Despite that pesky $2,000,000,000,000.00 math error in
their first calculations, S&P
followed through with the downgrade:
(Reuters) - The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday, in a dramatic reversal of fortune for the world's largest economy.
S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits. [...]
The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.
So there ya go.
5:41 PM PT: I'm still waiting to hear why, back when conservatives were scoffing that "deficits don't matter" and cranking them up, there was no credit downgrade, but now ratings agencies are twitchy because we are trying to reduce the deficit, but supposedly not by enough.
Then again, I suspect my real problem is trying to apply logic to either Washington or Wall Street.
5:44 PM PT: Via Politico, part of the statement from S&P:
“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics. More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking 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 on April 18, 2011.”
5:50 PM PT: More from S&P:
We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process.
Translation: turning the debt ceiling into a political hostage has screwed us. Thanks, Eric Cantor and friends. Thanks a whole bunch.
5:52 PM PT: Still more, same source as above:
The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.
5:55 PM PT: More:
Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.
6:16 PM PT: The overall S&P message seems to be that the downrating is not directly related to actual U.S. debt numbers (thank goodness, based on their own inability to do math), but is more closely based on the increasing belief that, due to ideological entrenchment, the government is incapable of dealing seriously with it—and that indeed the intentional political crisis surrounding the debt ceiling is the prime evidence of that. So... yes. Taking the debt ceiling hostage indeed managed to directly screw the economy after all.
