A Reason to be Angry -- and a Better One to be Happy

After Standard & Poor's downgraded America's credit rating Friday and the stock market lost itself entirely yesterday, everyone's emotions are running high. Mine have gone like this. When news of the downgrade hit, I thought, "Eh, no big deal." In April, S&P gave 50-50 odds of a downgrade if last week's debt-ceiling deal didn't cut $4 trillion from future deficits. The deal didn't. So who was surprised? After I read why S&P made the downgrade, I became annoyed. After yesterday's 600-point bloodbath, I'm now angry. You should be, too.

Who am I angry with? Washington. By S&P's account, they are the sole reason the nation's credit was downgraded. Few sensible people think the U.S. lacks the economic means to pay its bills. Push comes to shove, and taxes can be raised or money can be printed. These create a litany of other problems, but they invariably solve a debt problem. America can pay its debts.

The real roadblock is the political acid that gets in the way of our debt management. The debt ceiling has been raised 88 times since the 1940s, almost always without incident. Last week was different. It was turned into a political hostage. And S&P made it clear that the last week's debt-ceiling rodeo show is what ultimately sparked the downgrade. "The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed," it wrote. "The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy."

Now here's what's outrageous. After S&P made it clear that political bickering drove a stake through our nation's credit rating, political leaders responded by pulling out the howitzers and doubling down. "This is essentially a tea party downgrade," said Obama campaign chief David Axelrod. Republican presidential candidate Mitt Romney said, "The president's failure to put our nation's fiscal and economic house in order has caused a massive loss of confidence that resulted in an embarrassing downgrade."

Um, guys, this is exactly what S&P is talking about. By continuing to throw rocks at each other, you're engraving its point in stone. The biggest threat to our economy is not runaway spending or high taxes or entitlements. It's the vitriol used to prevent rational debate and agreement about those topics. The continuation -- even acceleration -- of that vitriol after the credit downgrade is what makes me angry. It should make all of us angry. When people asked what you thought of political bickering one week ago, the smart answer was, "Oh, I don't pay attention to that childish stuff." But that childish stuff shaved several trillion dollars off global wealth in the past week. This isn't just a sideshow built for cable news sound bites. It has a real, tangible, impact on people's financial lives.

But amid it all, there's reason for hope. There's reason to be thankful. There's reason to smile. It's simple: Every seed of prosperity is planted in the dirt of fear. Every bull market in history found its footing in the screams of panic. In 1933, people utterly gave up hope that the Great Depression would ever end. That turned out being the single best time in history to buy stocks. In 1982, people lost confidence that the Fed could tame inflation. That created a buying opportunity of a lifetime. In 2009, investors were sure that the financial system was unsalvageable. That paved the way for stocks to double within 18 months.

Will the crash of 2011 turn out the same way? Let's make it clear: No one knows how much further markets might fall. There could be more blood to come. But no one I know at The Motley Fool is panicking. Instead, we're looking at the current price of some high-quality stocks with sheer amazement, if not amusement. Yesterday, Fool Jeremy Phillips talked about Colgate-Palmolive (NYSE: CL  ) . Others have mentioned Ford (NYSE: F  ) and General Motors (NYSE: GM  ) . Microsoft (NYSE: MSFT  ) now trades at about seven times next year's earnings. Waste Management (NYSE: WM  ) yields 4.5%. Berkshire Hathaway (NYSE: BRK-B  ) trades at one of the lowest valuations it has seen in decades. We don't know how much lower these stocks might go. But we know that buying them at current prices will serve us well over the long haul. And that opportunity wouldn't be here without the charade that is our Congress.

"We're all in the gutter," Oscar Wilde once said, "but some of us are looking at the stars."

How about you?

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel owns shares of Microsoft and Berkshire Hathaway. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Microsoft, Berkshire Hathaway, Waste Management, and Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor, Waste Management, Berkshire Hathaway, General Motors, and Microsoft, as well as creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On August 09, 2011, at 3:07 PM, Zaneyjaney wrote:

    Great commentary, Morgan!

  • Report this Comment On August 09, 2011, at 6:00 PM, JC1997 wrote:

    Truth. Washington lacks leadership and maturity. Boys who think they are men.

  • Report this Comment On August 09, 2011, at 6:55 PM, mracz425 wrote:

    good article.

  • Report this Comment On August 09, 2011, at 8:03 PM, arizonamike303 wrote:

    Excellent article, thank you. It's good to hear some reassuring words in these turbulent times.

  • Report this Comment On August 09, 2011, at 10:06 PM, MaxTheTerrible wrote:

    "Now here's what's outrageous. After S&P made it clear that political bickering drove a stake through our nation's credit rating, political leaders responded by pulling out the howitzers and doubling down."

    Could not agree with you more! I just wish that our political leaders would take a hard sober look at themselves and realize how childish they seem. I know, I'm a hopeless optimist...

  • Report this Comment On August 10, 2011, at 2:59 AM, Rjones769 wrote:

    Senator Mitch McConnell to the Washington Post:

    "For Republican leaders, there was pride in a hand well played. I think some of our members may have thought the default issue was a hostage you might take a chance at shooting.  Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming."

    It's not just name-calling that's making me swing between anger and despair -- it's the obsession with scoring political points, even at the expense of shocks to the global economy. I just don't see how people who would discuss "the default issue" in the language of a criminal could ever be expected to act responsibly for the good of the nation.

  • Report this Comment On August 10, 2011, at 4:07 AM, HoneyBadger101 wrote:

    This article needs to grow a back bone. Honestly, it's such a cop-out to say both sides are the problem. The debt-ceiling was used as political tool to hold the US economy hostage unless the Republicans got EVERYTHING they wanted, period. And Republicans got ALMOST EVERYTHING they wanted, lots of spending cuts and no revenue increases. They need to man-up and own the US downgrade. It's real easy to throw your hands up and blame the two side instead of making your conservative readership uncomfortable with the inconvenient truth.

    Moreover, the very people who want to the President to fail, in reality, want America to fail. Just so they can make Obama vulnerable and get one of their own in the White House. Just look at the GOP voting recored: The GOP has become the party of "NO" ever since Obama took office.

  • Report this Comment On August 10, 2011, at 7:24 AM, Bujutsu wrote:

    I completely agree with HoneyBadger101 above. I've always considered myself an Independent and would vote for the best person for the job, however I don't feel I can trust anything the Republican party says these days.

    The facts are the President Clinton left office with a surplus, then the Republicans controlled both houses of Congress and the Presidency for 8 years, and dumped two wars and a financial mess on Obama. Afghanistan was necessary, but Iraq turned out to be Bush's private little war as there were no chemical weapons in the end, the entire reason for going in there in the first place.

    Continuing to pass bills (authorize spending) in Congress and only then fighting over the debt ceiling (making the money available for paying those bills) was completely irresponsible. That is akin to charging things on your credit card and then refusing not to pay when the bill arrives.

    The Republicans and Tea Party continued to spend money on high cost military spending like the V-22 Osprey Program, despite claiming the need to cut spending:

    http://irregulartimes.com/index.php/archives/2011/03/01/spen...

  • Report this Comment On August 10, 2011, at 9:25 AM, energysystems wrote:

    Bujutsu-The GOP controlled the Congress while Clinton was in office. The fact is, Clinton didn't balance the budget with Democratic majorities in both houses. He did it with GOP majorities in both houses. The GOP did not control both houses for Bush's entire presidency. Dems took both houses in the 2006 mid terms(examine the deficit spending under the GOP and Dem majorities while Bush was in office). Maybe you should know what you're talking about, because it's obvious you don't.

  • Report this Comment On August 10, 2011, at 9:30 AM, deckdawg wrote:

    Morgan, your opinion of S&P has been swinging back and forth more wildly than the stock market. In one article you portray them as bumbling idiots who have been completely discredited and should be ignored by any reasonable person. Today, they possess great wisdom about how our country should be run. Which is it? And, the tired old shibboleths about "all the bickering in Washington" and "why can't we just all get along?" simply reveal a lack of knowledge/understanding of American history. America did not become the country it is today as a result of politicians gathering in Washington, holding hands, and singing kumbaya. The battle (not "discussion") over the role, size, scope & power of a federal government (or, in the earliest days, whether a federal government should even exist) started in the middle of the American Revolution and, thankfully, continues until this day. It's part of what makes America great. (There are more important things in life than whether your investments are up or down on a given day.) I didn't have much time for history or "the liberal arts" while going through college many, many years ago. Fortunately, six or seven years ago I came across a series of recorded college lectures (The Great Courses) by The Teaching Company. I have listened to almost every history course they have available (history, history of ideas, history of philosophy, etc.). Upended my whole view of the world. Giving at least some thought to how we got from caveman to where we are today gives you some perspective.

  • Report this Comment On August 10, 2011, at 11:17 AM, Brent2223 wrote:

    "taxes can be raised or money can be printed" - has this strategy ever worked in the past? Not a sarcastic question. Isn't this just a shell game, going from a debt issue to an inflation issue or tax base issue?

  • Report this Comment On August 10, 2011, at 12:36 PM, musk0020 wrote:

    I don't understand the intellectual dishonesty when people state something like, "well, the debt ceiling was raised 88 times before, but this time it became a political problem..."

    Those complaining are doing so out of selfishness. Yes, you did lose money, and probably will lose more. Tough crap. As long as the debt ceiling was raised, everything would be wonderful? As long as we keep raising taxes? Right now 51% of the country doesn't pay income taxes (for those who want to split hairs). The last generation of well trained professionals is getting ready to retire. That income tax payer base will just continue to shrink.

    $14,500,000,000+++ in debt. Just principal. The bigger problem here is that even though the statement "We never have not paid our bills..." is also a charade. And people get angry at the messenger? Pissed at S&P? Angry at the Tea Party? Where were major consulting folks at The Fool during the past 10 years and other like institutions for the past 20 years when the Fed gov't was spending millions of $$$ as easily as it was for the rest of us to buy a loaf of bread? You are really upset BECAUSE THIS WASN'T ADDRESSED THEN... and now your financial future is not certain.

    Point fingers at political parties all you want. The real enemy is not the politician, it is you. If you want things to be stable to generate wealth, not even this country can afford to spend money at the rate it is going. Unless we get every single politician who wants to continue spending $$$ at this rate out of office, and those into office who will spend their money wisely, none of you will have anything to live on during your retirement.

    http://www.treasurydirect.gov/NP/BPDLogin?application=np

    Date 08/08/2011

    Debt Held by the Public $ 9,915,515,946,703.07

    Intragovernmental Holdings $ 4,672,211,658,740.37

    Total Public Debt Outstanding $ 14,587,727,605,443.44

    If the above numbers don't scare you, then your head isn't on straight. If you want to look at political parties responsible, check out the website above, but consider not only the presidents, but also the individual congresses involved.

    Clinton $ 1,603,838,157 per mo (x96)

    Bush $ 5,104,880,926 per mo (x96)

    (For those who want to point fingers, here are #s:

    Bush. $. 4,092,901,787 per mo (x 1st 72)

    Bush. $. 8,134,220,804 per mo (x last 24 mos w/ Dem Congress))

    Obama $. 12,766,528,356 per mo (x 31)

    My parents grew up during the depression & lived through WW2 in Europe. They came here when the "state" confiscated what little they had left.

    Get your heads on straight.

  • Report this Comment On August 10, 2011, at 12:40 PM, slpmn wrote:

    Japan hasn't had a AAA rating since 2001, and they still pay obscenely low interest rates on their sovereign debt, so I'm not too worried about the real-world impact of the US downgrade. Thankfully, China doesn't base it's investment decision on what Standard and Poors says.

    The bigger question is, if the smart money knows it doesn't matter what S&P says, then why is the market tanking? What is it reacting to? Is it just cascading algorithms leading each other in a downward spiral or is it based on some fundamental change in the economic outlook? Probably a little of both, I guess.

  • Report this Comment On August 10, 2011, at 12:45 PM, slpmn wrote:

    Republicans do a great job scaring people. They did it with the war on terror, and now they're doing it with the debt. Whatever it takes to win elections.

    Take a deep breath, people. The terrorists are not going to storm the door of your house and kill your family, and the national debt is not going to rear up and swallow the nation. The numbers are big, yes? So is our economy, and hence, capacity to handle them.

    Fear mongering is the bread and butter of fascism. Sound extreme? Perhaps it is, but it's also true.

  • Report this Comment On August 10, 2011, at 12:46 PM, musk0020 wrote:

    Correction... Instead of what I posted above, the numbers should have been:

    Bush $ 5,104,880,926 per mo (x96)

    (For those who want to point fingers, here are #s:

    Bush. $. 4,092,901,787 per mo (x 1st 72)

    Bush. $.81,342,210,959 per mo (x last 24 mos w/ Dem Congress))

    The problem is here, it affects us, now we need to fix it. Get people into political office who will work the problem honestly, get rid of the parasites on both sides of the aisle. Complaining about who is responsible is irrelevant anymore.

  • Report this Comment On August 10, 2011, at 12:56 PM, musk0020 wrote:

    @ splmn

    "... and the national debt is not going to rear up and swallow the nation. The numbers are big, yes? So is our economy, and hence, capacity to handle them.

    Fear mongering is the bread and butter of fascism. Sound extreme? Perhaps it is, but it's also true."

    Either that statement is out of ignorance, or by design due to malice. I'll assume you have an understanding of what is going on, which leaves me to believe that you want this to continue....

    Maybe socialism or communism sounds like it works, but I have personal experience with it. You're disregard for simple numbers which can't lie, is astonishing. Because you do not want to address the problem, you try to discredit the facts. Fear, sir, I believe is the means of control in a communist state... Socialism just uses gov't leverage against the population to get them there. Based upon what is going on in many European countries right now, I think they're a bit closer to finding out.

    But you can keep ignoring the problem. Rather, you are the problem.

  • Report this Comment On August 10, 2011, at 1:04 PM, acssgt316 wrote:

    "The real roadblock is the political acid that gets in the way of our debt management. The debt ceiling has been raised 88 times since the 1940s, almost always without incident. Last week was different. It was turned into a political hostage."

    I'm not sure of your point here. Should congress arbitrarily just raise it an 89th time when it is clear the deficit is too high? Regardless of whether you think we should have raised revenue or cut spending. Perhaps now was the time to start such an argument that spending is out of control and "kicking the can down the road" for an 89th time was only going to make things worse.

  • Report this Comment On August 10, 2011, at 1:06 PM, TMFHousel wrote:

    <<I'm not sure of your point here. Should congress arbitrarily just raise it an 89th time when it is clear the deficit is too high? >>

    Better yet, get rid of it. There's no justification for a debt ceiling. It's inane that Congress votes on a budget, and then votes on whether they want to pay for that budget.

  • Report this Comment On August 10, 2011, at 1:34 PM, slpmn wrote:

    @musk0020 -

    There is a disconnect between the debt problem, its impact on the economy, and the hysteria generated by the right wing.

    The current economic malaise has nothing to do with the national debt. If anything, the economy would be worse off if the government was spending less money. That's not an endorsement of any economic school of thought, it's just reality. People aren't spending because they are busy deleveraging (as they should be). Business isn't spending. That leaves the government as the spender of last resort.

    Government borrowing and spending would be a problem if it were resulting in higher interest rates that crowded out private investment, and that is not happening.

    The tea party solution to the debt problem is immediate massive spending cuts. That can only have a negative impact on economic growth.

    Don't get freaked out by the debt numbers. They are large. So is our economy. Rational people (like the Bowles Simpson committee) have identified rational ways of dealing with the problem. It is not something to panic about.

    One party is using the debt problem to cause fear and drive voters their way. It's how they operate. They did it before with success, they're doing it again with success. That is not an endorsement of socialism or communism or the Democratic party. I am not a Democrat, nor socialist, nor communist. Just an investor who observes what's going on in the world around him, and is frustrated by incompetent politicans playing with things they don't understand.

  • Report this Comment On August 10, 2011, at 2:09 PM, gesheddc wrote:

    Musk0020, I am angry at the Tea Party because they refused to get rid of the Bush Tax cuts when it was Bush who also took us into wars WITHOUT RAISING TAXES. (Apparently the first time in U.S. history that we have gone into a war without raising taxes.) In fact Bush CUT TAXES. So in these latest budget negotiations, not only should the Bush tax cuts have been eliminated, but the debt ceiling should also have been raised for the money that was already spent by Bush et al. One last projection of the cost of the war in Iraq is that it will be 5 trillion dollars. That, I assume, is counting all the medical costs etc. of treating our wounded Iraq vets. Halliburton and other corporations “similarly situated” benefited from this war. (The rest of us did not. It was an immoral "war of choice": no Iraq-Al Qaeda connection; no WMD; etc.) The Tea Party also likes to forget that we were treated to the lunacy of a deregulated financial industry, to its insane leveraging “pyramid” schemes which collapsed all around us giving us financial disaster (-yet Wall Street lobbies hard as ever in Washington, to prevent reasonable controls on their financial activities-), otherwise, why would The Tea Party not be willing to entertain raising taxes on the people who are now being paid so handsomely in this industry? Why does the Tea Party think it inappropriate to end tax breaks to the likes of Exxon? and so on. Before considering how much the social security net (medicare, medicaid, social security) needs to be cut, (and, how much the funds to government enforcement agencies like the EPA and Food and Drug need to be cut), I’d like to see how much revenue the Feds could raise in the manner suggested above. What do people here think of putting a “tiny tax” on stock transactions? Apparently that could raise billions. So I have been told. Maybe trading stocks is sort of a luxury tax, like cigarettes or liquor.

  • Report this Comment On August 11, 2011, at 8:33 AM, Bujutsu wrote:

    Salary of House/Senate .......................$174,00​0 FOR LIFE

    Salary of Speaker of the House ............$223,500 FOR LIFE

    Salary of Majority/Minority Leaders ...... $193,400 FOR LIFE

    Average Salary of a teacher ................ $40,065

    Average Salary of Soldier DEPLOYED IN AFGHANISTAN $38,000

    I think we found where the cuts should be made!

  • Report this Comment On August 12, 2011, at 11:51 AM, ETFsRule wrote:

    The biggest threat to our economy is not runaway spending or high taxes or entitlements. It's the vitriol used to prevent rational debate and agreement about those topics."

    Agreed, it's the vitriol. But it's not just politicians - it's the American people. We are a divided nation, insulting each other and "throwing rocks", as you said. Just take a look at some blogs on TMF and you'll see what I mean.

    In this respect, the government is actually doing a good job of representing us. We're all acting like a bunch of stupid children, so it's no surprise that our elected officials are acting the same way.

    Just wait til campaign season starts... my guess is that our next president will be whichever candidate puts out the most negative ads.

  • Report this Comment On August 12, 2011, at 11:55 AM, TheDumbMoney wrote:

    "We're all acting like a bunch of stupid children, so it's no surprise that our elected officials are acting the same way."

    ROFL. So true.

    (Sigh.)

  • Report this Comment On August 12, 2011, at 12:36 PM, quailtime wrote:

    Thanks for the write up.

  • Report this Comment On August 12, 2011, at 2:07 PM, dba74 wrote:

    If Boehner, McConnell, Cantor, etc. were to announce, during market hours, their interest in raising revenue, I'll bet the markets would surge. It's worth a try; they could gauge the market reaction either way. If it's positive, then it's even more reason for them to do it. If it's negative, they could retreat back to their earlier stance. Feel free to pass along my idea if you like it.

  • Report this Comment On August 12, 2011, at 5:59 PM, fredgei wrote:

    I don't blame both sides equally, and here's why:

    About a week before the final deal passed, President Obama agreed in principle to the entire list of Speaker Boehner's demands. Instead of shaking hands, or haggling over the fine print details, Speaker Boehner made more demands. This is the action of someone who wants to prevent a deal, not someone who wants to make a deal.

    There are many things I blame President Obama for. But, by that one action, Speaker Boehner, and the people he leads, picked up the majority of the blame for this debacle, at least in my eyes.

  • Report this Comment On August 12, 2011, at 10:03 PM, chaz572 wrote:

    I'm with HoneyBadger101 and fredgei. Morgan, you're being too generous to the Republicans here. I'm royally pissed at the Republicans for:

    a) Not negotiating in good faith. That encompasses both fredgei's comment, and their absolute refusal to budge on their core points while insisting that the Dems completely give up on theirs. That's not what compromise looks like.

    b) Being the ones holding the gun to the head of the economy to get their way. President Obama wanted to use the situation to find a long-term budget solution. Faced with no compromise from the Republicans, he was willing to just raise the debt ceiling, and "take the blame" for raising it (why there's blame associated with that I'll never understand). It was the Republicans who kept the gun at the head of the economy until the last second, trying their damnedest to push through their agenda of no compromise. Frankly, I have a hard time seeing that as anything but economic terrorism.

    Keeping with David Gardner's principles of this community, I try to be apolitical on this site, but I just can't be on this issue. I'm appalled at what the Republicans have done here, and the entire country should be, too. Morgan, you're being to generous to them.

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