The S&P downgrade of the federal government's credit has nothing to do with the numbers; the fact that S&P should be so careless as to include a $2 trillion math error shows that well enough. Despite the hastily and frequently amended statements from S&P intended to give ammunition to both both Democrats and Republicans, it also has nothing to do whether the amount of deficit reduction included in the debt ceiling negotiations was large enough, whether the mix of spending cuts and (no) revenue sources was the right one, or how close inter-party squabbling brought the nation to default. It's not about the Bush tax cuts, not about what's happening in Europe, not about the economy at all.
The truth is that the downgrade is that it has to do with exactly one thing: S&P.
S&P's history of making superficial, self-serving ratings designed to do nothing more than pad their own pockets had left their reputation in such tatters that they had only one choice. They made another superficial, self-serving rating designed to do nothing more than pad their own pockets.
The purpose of the downgrade isn't to warn against U.S. policy or generate any change. Its only point is to generate publicity for S&P and to try and restore some of the importance and respectability to the company's reputation that decades of careless, lax, regulation-free operation have eroded.
It's an ad campaign designed to fight the real downgrade, the one that S&P applied to their own value by the simply awful quality of their work. So far, it seems to be a pretty good effort. Certainly people are paying a lot more attention to S&P than they have in years and citing them as if they have biblical authority.
The best thing about this ad campaign? It costs S&P nothing. Instead the only cost is a huge risk that everyone else will end up paying billions, if not trillions, to cover S&P's reputation restoration project. But frankly, making everyone else pay for their mistakes is a risk S&P is willing to take. You only have to look at their work over the last decade to see that.
Just like the Republicans who forced the nation into an artificial crisis by turning a routine procedure into a focus point for irrational demands, S&P looked at the news and saw an opportunity. Their willingness to provide cover to not just one, or a few, but many thousands of shady deals involving worthless (and worse than worthless) derivatives had left S&P with a reputation that was justifiably somewhere below that of banana slugs when it came to correctly assessing fiscal risk. It was clear that their assessments were shallow, their judgement erratic, and their imprimatur completely for sale. Anyone willing to grease their already greasy palms with sufficient silver could be assured that S&P would bless their project with AAA. Heck, for enough money they would probably have invented all the A's you care to eat. It didn't even take having their analysts hold their nose while signing off to these suicide deals. It was much, much cheaper to just give ratings without bothering to look.
The only thing that could return S&P to being anything but a laughable afterthought was a kind of Hail Mary pass. They had to do something big, and they saw their opportunity in recent fiscal shenanigans in DC. Sure, it was probably momentarily frustrating that a deal was reached, thwarting any actual reason for concern about the nation's continuing ability to cover its debts. S&P didn't let that stop them. And why should they? Actual risk isn't their concern.
Their concern is creating apparent value for their rating service. That value is entirely a measure of perception of the impact of their rating, which is a measure of how often they are cited. By that measure, this campaign is a huge success.
So what if it costs you a few bucks on your next car loan, a few hundred on your next house payment, a few tens of thousands in your retirement funds? So what if it generates an actual threat to the nation's fiscal health? This war by press release has already given S&P the kind of prominence that other agencies can only dream about.
Republicans seize on implications that S&P has concerns about the size of the debt? Good for S&P. Democrats jump on the idea that S&P might raise their rating if only the Bush tax cuts were allowed to lapse? Good for S&P. The media moans that it's all the internecine political drama that drove down the rating? Good for S&P.
For them, it's all win, even when we lose. The only way to remedy the S&P downgrade is to recognize the value of their work. Which is nothing at all.