The Credit Downgrade: A Speed Bump on the Road to Ruin

by Marita Noon on August 11, 2011

in Blog

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On Friday, America’s credit rating was downgraded from AAA to AA+. For the first time since ratings began, America is, officially, not on top. Only one of the three major rating agencies took this step, and they did it late on Friday. This morning, despite the markets having two days to digest the news, they are saying American debt is unsustainable—we can’t keep spending money we don’t have on things that don’t work.

While there is plenty of negative news addressing the gloom and doom that this could mean, there is a silver lining.

The downgrade tells us that what we’ve been doing isn’t working, and we must change priorities. How we react will determine whether or not the other agencies decide to follow suit—perhaps waiting to see how Congress handles the budget debate.

Here are three things that most of us can agree on: America needs jobs; America needs to make more stuff other countries want; and America needs lower energy prices—and the three are intricately connected. If we could do all of the above, we could see dramatic changes in the economy and salvage the credit rating as Canada did when they received the same warning. Instead, the Obama administration continues driving, pedal to metal, in the opposite direction—not solving the problem and blaming everyone else.

For months business and industry have been asking for regulatory relief. The Business Roundtable says that the administration has made decisions that “create an increasingly hostile environment for investment and job creation.” Yet, in his celebratory speech following the passage of the debt ceiling increase, President Obama said, “Growing the economy isn’t just about cutting spending; it’s not about rolling back regulations that protect our air and our water and keep our people safe. That’s not how we’re going to get past this recession.” Clearly he intends to continue speeding down the road to ruin.

The same day Standard and Poor’s announced the downgrade, the EPA handed out harsh new regulations that will increase the cost of energy. The Public Utility Company of New Mexico (PNM) has just completed an exhaustive study of the cost of electricity from the various sources such as coal, natural gas, nuclear, wind, and solar. The report makes clear that coal provides the most cost-effective electricity. However, the EPA has finalized its plan mandating that PNM install selective catalytic-reduction technology on all four generating units in the San Juan Generating Station—costing PNM and, ultimately the consumers, $750 million (even though compliance can be achieved with a different technology that the state approved at a cost of $77 million—roughly one tenth of the cost).

Decisions like the PNM regulations are being made by the EPA and affecting power plants throughout the country. In Kentucky, the high cost of compliance with new EPA requirements will force closure of the Cane Run, Green River and Tyrone coal-fueled plants. Kentucky Utility estimates that, as a result of these regulations, costs to their customers will go up by 20% over the next five years.

Consumers squawk over higher energy prices, but how do they connect to the credit rating downgrade? Because, energy prices and energy availability are directly connected to manufacturing and jobs, and manufacturing and jobs are directly connected to a stable and, even, growing economy.

Chip-making giant, Intel, has its largest plant in the world in New Mexico. Since 1995 they have invested an average of $1 billion a year in the New Mexico plant and employ roughly 3,000 people. Intel makes stuff that the world wants, and they make it here in America. Intel vice president Joshua Walden chooses where the company manufactures its semiconductors. He was in Albuquerque last week. When asked about expanding in Albuquerque, he said under the right circumstances and right time he would have no problem with expanding operations, if the infrastructure, including electricity, is there to support it.

By making energy expensive, the Obama administration is chasing manufacturing to more competitive locales and killing jobs. But Obama is steadfast in his unwillingness to roll back regulations—despite his political rhetoric, his administration continues to pile on more and more.

The lowest cost electricity comes from coal and natural gas—something America has lots of, something that can be sold in the global marketplace, and something that creates jobs. In fact, the energy industry is one of the few sectors of the economy that is hiring. Energy service companies are struggling to find enough workers and worry about a shortage. Much of the strength in the energy sector comes from new discoveries like the Marcellus shale. Despite the need for both energy and jobs, the EPA has just announced the first national air standards for gas wells that are drilled in shale using hydraulic fracturing. The proposed rules would apply to more than 25,000 wells a year, as well as to storage tanks and other pieces of equipment used by the oil and gas industry—which businesses say will kill jobs and hurt the economy. And this new fracking regulation is just one of many. Coal extraction has been hit hard, too. Earlier this year, the EPA revoked a previously issued mining permit.

Like Thelma and Louise, the American economy, with Obama at the wheel, is heading for a cliff. Hopefully, the credit rating downgrade will be a speed bump that slows us down enough to realize that what we are doing isn’t working, and we need a course correction. If the president remains unwilling to show leadership and change direction in the interest of all Americans, we’ll have to change him.

Marita Noon is the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). Together they work to educate the public and influence policy makers regarding energy, its role in freedom, and the American way of life. Combining energy, news, politics, and, the environment through public events, speaking engagements, and media, the organizations’ combined efforts serve as America’s voice for energy.

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