Is there a specific meaning behind an S&P credit rating?

Yes. See here.

For a shorter explanation, see here.

I think it means that the US needs to do what people with bad credit must do, stop living beyond it’s means and save for things they really want instead of borrowing for it. Unfortunately for people, they can’t print money out of thin air like the government can.

@SquirrelEStuff, as anyone who has ever been in debt will tell you, it’s not nearly that simple.

If you are living in debt, there are still things you need to pay for: food and housing, for example. You also need to work in order to pay down your debt, and getting a job—and getting to your job—requires money, for transportation, for clothes, etc.

The United States has 10% unemployment, and even more people are underemployed. “Living within our means” is not a solution to this problem, for several reasons. First of all, if we cut things like unemployment benefits and Medicaid for jobless people, they now have zero money to pump back into the economy. They have no money to buy groceries or pay rent. Thus, the grocery stores and landlords have less income—and they have less money to spend in other sectors of the economy, and so on.

More importantly, all those unemployed and underemployed people have no income to tax. Tax revenues is how we pay down debt. It’s hard to overstate this. If the economy remains at this level of unemployment, we will never have enough revenue to pay down our debt. Period. And cutting services for these people will make the problem even worse.

There is no easy way out of this problem. We need to spend money now to stimulate the economy, but balance it with spending cuts and tax increases later so that the market knows we will eventually pay down the debt. But overly simplistic platitudes are not helping.

Also, @SquirrelEStuff, the S&P clearly explained their reasoning behind the downgrade.

It’s not about “living within our means.” It’s about our capacity to politically figure out how to do that.

S&P said, explicitly, that the reason they were downgrading us had almost nothing to do with our actual fiscal ability to pay down the debt (they even did the math wrong by $2 trillion dollars!) and had everything to do with our political system failing, citing the debt ceiling “hostage taking” as the foremost example.

Mitch McConnell, the Republican minority senate leader, recently said what a great idea it was to hold the spectre of defaulting on our debt as a “hostage” and promised to do it again in future negotiations. Every single one of the Republican presidential candidates, except one (Huntsman) advocated against raising the debt ceiling which would inevitably cause us to default on our debt.

Let me try to illustrate what our political system looks like to S&P:

…

S&P: Hey you guys, you owe like trillions of dollars. I’ve always assumed you were going to repay it someday but… are you?

Obama: Yes, once the economy recovers, we’ll cut spending and raise taxes to pay down our debt.

Markets: Okay, sounds like a plan. Treasury bonds are still safe!

Republicans: No taxes!

Obama: But that would mean gutting Medicare, social security, and/or Defense. No Democrat wants to do that. And most Americans want to raise taxes on the rich.

Republicans: Who cares! This is non-negotiable. In fact, if you don’t cut only spending, we are all going to make America default on our debt!

Democrats: Wow, that’s really irresponsible and it’s also horrible that you are demanding entirely spending cuts from vulnerable Americans in order to protect tax cuts for the rich.

Republicans: Give us what we want or the economy gets it!

Obama: Christ, we dont’ have time for this shit. We’ll agree to some spending cuts for now and kick the can down the road.

Republicans: Fine, whatever. But when this issue comes up again, we’re going to do the exact same thing!

S&P: What the fuck just happened!?

@bob, Thanks for the lists. The definitions are a little vague. How does very extremely strong differ from very strong?

@LostInParadise It’s the same minus the extremely?

AAA is basically “risk-free” and AA+ is “almost risk-free”. One could say it’s merely a symbolic thing, but it’s a very powerful symbol when the U.S. debt is seen by some as anything other than risk-free.

@Qingu That dialog is basically how I see it too. Some people assert that it’s both parties equally at fault. I don’t really see it that way.