The decision of Standard & Poor’s to remove the United States from its list of risk-free borrowers—by shifting the country’s rating from AAA to AA-plus—was a predictable enough play out of the absurd debt-ceiling debate. The job-killing agreement reached by the Obama administration and Republican Congressional leaders reads as if was written with the goal of stalling out whatever fragile recovery might have been taking place, and that has effectively been recognized by both the markets and the S&P report, which explicitly refused to endorse the GOP strategy of addressing debt and deficit challenges merely with cuts.
Senate majority leader Harry Reid, D-Nevada, noted as much when he said: “The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners.”
California Congressman George Miller Jr., the ranking Democrat on the House Education and Workforce Committee, was even more pointed—and even more scathing—in his assessment. “[The Standard and Poor’s] downgrade should be a wakeup call to Republicans in Congress who have manufactured this political crisis in order to push their reckless ideological demands, and the media that have largely bought into their dangerous rhetoric.”
Reid’s point is well taken, and Miller’s is even more well taken. But both men give S&P too much credit as an honest—let alone legitimate—arbiter when it comes to fiscal matters.
Vermont Senator Bernie Sanders came far closer to the mark when he said: “I find it interesting to see S&P so vigilant now in downgrading the US credit rating. Where were they four years ago when they, and other credit rating agencies, helped cause this horrendous recession by providing AAA ratings to worthless sub-prime mortgage securities on behalf of Wall Street investment firms? Where were they last December when Congress and the White House drove up the national debt by $700 billion by extending Bush’s tax breaks for the rich?”
S&P is part of the problem, not the solution. It is an unelected and unaccountable international agency that has made so many mistakes that Bruce Bittles, chief investment strategist for Robert W. Baird & Co. says: “The ratings agencies don’t carry the clout today that they did prior to 2008.They made so many mistakes during that period. I think they lost a lot of credibility.”
S&P, Moody’s and Fitch—the big three international credit-rating firms—can hardly be treated as serious analysts after they gave AAA ratings to the mortgage equivalent of junk bonds. And S&P shed any remaining credibility Friday, when the US Treasury Department discovered that the firm’s economic rationale for the downgrade of the country’s credit rating was based on a dramatic error—S&P imagined discretionary spending levels that were $2 trillion higher than those identified by the Congressional Budget Office.
S&P’s miscalculation suggested a much higher growth rate of the nation’s debt-to-GDP ratio than is correct. As the Treasury Department noted: “A judgment flawed by a $2 trillion error speaks for itself.”