A video posted on Texas Gov. Rick Perry's presidential campaign website portrays the U.S. economy under President Barack Obama as deeply troubled.
In addition to citing the nation’s housing and unemployment problems, the video's narrator states: "Record debt and the president's refusal to control spending led to our nation's credit rating being downgraded for the first time in history."
For this article, we’re going to assess whether the recent downgrade was really unprecedented and whether Perry accurately recounted the factors behind it.
Perry's video surely refers to Standard & Poor's Aug. 5 announcement that it had lowered its credit rating of U.S. long-term debt one notch from the top-rated AAA to AA+. S&P is one of the three major U.S. credit-rating agencies, which assess the riskiness of bonds issued by companies and governments. The agencies' ratings are designed to reflect the ability of the borrower (bond issuer) to repay its loans (the bonds).
The other two major U.S. agencies, Moody's and Fitch, have not followed S&P's lead, maintaining the United States' top credit rating.
Numerous news reports about the Aug. 5 downgrade described it as a "first" in history. We checked with the three major agencies. S&P told us that the U.S. had held its AAA rating since 1941, when the firm was created in a merger. Fitch said that it first assigned a credit rating to the U.S. in 1994 and that it has always been AAA. We didn't hear back from Moody’s, but several recent news articles have reported that it has assigned the U.S. government its highest rating since it began evaluating the country's debt in 1917.
Interestingly, however, we learned in an Aug. 10 policy paper from the centrist Committee for a Responsible Federal Budget that a small credit-rating agency based in Pennsylvania, Egan-Jones, downgraded the United States in mid-July. A couple of weeks later, "S&P followed suit, becoming the first major certified agency to downgrade U.S. long-term debt securities," the paper says.
The Egan-Jones downgrade came amid the tumultuous debate in Washington over raising the U.S. debt ceiling, the legal limit on how much money the government can borrow. After hitting the $14.3 trillion debt ceiling in May, the U.S. Treasury Department said that it juggled accounts to buy time for further negotiations but that action was needed by Aug. 2.
In its analysis, Egan-Jones said its downgrade was not related to the "delay in raising the debt ceiling but rather our concern about the high level" of the nation’s debt. The firm also cited the government's "difficulty in significantly cutting spending." It did not mention Obama.
S&P’s downgrade followed by three days Obama's signing of a proposal enacting an agreement between the White House and Republican leaders in Congress to increase the debt ceiling while also reducing budget deficits. The deal, agreed upon two days before the Aug. 2 deadline, followed heated debate that was centered on whether deficits should be lowered solely through spending cuts, as advocated by Republican leaders, or through a combination of spending cuts and tax increases, as urged by Obama.
The final plan, which was intended to slow the growth of the nation’s debt, does not contain measures that raise revenue. About $900 billion in spending cuts were implemented with the passage of the bill. Additional cuts will be determined by a committee made up of 12 members of the House and the Senate, with six members from each party. Its goal is to reduce the deficit by at least $1.5 trillion over fiscal years 2012 to 2021. It must recommend cuts by Nov. 23. It also could recommend revenue increases.
The law enables Obama to seek an initial increase in the debt limit of $400 billion, with the possibility of two additional increases, for a total of $2.4 trillion.
S&P’s Aug. 5 report explaining its downgrade presents two main reasons.
One is that the size of the U.S. debt is very large and growing. And, the report says, the deal struck this summer doesn’t go far enough in controlling that growth. The deficit-reduction plan "falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade," the report says.
S&P's second major reason is its view that politicians seem unable to agree on what steps to take to lower debt levels — typically measured as a percentage of the gross domestic product, the value of all goods and services produced in the nation. S&P's report called the political process "contentious and fitful" and said the firm was "pessimistic" that the White House and Congress would be able to agree on measures to significantly reduce the debt soon.
As noted in two PolitiFact Ohio fact-checks, S&P’s report criticizes both parties, but does not apportion blame or indicate which should bear more responsibility. Nor does the report name individuals. Also, it does not advocate specific steps to cut the deficit.
So, S&P didn’t single out Obama in its rationale for the downgrade. Then how much is he to blame for the nation’s debt levels — the first of the ratings agency’s cited factors?
That question is debated.
Analysts Bill Hassiepen of Egan-Jones and Jason Peuquet of the centrist Committee for a Responsible Federal Budget told us in interviews that both parties have contributed to the nation’s fiscal situation. Hassiepen said it's true that the debt has ballooned during the Obama administration but it also grew during the two-term presidency of George W. Bush, a Republican.
In dollar terms, gross national debt — made up of debt held by the public and debt held directly by the government, such as in trust funds for Social Security — increased about $5 trillion during Bush's eight years as president and rose by nearly $4 trillion in the first two years and seven months of Obama's presidency.
Total debt as a percentage of GDP also jumped under both presidents, rising from 56.4 percent at the end of fiscal 2001 to 69.4 percent in 2008, 84.2 percent in 2009 (a fiscal year shared by Bush and Obama) and 93.2 percent in 2010.
In a fact-check examining the increase in the national debt under Obama, PolitiFact New Jersey cited an April 2011 report by the nonpartisan Pew Fiscal Analysis Initiative that analyzed the difference in the CBO's projections of publicly held debt — the largest chunk of the total national debt — and the actual debt from 2001 to 2011. The report found that about two-thirds of the growth in publicly-held debt — expressed as a percentage of the gross domestic product — resulted from new laws, some of which came to be under Bush.
The report said tax cuts enacted under Bush, the wars in Iraq and Afghanistan, and the 2009 stimulus legislation, signed into law by Obama, are three of the five "most significant legislative drivers" of the debt. But it also notes that "no single policy or piece of legislation, however, is overwhelmingly responsible" for the increase.
Experts also point to the recent economic downturn as a factor in the growth of the debt.
We asked Perry’s campaign for additional information about the statement in the video but didn’t hear back.
So, where does that leave his statement?
Some of it checks out. First, as far as we can tell, the recent downgrades of U.S. debt were historic. Second, Perry is correct that the nation's rising debt level was a major factor in the rating agencies' decision.
However, the statement's focus on spending under Obama overlooks the fact that increases also occurred under Bush. And finally, Perry's claim ignores the primary factor cited by S&P for its downgrade, the political divisiveness in Washington that has sapped the firm's confidence that the United States will soon reach a consensus on tackling its debt problems.
We rate Perry’s statement as Half True.