Standard and Poor’s vindicates Tea Party with downgrade of U.S. Debt.

While the Tea Party gets slated as a bunch of extremists, the truth is they're a legitimate mass movement. And they've just been proved right.

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John Vax
On 6 August 2011 11:30

First off, I should start with a caveat. I have no love for the ratings agencies.

They have had a pretty miserable track record at performing their primary function, which is to assist investors in assessing the risks of bonds issued by governments and corporations by assigning a rating. 

They are often way behind the curve when it comes to spotting issuers who are getting into trouble or they get it completely wrong from the start, like they did with ratings on portfolios of mortgages and sophisticated financial instruments known as collateralised debt obligations (CDOs).

That being said, late Friday evening, one of the major credit ratings agencies, Standard and Poor’s, downgraded the debt of the United States from its “triple A” rating to “double A plus” while maintaining a negative outlook.

This downgrade, the first downgrade of US debt below AAA since the foundation of the agencies, increases the chorus of critics of Washington’s borrowing and spending practices. 

These critics of the U.S.’s fiscal insanity are now as diverse as “Tea Party” conservatives, China’s communist government  , the bureaucratic IMF and even some Clinton democrats such as Alice Rivlin.

Over the last few days, we have heard the left wing U.S. press and various Democrat politicians try to label the Tea Party as “terrorists.”

They felt that their negotiating tactics were intransigent. In reality, over the last two years, the Tea Party movement has been a grass roots movement of ordinary citizens rallying against the increase in the size of government and the fiscal recklessness that borrowing 40 cents of every dollar spent by the government entails. They instinctively understood that such huge levels of borrowing were unsustainable.

The elections of November 2010 sent a cadre of about 100 new (Tea Party or Tea Partyesque) members, to the House of Representatives with the express purpose of holding the line on spending.

The whole debate about the rise in the borrowing authority (the debt ceiling) was used by this new group as a way to get spending under control and thus save the creditworthiness of the U.S

I would call this patriotic not terroristic. In other words, the only terror generated by these tactics was in the hearts of big spending left wing politicians.

In reality, the Tea Party was initially the sole sane voice which exposed the naked emperor of big government for what it is—a ponzi scheme. 

Now, as the chorus of critics gets louder, the ratings agencies are playing catch up. Let’s hope that it is not too late for the largest economy on earth to get its fiscal house in order.

John Vax is a principal at MT Thaler Investment Management LLP, a London-based hedge fund which focuses on credit markets

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