S&P Downgrades US Debt Rating to "AA"

[Vinita]

Welcome to being a third world country, folks. 

http://blogs.wsj.com/marketbeat/2011/08/05/sp-downgrades-u-s-debt-rating-press-release/

[corbie]

The rock has tumbled down the hillside starting the avalanche. Thanks tea party.

[Vinita]

[My comments in brackets. No, actually not.  It was the President of the United States, Barack Obama, who has done that through a lack of leadership. He is getting what he always wanted, a financially and militarily weak United States of America.  Happy Birthday, Mr. President.] 

...The downgrading of American credit will raise interest rates on America’s huge debt and ultimately on all Americans. [Well, here come the taxes.  Rejoice all ye who believe that the government stealing huge sums of money from the people who create jobs and make things will make things better.]
 
.....Obama has surrounded himself with academics, theoreticians and politicians and all of their solutions are wrong, flawed and ineffective.  Don’t take my word for it.  Look at the evidence.  Nobody in his  inner circle has meaningful business experience. He not only doesn’t understand business, he dislikes businesses; they are only useful as a way to collect taxes to redistribute.


.....Obama aided and abetted by Nancy Pelosi and Harry Reid rammed the new health care legislation down the throat of America—and Obamacare was created.  Parts of it are well-intentioned, but much of it is feared by Americans and especially small businesses.  Arguably some of Obama’s greatest damage to the economy has been done by his appointees in the EPA, NLRB, CPSC, et. al., and the Justice Department. American business is oppressed by regulation. Sadly, Obama barely realizes this. [And neither do his supporters.]

.....During Obama’s term in office the deficit has grown astronomically as he continues, even to this day, to insist on more spending and more taxes (especially those on “millionaires and billionaires” a category that most Americans earning $200-250,000 per year hardly imagine including them.)

.....While Barack Obama campaigned, making still more speeches at his 50th birthday celebrations, the Wall Street voted with its money and the Dow-Jones average dropped over 500 points and the S. & P. dropped even more—5%+. 117,000 jobs created in July don’t even approach the number needed to offset new entries to the workforce. The drop in unemployment from 9.2% to 9.1% signals more unemployed Americans giving up, not more of them being hired. [And I hope the American people have learned their lesson and vote this idiot out of office in the 2012 election.]


http://news.yahoo.com/failed-presidency-american-problem-162509281.html

[James]

Barack Obama’s blame for the U.S. economy
David Frum

Yesterday I posted a comment about the respective economic acumen of the Wall Street Journal editorial page vs. Prof. Paul Krugman, under the headline “Were Our Enemies Right?“

On that same thesis, my conservative friends argue that the policies of Barack Obama are responsible for the horrifying length and depth of the economic crisis.

Question: Which policies?

Obama’s only tax increases – those contained in the Affordable Care Act – do not go into effect until 2014. Personal income tax rates and corporate tax rates are no higher today than they have been for the past decade. The payroll tax has actually been cut by 2 points. Total federal tax collections have dropped by 4 points of GDP since 2007, from 18+% to 14+%, the lowest rate since the Truman administration.

If so minded, you could describe Barack Obama as the biggest tax cutter in American history.

We have not seen a major surge in federal regulation, at least by the usual rough metrics: the page count of the Federal Register has risen by less than 5% since George W. Bush’s last year in office. Trade remains as free as it was a decade ago.

While the Affordable Care Act itself will eventually have major economic consequences, most of its provisions remain only impending.

Energy prices have surged, but that’s hardly a response to administration policies. Conservatives complain about restrictions on drilling in the Gulf of Mexico, but on a planet that produces 63 million barrels of oil per day, a few thousand more or less from the Gulf will not much budge the price of oil. Rising oil prices are a story about Chinese and Indian consumption and Middle Eastern political instability, not about US drilling or lack thereof.

The Dodd-Frank bill does somewhat curtail the activities of some banks and investment firms. But is it seriously argued that this could be the cause?

Conservatives complain about excess government spending. Fine. But isn’t the evil of excess government spending supposed to be inflation rather than recession? And where’s the inflation?

There’s a strong case for condemning Barack Obama for the things he might have done, but did not do. He might have cut payroll taxes more and faster. He might have pushed for more expansionary Federal Reserve governors. He might have designed a better stimulus. All true. But the things he did do? Texas Gov. Rick Perry today urges us to believe that the economy is gripped by the worst slump since the Great Depression because Obama spoke disrespectfully of the owners of private jets. To which I can only say: Really? That’s the indictment? Really?
As allies rally behind U.S., China says ‘good old days’ of borrowing are over

China bluntly criticized the United States on Saturday one day after the superpower’s credit rating was downgraded, saying the “good old days” of borrowing were over.

Standard & Poor’s cut the U.S. long-term credit rating from top-tier AAA by a notch to AA-plus on Friday over concerns about the nation’s budget deficits and climbing debt burden.

China -- the United States’ biggest creditor -- said Washington only had itself to blame for its plight and called for a new stable global reserve currency.

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” China’s official Xinhua news agency said in a commentary.

After a week which saw $2.5-trillion wiped off global markets, the move deepened investors’ concerns of an impending recession in the United States and over the euro zone crisis.

Finance ministers and central bankers of the Group of Seven major industrialized nations will confer by telephone later on Saturday or on Sunday, a senior European diplomatic source said.

The source said the credit rating downgrade had added a global dimension on top of the euro zone debt issue, raising the need for international coordination.

“The G7 will confer by telephone. It’s not yet confirmed whether it will be in one stage or in two stages, tonight and tomorrow,” the source said.

French Finance Minister Francois Baroin, who would chair such a meeting under France’s G7 and G20 presidency, said it was too early to say whether there would be an early G7 gathering.

In the Xinhua commentary, China scorned the United States for its “debt addiction” and “short sighted” political wrangling.

“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets,” it said.

It urged the United States to cut military and social welfare expenditure. Further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil, it said.

“International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” Xinhua said.
[...]

[LinKarish]

You know, I have been keeping away from all of this, but I just have to chime in and say.

[My comments in brackets. No, actually not.  It was the President of the United States, Barack Obama, who has done that through a lack of leadership. He is getting what he always wanted, a financially and militarily weak United States of America.  Happy Birthday, Mr. President.] 

This is just...WOW.  Just   

I could say more. So much more. But I won't. 

[corbie]

The Republicans are doing evil and blaming Obama. This whole problem started with Reagan. And anybody who believes different has their head in the sand and does not understand or even has looked at the history of the last 30 years. The actual original Republican ideals are good, but they don't practice it and it is all about money and crushing the poor and old and disabled. And getting rid of the middle class. The old, a lot of people my age and older are so uneducated that they think it is still all about stopping the gays and abortion. So they vote Republican but don't realize they are slitting their own throats. They have their medicare and social security and do not give a damn about the younger generation.

Anybody who is a Republican I have ever met is against gays, want everyone to be Christian, don't want social programs while wanting abortion to be outlawed so poor girls are stuck with babies they can't afford,  hate Obama because he is black and lies about it, If any Republican wants to tell me different without lying, go for it.

[DCgal]

No, actually not.  It was the President of the United States, Barack Obama, who has done that through a lack of leadership.

Crazy.

The primary reason for the downgrade was the intransigence of the political process and the fact that we so publicly aired our inability to arrive at any kind of political agreement. And also our clear signal that we - as a country, not any political party - might be UNWILLING to pay debts that were previously committed to at the time we issued these bonds.  This is solidly Congress's fault - both parties.  The President doesn't raise the debt ceiling - congress does.  It cannot be done by executive fiat. And Congress has led us to this - their leaders needed to resolve this, and they could not do so.  Worse, they had press conferences crowing about it..

What the S&P actually said was:
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 challenge

We have people in Congress now who think more of grandstanding and their 15 minutes of fame than our reputation internationally. You can't say, "Well, maybe we might not pay our debts after all" and not expect a response.

 We played chicken with the international markets - and we lost.  

[Dil Bert]

The President doesn't raise the debt ceiling - congress does.

I must have missed where the President said he would sign any debt ceiling bill which came out of Congress.  Instead, I read report after report that he was involved in negotiations and kept changing his position, making it impossible to reach agreement.  At one point there was 800 Billion in tax increases on the table, but he changed his mind and wanted 1.2 Trillion instead.

[DCgal]

I must have missed where the President said he would sign any debt ceiling bill which came out of Congress.  Instead, I read report after report that he was involved in negotiations and kept changing his position, making it impossible to reach agreement.  At one point there was 800 Billion in tax increases on the table, but he changed his mind and wanted 1.2 Trillion instead.

I hate this kind of political grandstanding (It was all the Republicans, , No It was all Obama, blah, blah, blah).  There is solid blame all around. This brinksmanship was a disaster, and Congress was the lead in making that happen.  They could have quietly gone behind closed doors, negotiated a compromise bill and brought it out.  That's what they have done the previous 235 years, including LAST year when Obama was still President.

We are so used to being easy top dog that we didn't think that maybe negotiations shouldn't be broadcasted in a live play by play.  And that perhaps we shouldn't have said publicly we thought default wouldn't be so bad (as many Republicans did).  Perhaps there shouldn't have been whining and press conferences by both Ds and Rs.  That all made it a lot worse than it needed to be.  And that dysfunction is what lead to this downgrade.

Flapping mouths and people saying that we might default and that default was no big deal is the primary cause of downgrade here.  Independent of any debt level issues.

[filmcrazy]

The rock has tumbled down the hillside starting the avalanche. Thanks tea party.

I am going to take a leaf out of Rick Perry's book and pray the tea bagger syndrome away.   All sane people are welcome to join.   The rest can protest!!

[MrB]

Here's the informed foreigner's view of the whole thing, from Gillain Tett, the Financial Times' US managing editor.

US tribes and tribulations

What makes the recent spectacle in Washington so striking is the sheer sense of poison and lack of common meeting points.

Has Washington gone mad? Many Americans – and non-Americans – might have wondered this in recent weeks, amid the drama surrounding the debt ceiling. Never mind the mind-boggling fiscal numbers being tossed around: the real shock for most observers, particularly outside the US, is the degree of polarisation, even extremism, on display.
 
On one side of the spectrum, Tea Party activists have been brandishing the constitution and declaring “no surrender” on fiscal issues, even at the risk of sparking an American default. On the other side, leftwing parts of the Democratic party have been equally intransigent. Added together, they have produced a toxic gridlock that has not just baffled many non-Americans (say, those Chinese holding US Treasury bonds) but left many Washington observers horrified, too.

While rowdy battles have always been a feature of American politics, what makes the recent spectacle so striking is the sheer sense of poison and lack of common meeting points. Sandra Day O’Connor, the retired Supreme Court justice, for example, recently told a conference in Washington that in times of crisis she would use beer and Mexican food to forge harmony when she was a leader in the Arizona legislature. “I’d get everybody together and cook Mexican food, and we’d sit around outside and eat and drink beer, and make friends with each other. That worked.” But such is the level of tribalism now that it is hard to imagine the Tea Party activists ever sharing tacos – or even hotdogs – with Democrats. The two sides seem so polarised they have little interest in creating peace. Or as Peter Orszag, the former White House budget director, recently wrote: “Our political system is so plagued with polarization it is difficult to move any legislation forward.”

Why? An optimistic explanation is that this is just a short-term phenomenon that reflects the magnitude of issues at stake. Cutting America’s $14,000bn debt was never going to be easy, least of all in a country that has scant experience of – or cultural reference points for – allocating pain. And what makes the debate so inflammatory is that Republicans and Democrats have real political differences about the ideal size of government.

However, people like Mr Orszag argue that a longer-term structural shift is under way, too: American politics, he argues, is becoming more polarised in tandem with society as a whole. One sign of this is congressional voting patterns: between the 1940s and 1970s, there used to be significant overlap between the votes cast by Democratic and Republican politicians. Since the 1980s, however, polarisation has risen to record levels, eclipsing even the 1930s (which were also a fairly polarised period, albeit less than today).

Geography is also interesting. Anyone baffled by the antics in Washington should read Bill Bishop’s brilliant and thought-provoking book The Big Sort, published three years ago, which shows that Americans are increasingly “clustering” in neighbourhoods that have similar political views. Thus, while just 19 states had “landslide” elections in 2006 (for both the Republicans and Democrats), by 2008 that had risen to 36. At the district – or local level – this was even more extreme.

Television has also become tribalised. Though some popular channels (such as CNN) are still centrist, the wildly rightwing FoxNews was the most popular news channel last month, while the leftwing MSNBC came third. And the social media, far from bridging these silos, is spawning a new form of cyber-tribalism of its own.

Now that Americans feel free to create their own identity online, they increasingly assume that information should be “customised”; and as media companies rush to offer these bespoke services, it becomes easier to retreat into an intellectual silo. “Paradoxically it is the multiplicity of channels ... that has led many to seek refuge in narrow niches,” argues Gregory Rodriguez, head of the Center for Social Cohesion at Arizona State University. He warns that the problem with “hyperconnectivity” is that “we’re increasingly deciding to talk, Tweet and Facebook with folks who are more or less like ourselves.” Or, in the case of Washington, to not talk to those who have different views. Even over tacos.

Can anything change this? Perhaps at some point the electorate will revolt. One striking feature of recent polls is that the proportion of voters describing themselves as “unaffiliated” has surged recently, to almost 40 per cent. This might suggest they would be centrists – if there was a party to back. Alternatively, a point may come where the system is so dysfunctional that it forces political elites to co-operate. Or perhaps an external threat will force Americans to club together. After all, it is a fair bet that one reason why congressional polarisation was relatively low between the 1940s and 1970s was that America had both a real and a “cold” war to rally against.

Short of an external shock, or internal conceptual revolution, it is hard to see the polarisation going away – or not while economic inequality is growing, too. Little wonder that Mr Orszag and others now predict plenty more gridlock. With or without those trillion-dollar “deals”, the shouting is certainly not over.

[Dil Bert]

There is solid blame all around.

Then perhaps your posts should acknowledge the role Obama played, instead of always blaming (Republicans in) Congress.

[...]

That's what they have done the previous 235 years, including LAST year when Obama was still President.

The debt ceiling has only existed since 1917-19: http://usgovinfo.about.com/od/federalbudgetprocess/a/US-Debt-Ceiling-History.htm


It's worth reflecting on Obama's view a few years ago:
http://blogs.abcnews.com/politicalpunch/2009/01/i-won-president.html
'As the president, he had told Kyl after the Arizonan raised objections to the notion of a tax credit for people who don't pay income taxes, Obama told Cantor this morning that "on some of these issues we're just going to have ideological differences."

'The president added, "I won. So I think on that one, I trump you."'

Well, in the last election, lots of Tea Party candidates won.  By his logic, perhaps their priorities should trump the president's.

[DCgal]

Here's the informed foreigner's view of the whole thing, from Gillain Tett, the Financial Times' US managing editor.

US tribes and tribulations

[...]One striking feature of recent polls is that the proportion of voters describing themselves as “unaffiliated” has surged recently, to almost 40 per cent. This might suggest they would be centrists – if there was a party to back. [...]

This is me, for sure.  I am a "Decline to State" and I vote in primaries election by election depending whose is the more interesting.  I really think primaries should just go away and we should have open elections.  Primaries always skew candidates to the far sides.

Anyhow, I heard Gillian Tett (FT editor) on the radio last week exclaiming in complete bafflement something to the effect of this:  "We Europeans had a debt crisis thrust upon us.  The Americans are choosing to make one when it could so easily be avoided"  Indeed If the congress had put together a balanced package of deep cuts and some taxes (to pay for those wars that we never actually BUDGETED for the past decade, instead choosing to play accounting games with it and calling it an "unbudgeted emergency expense" for 10 years), and done some realignment of incentives and some addressing of rates issues by the Fed all this could have been so easily avoided. 

There have been other difficult issues over the years - the congressional leaders usually break heads behind closed doors to get to a compromise solution.  Instead here they just whined to the press about everything, and produced an ineffective solution.

[Manturo]

Paul Krugman's analysis of our downgrade by S & P.
http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?src=recg

The most interesting points he states: "Let’s start with S.& P.’s lack of credibility. If there’s a single word that best describes the rating agency’s decision to downgrade America, it’s chutzpah — traditionally defined by the example of the young man who kills his parents, then pleads for mercy because he’s an orphan.

America’s large budget deficit is, after all, primarily the result of the economic slump that followed the 2008 financial crisis. And S.& P., along with its sister rating agencies, played a major role in causing that crisis, by giving AAA ratings to mortgage-backed assets that have since turned into toxic waste.

Nor did the bad judgment stop there. Notoriously, S.& P. gave Lehman Brothers, whose collapse triggered a global panic, an A rating right up to the month of its demise. And how did the rating agency react after this A-rated firm went bankrupt? By issuing a report denying that it had done anything wrong.

So these people are now pronouncing on the creditworthiness of the United States of America?

Wait, it gets better. Before downgrading U.S. debt, S.& P. sent a preliminary draft of its press release to the U.S. Treasury. Officials there quickly spotted a $2 trillion error in S.& P.’s calculations. And the error was the kind of thing any budget expert should have gotten right. After discussion, S.& P. conceded that it was wrong — and downgraded America anyway, after removing some of the economic analysis from its report.

As I’ll explain in a minute, such budget estimates shouldn’t be given much weight in any case. But the episode hardly inspires confidence in S.& P.’s judgment.

More broadly, the rating agencies have never given us any reason to take their judgments about national solvency seriously. It’s true that defaulting nations were generally downgraded before the event. But in such cases the rating agencies were just following the markets, which had already turned on these problem debtors.

And in those rare cases where rating agencies have downgraded countries that, like America now, still had the confidence of investors, they have consistently been wrong. Consider, in particular, the case of Japan, which S.& P. downgraded back in 2002. Well, nine years later Japan is still able to borrow freely and cheaply. As of Friday, in fact, the interest rate on Japanese 10-year bonds was just 1 percent.

So there is no reason to take Friday’s downgrade of America seriously. These are the last people whose judgment we should trust. "

Yes, there are nations that function with a low rating by S & P. But the bigger problem is S & P's credibility after the financial meltdown. They just don't have the moral authority to judge anyone at this point. They need to be audited witht he kind of errors they're making. What are they doing, having the interns crunch the numbers with no internal audit?

What we need to gauge in investor confidence in the US economy at this point, not the S & P.

I'll try to find a reasonable counter analysis - will take some time...

[Manturo]

Here's the Wall Street Journal, paragon of conservative thought soley based on their editorial/opinion pages:

Q: What’s the difference between AAA and AA+? That doesn’t sound so bad.

A: It’s not so bad — and there’s not much difference. Technically, AA+ is considered “high grade” credit, while AAA is “prime.” The likelihood of getting paid back by a AA+ credit is considered “very strong,” while a AAA credit’s likelihood of paying you back is “extremely strong.” See the difference? Me neither.

And the U.S. is a special case, given its status as the world’s largest economy and printer of the world’s reserve currency. If your personal credit score falls, then you will almost certainly have to pay more to borrow. The U.S. can get away with a slight credit-rating downgrade without having to pay more to borrow. In fact, many other large, developed economies, including Japan, Canada and Australia, have lost AAA ratings in the past and not had to pay more to borrow in the long run.

http://blogs.wsj.com/marketbeat/2011/08/06/downgrade-qa-is-aa-so-bad/

[omlick]

[My comments in brackets. No, actually not.  It was the President of the United States, Barack Obama, who has done that through a lack of leadership. He is getting what he always wanted, a financially and militarily weak United States of America.  Happy Birthday, Mr. President.] 

...The downgrading of American credit will raise interest rates on America’s huge debt and ultimately on all Americans. [Well, here come the taxes.  Rejoice all ye who believe that the government stealing huge sums of money from the people who create jobs and make things will make things better.]
 
.....Obama has surrounded himself with academics, theoreticians and politicians and all of their solutions are wrong, flawed and ineffective.  Don’t take my word for it.  Look at the evidence.  Nobody in his  inner circle has meaningful business experience. He not only doesn’t understand business, he dislikes businesses; they are only useful as a way to collect taxes to redistribute.


.....Obama aided and abetted by Nancy Pelosi and Harry Reid rammed the new health care legislation down the throat of America—and Obamacare was created.  Parts of it are well-intentioned, but much of it is feared by Americans and especially small businesses.  Arguably some of Obama’s greatest damage to the economy has been done by his appointees in the EPA, NLRB, CPSC, et. al., and the Justice Department. American business is oppressed by regulation. Sadly, Obama barely realizes this. [And neither do his supporters.]

.....During Obama’s term in office the deficit has grown astronomically as he continues, even to this day, to insist on more spending and more taxes (especially those on “millionaires and billionaires” a category that most Americans earning $200-250,000 per year hardly imagine including them.)

.....While Barack Obama campaigned, making still more speeches at his 50th birthday celebrations, the Wall Street voted with its money and the Dow-Jones average dropped over 500 points and the S. & P. dropped even more—5%+. 117,000 jobs created in July don’t even approach the number needed to offset new entries to the workforce. The drop in unemployment from 9.2% to 9.1% signals more unemployed Americans giving up, not more of them being hired. [And I hope the American people have learned their lesson and vote this idiot out of office in the 2012 election.]


http://news.yahoo.com/failed-presidency-american-problem-162509281.html

This is bakvaas, and you iknow it.  The Tea Party and the Republicans are on the warpath to take Obama out (although for God's sake why?  Obama is more republican than a lot of republicans that I know) and it is because he is black. Plain and simple.  The Tea Party is celebrating this latest boondoogle.

Military weak when Obama spends 700 billion dollars on the military?  How the hell did that happen?  Duh! Obama is a war monger and all he is good at is killing innocent people abroad. 

[omlick]

This downgrading biy the hypocritical S&P is just pure politics.  There is no logic behind it, when a government can print as much money as it wants, where is the danger of going into default? 

[Manturo]

Another perspective... http://www.washingtontimes.com/news/2011/aug/7/malpass-obama-downgrade-hurts/
Standard and Poor’s went straight to the heart of the matter on Friday in a first-ever downgrade of the U.S. AAA credit rating. It found that the “effectiveness of American policymaking and political institutions has weakened” and that the fiscal plan “falls short of what would be necessary” to stabilize debt. Ouch.
 
Contrasting the U.S. with AAA countries such as the UK and Germany, S&P said it expects debt-to-GDP ratios there to peak around 2015 but continue to worsen here. S&P kept France in the AAA category, leaving the U.S. in the ditch. Double ouch.
 
Citing a $2 trillion “error” in S&P’s debt projections, the white house reaction was to shoot the messenger in a desperate effort to avoid this being labeled the ‘Obama downgrade’. On Friday, Treasury convinced S&P to use CBO’s “baseline scenario” which assumes discretionary spending grows slower than nominal GDP. Good luck with that.  It’s a big stretch given Washington’s ability to inflate the baseline, double count spending cuts and go back on previously agreed cuts. S&P had been assuming faster spending growth, a baseline that I think is closer to reality because it incorporates Congress’s bias toward more spending and the possibility of occasional recession-related bursts in spending.
 
The Administration’s misdirection strategy may have worked. The August 6 New York Times and Time Magazine stories emphasized the change in S&P’s ten-year debt projections instead of highlighting the U.S. fiscal mess.  Many news stories profiled the S&P employees involved in the rating rather than S&P’s multi-year track record warning the U.S. about its fiscal deterioration.
 
The reality is grim.  Even after lowering its assumptions about federal spending growth, S&P projects marketable government debt in 2015 at $14.5 trillion, 79% of GDP.  Debt would grow to over $20 trillion in 2021, 85% of GDP including state-and-local debt.
 
In the real world, the U.S. fiscal deficit and the debt-to-GDP ratio depend heavily on GDP growth rates. They are weak now and hard to predict, leaving a good chance that the debt-to-GDP ratio is heading toward 100% of GDP, much higher than either version of the S&P projections.
 
The problem is that our current federal spending system has few effective controls. The Constitution was amazingly farsighted but didn’t envision a government so successful and jaded that it could ever borrow $100 billion much less $20 trillion as now envisioned.
 
Washington benefits from more spending and doesn’t want it to stop. Making matters worse, an offshoot of the flawed 1974 Budget and Impoundment Act makes it a felony for executive branch officials to spend less than Congress appropriates no matter how wasteful or misguided a program.  
 
By negotiating with Vice President Biden and then each other, fiscal conservatives missed an opportunity this summer to restrain spending. The administration opposed spending restraint almost to the end. That is the heart of the S&P complaint.
 
My previous pieces on this page have advocated replacing the current dysfunctional debt limit with true spending restraint. To grow fast and create private sector jobs, we need a glide path to a permanent debt-to-GDP ceiling much lower than current levels. Rather than a debt default, it should use escalating penalties on government to force discrete decisions on spending cuts including entitlements. The compromise to use commissions and unworkable across-the-board sequester is typical Washington responsibility ducking. S&P saw through the dodge in its downgrade, expressing skepticism that the super-committee would cut spending and that the sequester would be implemented.  
 
In the near-term, markets should take the downgrade in stride. It wasn’t a surprise, and other ratings agencies such as Moody’s and Fitch have maintained their U.S. ratings at the highest grade. S&P chose to release the rating on Friday after the market close, reducing its impact. The U.S. fiscal deterioration spelled out in the S&P downgrade has been underway for years, and it’s unlikely that the S&P opinion will cause new revelations.  Many funds categorize U.S. Treasuries as riskless without reference to the bond rating, limiting the impact on yield.
 
In the longer-term, the downgrade will be expensive unless it helps force an improvement in Washington’s spending patterns. Instead, the U.S. is likely to continue ultra-loose spending and monetary policies, with a harmful impact on the dollar, investment in the U.S., GDP growth and employment. There’s the risk that this downgrade is just the first in a series (as is often the case). Perhaps most costly, it’s another clear marker for investors that the U.S. is in economic decline.

David Malpass, president of Encima Global and chairman of GrowPAC, was deputy assistant Treasury secretary in the Reagan administration.

[Vinita]

Deven Sharma , the Jharkhand boy who downgraded the US.  Profile in The Economic Times.