The Standard and Poor's Downgrade

The economic news of the past two weeks has been decidedly grim.

On July 29, new data confirmed that the economy in the first half of 2011 grew much more slowly than necessary to bring down the unemployment rate.

A few days later, the bizarre debt-ceiling fight was resolved with agreement to cut nominal federal spending over the next two years. Economic forecasts prior to this deal put the U.S. unemployment rate at 8% at the end of 2012. Cuts to federal spending mean higher unemployment forecasts are on the way.

By the way, this morning the forecasters at Goldman Sachs increased their unemployment forecast for the end of 2012 to 9.25% — and that assumes Congress will agree to extend the current payroll tax credit before January.

Unless you are living off the grid, you couldn’t have escaped news that last week was brutal for the Stock Market. Then late in the day Friday, credit rating agency Standard and Poor's — after correcting a $2 trillion math error — decided to go ahead and downgrade the full faith and credit of the U.S. taxpayer from AAA to AA+.

So what should we do? To restore confidence in the United States' ability to pay its bills, Congress should take steps now to build a stronger economy, not weaken it as we did with the debt limit deal.

The chief problem in the world economy is both the U.S. and Europe have taken steps to slow rather than boost economic growth. This will have a major impact on the U.S.'s ability to pay down long-term debt.

Unless Congress takes immediate action to create jobs, we face the rising risk that the economy will continue to grow more slowly.

Is that decidedly grim enough for you?

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