Why the S&P downgrade was delayed

[nadinbrzezinski]

The S&P downgrade noise out of Washington right now is decidedly unclear; most of it seems to be confined to Twitter, with this being one of the few exceptions. But the general understanding is that S&P decided to downgrade the US, told the White House, got serious pushback, and ultimately — for the time being — did nothing.

There are three points worth making here, even in ignorance of the details of what went on behind the scenes today.

Firstly, talk of debt-to-GDP ratios and the like is a distraction. You can gussy up your downgrade rationale with as many numbers as you like, but at heart it’s a political decision, not an econometric one.

Secondly, the US does not deserve a triple-A rating, and the reason has nothing whatsoever to do with its debt ratios. America’s ability to pay is neither here nor there: the problem is its willingness to pay. And there’s a serious constituency of powerful people in Congress who are perfectly willing and even eager to drive the US into default. The Tea Party is fully cognizant that it has been given a bazooka, and it’s just itching to pull the trigger. There’s no good reason to believe that won’t happen at some point.

Finally, it’s impossible to view any S&P downgrade without at the same time considering the highly fraught and complex relationship between the US government and the ratings agencies. The ratings agencies are reliant on the US government in many ways, and would be ill-advised to needlessly annoy the powers that be. On the other hand, the government has been criticizing them harshly for failing to downgrade mortgage-backed securities even when they could see that there were serious credit concerns. So by that measure they have to downgrade the US: the default concerns we saw during the debt-ceiling debate were real and can’t be ignored.

http://blogs.reuters.com/felix-salmon/2011/08/05/why-the-sp-downgrade-was-delayed/

Yep, political, debt ceiling... frozen and unstable government... maybe I should ask Reuters for a job, since this is exactly my conclusion after readying the statement.

[JDPriestly]

1. You are right, nadinbrzezinski, as so often.

This is a political matter.

The S&P should keep out of it for the moment.

In particular, the S&P should not be opining about cuts to Social Security and raising taxes. Those are strictly political issues, and in a democracy, it is inappropriate for the S&P to be running ahead of the political process as it is.

There has been no default. That is what should matter to the S&P.

[nadinbrzezinski]

3. Alas welcome to the thirid world

they do this all the time,,, abroad.

[no_hypocrisy]

2. This news item was a Friday News Dump on steroids.

It was just announced as the network nightly news was being broadcast, 6:30 p.m. EST.

What I don't understand is the premise about the federal government indicating its "unwillingness" to pay its bills. We raised the debt limit, we're still borrowing money, the checks are still going out. Who isn't getting paid that we owe money to? Or is this a projection toward future unwillingness to pay as demonstrated by the hostility of raising the debt limit and the FAA fiasco?

[indepat]

4. It's always willingness and ability: the ability has always been there, but the willingness

to require large corporations and the uber-wealthy to pay an equitable portion of the taxes required for governmental operations, including a vastly bloated MIC, to pay its debt, and to meet its other obligations is not there. In fact, Repugs are determined not to do so, to not pay the previously paid-for benefits inuring to social security and Medicare beneficiaries. :patriot: