When and how America brings down its debt shouldn't matter to Standard & Poor’s. The ratings agency wasn't doing its job in 2008, when it gave Wall Street's riskiest securities a AAA rating, and it's not doing its job now by hurting the US economy with an unnecessary downgrade.
The 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 US 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 US policymaking 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.