Aug 05, 2011 at 11:55 pm
So Standard and Poor’s went ahead and downgraded US debt from the highest rating of AAA down a notch to AA+.
I was on Rachel Maddow’s show tonight, as one of a series of guests denouncing the downgrade.
When it comes to anger regarding the self-inflicted damage this debt ceiling debacle has caused, I yield to no one. Still, I believe we’ll be able to reliably service our public debt as we always have, and that is what the rating should reflect (as I stressed weeks ago when I first heard about this).
Then there’s the point that S&P, who gave top grades to toxic mortgages in the bubble days, is not a credible source to decide the question anyway, even before their apparent $2 trillion mistake in arithmetic (news accounts say the White House found that S&P’s initial estimates of our long term debt were inflated by that amount).
All that said, if you read the press release, their critique of our dysfunctional politics and inability to get revenues in deficit reduction deal makes a lot of sense. Especially with prominent R’s arguing that the debt ceiling debate should be a template for every increase in the ceiling.
“…the downgrade reflects our view that the effectiveness, stability, and predictability of American policy making and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating…”
As noted, they also said they were motivated by the belief that we can’t reliably achieve budget sustainability without revenues, i.e., they correctly recognized that spending cuts only won’t do it.
All of which sounds like it comes right out of recent blogs from this site, and I can even see how, if the debt ceiling and budget process continue along this path, lenders could demand a risk premium added to the interest rate when they lend to us.
But that’s to be seen. The question for S&P and the other raters is how confident should lenders be that the borrower will honor the terms of the loan. And in the case of US debt, that answer hasn’t changed yet.
Perhaps S&P should get out of the rating business and start blogging instead. The world might benefit from the change.
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