Eric Cantor needs to spend a little more time reading Paul Krugman's blog
Paul Krugman puts the S&P's warning on U.S. debt (which maintains a AAA rating) in context:
OK, so Standard and Poors has warned that it might downgrade the US one of these days. At first read, what it says doesn’t seem too silly: it lays stress, rightly, on political gridlock. The point should be that the US is perfectly capable both of running large deficits now and getting its fiscal house in order over time; but not if the parties cannot agree on any kind of solution. What we do to spending this year or next is irrelevant.
That said, it’s worth remembering that S&P downgraded Japan in 2002 — and here’s what happened: [Chart showing Japan's 10 year bond-rate falling] Japanese bonds became known as the “trade of death”, because people kept betting on an interest rate rise, and it kept not happening.
Krugman also notes that even today bond rates are down slightly despite S&P's warning. Of course, the Republican Party has a completely different take: House Majority Eric Cantor thinks S&P's warning means the GOP should get serious about taking the debt ceiling vote hostage.
Reacting to the news that rating agency Standard & Poors is downgrading its outlook for the U.S. economy based on political gridlock over cutting the deficit, House Majority Leader Eric Cantor (R-VA) claimed vindication for the GOP. According to Cantor, the report strengthens the Republicans' argument for holding out on a debt limit increase unless they can get major cuts as part of the deal.
But in calling for gridlock, Cantor has completely missed the point that S&P was making. As TPM's Benjy Sarlin notes:
Left unmentioned: the same news story Cantor sent to reporters on the S&P move notes that the last time the agency downgraded their outlook on US debt was 1996, out of fear that the GOP would block a debt ceiling vote.
Details, details, right?