The Standard and Poor’s Play – Credit Rater Pushing Congress into Big Deficit Deal

This concern about the markets has happened very suddenly. All of a sudden there’s a belief that a clean increase or a small debt deal with a minor amount of spending cuts would not be enough to avoid a downgrade. Standard and Poor’s basically forced this by saying that they would downgrade if there wasn’t a $4 trillion deficit deal in the next 90 days. The claim is that this has been caused by political leaders attaching the debt limit to a deal on reducing the deficit, and the inability to reach an agreement, the political stalemate, has led the markets to lose confidence.

But this is absolutely crazy. The market was up 2% last week. 10-year Treasuries are at 2.96%. There’s no difference between this week and last week in terms of the country’s deficit problem. This is about perception, and it doesn’t seem to even be about the perception of the actual market. It’s about the perception of someone at Standard and Poor’s. The rating agencies, which played a major role in the financial meltdown, has just up and put a gun to the head of the country and demanded austerity in the middle of a jobs crisis. Are you kidding me?

Washington certainly deserves blame for attaching a huge lift of deficit reduction to the debt limit, which is so routine but which has such adverse consequences. But this is completely irresponsible on the part of not just DC but the rating agencies. The word “collusion” comes to mind, with the elites of the world demanding that their tax cuts be paid for with someone else’s money.

http://news.firedoglake.com/2011/07/23/the-standard-and-poors-play-credit-rater-pushing-congress-into-big-deficit-deal/

Put slightly differently, if Washington hadn’t tied the debt ceiling to a deficit-reduction package, and economic policy was still being made with a minimum of fuss, perhaps S&P would be less bothered now. But the bitter disagreements of the last few months have carried a cost. By showing how much trouble the two parties will have cutting a deal now, they’ve left observers like S&P wondering if we can cut one later, either.

As they put it in their most recent research update, “we believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years. We view an inability to timely agree and credibly implement medium-term fiscal consolidation policy as inconsistent with a ‘AAA’ sovereign rating.”

So S&P is literally saying that America is not acting like a country that deserves a AAA-credit rating. Nice job, Congress.
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You might ask whether all this matters. S&P got the financial crisis almost entirely wrong — in fact, their analytical errors, alongside those of other agencies, substantially contributed to it — so why should we listen to them now?

But the question isn’t whether S&P should be listened to. It’s whether the market will listen to them. The agency estimates that downgrading America’s credit rating would lift interest rates by 25-50 basis points. They could be wrong, but I wouldn’t want to bet on it. And if they’re not wrong, well, we actually do have a pretty good idea of what it would mean for interest rates to rise by 25-50 basis points. This paper (pdf) by Third Way looked at what would happen in that scenario and concluded, among other things, that we’d lose 650,000 jobs. We really can’t afford that right now.

http://www.washingtonpost.com/blogs/ezra-klein/post/how-congress-put-our-credit-rating-at-risk/2011/07/11/gIQA3WxhTI_blog.html

...democratic institutions (not that these so-called democratic institutions are working terribly well). In any case, the response should be, "shut the F* up or we begin nationalizing..."

there's no reason why a ratings agency should have this much power - or any credibility whatsoever after the mortgage crisis.

Into the witness stand to explain how they arrived at the ratings they put on mortgage backed securities.

bailout his buds pronto no ?s asked? always a fear tactic the sky will fall blah blah

and quite frankly they should have downgraded us a long time ago -not during these talks

Some European countries wanted to know quite awhile ago why the downgrade rating for them and not US when u look at the similar figures