Standard & Poor’s downgrade of America’s debt couldn’t come at a worse time. The result is likely to be higher borrowing costs for the government at all levels, and higher interest on your variable-rate mortgage, your auto loan, your credit card loans, and every other penny you borrow.
Why did S&P do it?
Not because America failed to pay its creditors on time. As you may have noticed, we avoided a default.
And not because we might fail to pay our bills at the end of 2012 if tea-party Republicans again hold the nation hostage when their votes will next be needed to raise the debt ceiling. This is a legitimate worry and might have been grounds for a downgrade, but it’s not S&P’s rationale.
S&P has downgraded the U.S. because it doesn’t think we’re on track to reduce the nation’s debt enough to satisfy S&P — and we’re not doing it in a way S&P prefers.
Here’s what 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.” S&P also blames what it considers to be weakened “effectiveness, stability, and predictability” of U.S. policy making and political institutions.
Pardon me for asking, but who gave Standard & Poor’s the authority to tell America how much debt it has to shed, and how?
If we pay our bills, we’re a good credit risk. If we don’t, or aren’t likely to, we’re a bad credit risk. When, how, and by how much we bring down the long term debt — or, more accurately, the ratio of debt to GDP — is none of S&P’s business.
How can anyone in their right mind demonize a ratings agency for stating the obvious? The U.S. spends nearly twice what it receives in tax revenue. It doesn’t take an economics phd to realize this is suicidal. If U.S. debt were valued the same way that muni bonds are we would have an even lower rating. Once foreign dollar reserves are dumped we will see the true value of “risk-free” our dollar.
“Pardon me for asking, but who gave Standard & Poor’s the authority to tell America how much debt it has to shed, and how?”
It’s called free speech by a private organization. They can say whatever they wish. No one would pay any attention to them if they didn’t have credibility, however little remained following the Lehman debacle in 2008. As far as authority goes, they have none, only influence. The point (among many) that you don’t seem to understand regarding the downgrade is that reducing the credit rating is bad for S&P. The downgrade brings us one step closer to the inevitable economic collapse. A collapse brings collateral damage which includes S&P. The move to downgrade was more about S&P remaining legitimate in the eyes of investors than anything else.
“S&P has downgraded the U.S. because it doesn’t think we’re on track to reduce the nation’s debt enough to satisfy S&P — and we’re not doing it in a way S&P prefers.”
Are you actually suggesting that we are on the right track to reducing the debt?
“When, how, and by how much we bring down the long term debt — or, more accurately, the ratio of debt to GDP — is none of S&P’s business.”
Yes in fact it is S&P’s business. They’re in the ratings business, remember?
Robert, I suggest you brush up on your economics before writing your next piece. Your childish attack against S&P is just pathetic. Perhaps you should consider focusing your writing on less complex subjects. Sea turtle mating patterns, OBT crime statistics, and Casey Anthony coverage are all worthwhile.
And for heavens sake, stop reading Paul Krugman, it’s been proven to cause brain damage.