from consideration of international economic fundamentals.

The US isn’t key to the global economyChris Devonshire-Ellis, Senior Partner of Dezan Shira & Associates and publisher of China Briefing, interviewed by AFP, January 24, 2008, U.S. recession fears not a global concern for China, India and the developing worldAFP: Everyone is saying the U.S. is having a recession; we want to do a story on the emerging markets power, say China and India. Since your firm is very familiar with these markets and the topic, we’d like to have your opinion on the following questions. Can China and India

help the world lessen the impact of a global economic slowdown? CDE: Yes. Neither markets are particularly integrated with the United States and both have market fundamentals that have separately evolved from the West over the past 60 years. The media quotes the Shanghai bourse for example, but it’s unnecessary, the Shanghai market isn’t interactive with global markets and serves only China’s domestic market. Mumbai is more connected but India is going through a domestic consumer boom. What happens in the US has little impact on these markets. So by definition China and India will not participate in a worldwide recession and will therefore be hedges against this. Welcome to globalization. It’s protective as we will see. The

United States has problems; however these will be offset against markets elsewhere. The new world order is working.

China and India can fill inChris Devonshire-Ellis, Senior Partner of Dezan Shira & Associates and publisher of China Briefing, interviewed by AFP, January 24, 2008, U.S. recession fears not a global concern for China, India and the developing worldAFP: Are their engines strong enough to power the world economy? Why or why not? CDE: China and India possess 40 percent of the world’s population. OK, so maybe 20 percent of this can purchase to international standards, however combined this is still larger than the U.S. disposable middle class income. Plus, both largely supply much of the world’s consumer goods. The global wheels will keep turning. Mexico also and to a lesser, yet significant extent, Brazil and Russia will help too. Their fundamentals are strong in the global financial supply chain and will keep us globally out of this problem. The

reality is America alone cannot control the global economy, which now finally is correct. We now have a better international balance. As I mentioned before, globalization is here, it has arrived, and it’s about to bail out a weak market – the United States – as the U.S. has done before. It’s more a maturity of other markets than a major U.S. default that has brought us to this point. Safety lies in numbers.

west coast – february 2012 policy update · web viewfiscal discipline is high. vincent del...

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