Well, it became official last night, about three hours after I had wrapped up my first Virtual Front Page in awhile:
A cornerstone of the global financial system was shaken Friday when officials at ratings firm Standard & Poor’s said U.S. Treasury debt no longer deserved to be considered among the safest investments in the world.
S&P removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal recently brokered in Washington didn’t do enough to address the gloomy outlook for America’s finances. It downgraded long-term U.S. debt to AA+, a score that ranks below more than a dozen countries, including Liechtenstein, and on par with Belgium and New Zealand. S&P also put the new grade on “negative outlook,” meaning the U.S. has little chance of regaining the top rating in the near term…
S&P said 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.” It also blamed the weakened “effectiveness, stability, and predictability” of U.S. policy making and political institutions at a time when challenges are mounting…
The WSJ report (and here are others from the NYT, NPR, BBC and the WashPost) goes on to say that it might not be too bad, since the other ratings agencies have kept the U.S. at the triple-A rating, then says…
But the move by S&P still could serve as a psychological haymaker for an American economic recovery that can’t find much traction, and could do more damage to investors’ increasing lack of faith in a political system that is struggling to reach consensus even on everyday policy matters. It could lead to the prompt debt downgrades of numerous companies and states, driving up their costs of borrowing. Policy makers are also anxious about any hidden icebergs the move could suddenly reveal.
Just what we needed, right?
As you see, the reason is that we failed to reach a comprehensive, rational, credible agreement on reducing U.S. debt. That was always the greater danger than the debt ceiling not being raised. And our elected representatives descended to the challenge of eroding the full faith and credit of the United States of America.
Of course, all involved in the government will vehemently defend their agreement against such condemnation as Standard & Poor’s. The Obama administration scoffed at S&P for making “a $2 trillion error” in its calculations. And indeed, well they might lash out, because all will share the blame.
But here’s the thing: Obama was willing to do a real deal. I’m not saying it would have fixed everything, but at least he was pushing the essential elements — both spending cuts and tax increases (or “reform” or “enhancements” or “revocation of cuts” or whatever you want to call it). That was and is essential to real deficit reduction for the simple fact that no one wants to go far enough in cuts.
Oh, four of the SC5 would go far enough. They have a nihilistic desire to cut, slash and burn; they are ideologues, and are not affected by pragmatic considerations. But Joe Wilson wouldn’t be with them; he wants to be re-elected. And if the cuts were deep enough to essentially eliminate the deficit without any revenue increases, they would be replaced in the next election by people who do give a damn about the essential functions of government (or what most voters regard as the essential functions of government, which in political terms amounts to the same thing). It would probably also split our two senators: DeMint cares little for the consequences of cutting, but Graham would balk at emasculating the U.S. military.
Gentlemen, if I may go so far as to call you “gentlemen,” you and those like you have brought us to this. I will watch, not without some trepidation, to see what you do next.