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Bill George

Harvard Business School Professor, former Medtronic CEO

Leadership Kudos and Gaffes: Addressing both sides of S&P’s downgrade

Leadership Kudos this week go to John Chambers, head of Standard and Poor’s (S&P) for having the courage to stand up to pressure from Treasury Secretary Geithner and federal politicians and downgrade U.S. debt from AAA to AA+. Even after adjusting for a calculating error, S&P concluded that the U.S. debt situation warranted the downgrade because the country was not facing fiscal reality. “The gulf between the political parties,” S&P said, “had reduced confidence in the government’s ability to manage its finances.” China, the nation’s largest creditor with $3 trillion in foreign exchange reserves, said ominously, The U.S. needed to “cure its addiction to debts” and “live within its means,” raising the specter of creating a global reserve currency to replace the U.S. dollar.

Leadership Gaffes go to all the administration officials and political leaders, Democrats and Republicans alike, who ignored S&P’s warnings in early July, and continued to put their political ideology and angling for political advantage over the needs of their country. Their wishful thinking brings to mind the infamous words of Vice President Dick Cheney, who said, “We have proved deficits don’t matter.” All of them failed to heed the first rule of crisis management, “Face reality, starting with yourself.” Deficits do matter, and unless U.S. leaders bring finances in line, the country will be faced with a decade of Japanese-style malaise.