Do you think S&P would have lowered our rating if there had been no debt ceiling drama?

I hereby declare that rebbel and rich’s have downgraded the credit rating agencies (S&P, Moody’s and Finch) to junk.
It feels to me that you have a big point, it all sounds too hypy.
Had it not been all this fuzz the last couples of weeks it could well be that the USA still were triple A.
Btw, Obama stated that no matter S&P’s rating, he considered America AAA+ still, for what that is worth.

“Official reasons given, one official says, will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited.” from here

It’s doubtful. I think the asinine “we might just choose to default” was the big thing (what creditor wants to hear that?!), but they had some supporting reasons that matter, too.

S&P’s full text of downgrading US debt. A few excerpts, with commentary, follow.

‎“The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.”

Translation: Y’all are squabbling more like spoiled children than responsible adults. Particularly frightening to safety-conscious investors was the specter of Members of Congress saying there would be only good consequences arising from default.

“It appears that for now, new revenues have dropped down on the menu of policy options.”

Deficits can be erased by cutting spending, increasing revenues, or doing both. The easiest way is to do both at once. The fact you’ve dropped increasing revenue from the list of options means you’re doing this the hard way.

“In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.”

Increases in Medicare are where the big increases in future spending are expected to come from. Refusing to touch it means you’re making this harder than it has to be.

“In our view, the difficulty in framing a consensus on fiscal policy weakens the government’s ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid).”

The economy will only get better after the private sector pays down its debts. The fact Congress is squabbling so hard over such basic things as the government’s budget only makes this harder for everyone else.

“Our revised upside scenario- which, other things being equal, we view as consistent with the outlook on the ‘AA+’ long-term rating being revised to stable- retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating.”

Letting the Bush tax cuts expire is part of what it’ll take to keep us from downgrading y’all again. Or rather, if you don’t let ‘em expire, you need to come up with a trillion more in budget cuts than you’d otherwise need.

They certainly wouldn’t have done it right now. And if they had at a different time I think the impact would have been lessened by the fact that the general public wouldn’t have been as hyper-aware of the possibility.

Two weeks of non-stop media coverage made sure everyone knew it was a possibility and something to be scared of. So not surprisingly when it happened people panicked.

From reading news coverage today it doesn’t sound like any of the major players learned anything, they’re still trying to spin a huge mistake to their advantage.

I’ve never been more disappointed in our government.

You know what’s extra funny?

The news says that the market dropped because of S&P’s downgrade of US Treasury bonds. If that were the cause, you’d expect to see T-bill prices drop, as more people tried to sell than wanted to buy. Instead, the price of T-bills with expiration dates 2 years or more into the future went up today. In a troubling time of market confusion, people want to invest safely, and ironically, safety right now means the same T-bills whose ratings just dropped.

Absolutely not. They essentially said so in their statement. It’s about political brinksmanship, not fiscal insolvency.

And two things are appalling about this.

1. That the headlines are saying the S&P downgrade caused the market crash today despite Treasurys going even lower (edit: i.e. what @laureth said)

2. That Republicans are blaming Obama for this when S&P all but said they were downgrading because of Republican intransigence about taxes and hostage-taking the threat of default.

I wonder the same thing. Another question had Obama had has wish, raise taxes and increase spending without resistance-would this have increased it-probably not.
I just remind myself that this is the same agency that rated all these mortgage backed securities a few years back as outstanding.
Weird that the S&P was down 6.66 % and the DJIA 5.55%. The five year intra-day low – again 666, coincidence I am sure.

@Qingu

C’mon, you can’t present your opinion, then insinuate S&P said it. S&P has been careful throughout not to take sides.

Follow the money and you will find your answer.

I think that battle showed the gap between camps, and the malfunction of our government.
I also wonder if the Republicans now acknowledge that they were completely wrong about what would happen if the credit rating was lowered.

The Tea Arty is celebrating the downgrade, and wants it lower. S&P made it clear why they downgraded us. Still the Party of No Personal Responsibility claims they had NOTHING to do with it. They walked away from the grad deal because the Tea Party tiny minority so terrified the adult Republicans that they wouldn’t even consider revenues. We’re currently bringing n 14% of our GDP in revenues. That’s a third-world level. No major industrialized nation gets by on such a low revenue. We cannot starve our way to robust health.

Here’s an excerpt from the S&P press release as reported by the Wall Street Journal:

“Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.”

S+P basically gave a few reasons why they lowered our rating, in no particular order:
1) You didn’t cut nearly enough from your future spending.
2) You didn’t raise taxes or increase revenue in other ways.
3) You didn’t touch entitlements, be it with reforms or cuts.
4) The atmosphere in Washington was so contentious, it doesn’t inspire confidence that any of the above problems will be solvable anytime soon.

Could have been worse overall though. S+P is only one of several ratings agencies, none of the others downgraded us. If we had flat out defaulted the estimate was our rating would’ve dropped all the way down to a B or B+.

Thanks for the answers. I too find it interesting that investors are flocking to t-bills when conventional wisdom would suggest otherwise. My guess is that investors guessed that there would be a perceived crisis causing the market to plummet, which would make it wise to sell at that moment, and everyone sold their stocks, which in turn caused the market to plummet. Rational or not, who wants to be hanging onto stocks that are about to lose value? I bet a bunch of investors reinvest soon having made a quick profit.

Or, as @Garebo insinuated, perhaps it is all simply the evil machinations of the dark Prince of Lies.

After I wrote that I saw the market jumped 400 points yesterday. Ha! I’m a genius!

@cockswain

The question is, did you act on that prediction.

No. I have no money in stocks except a 401k, have made many false predictions in the past that I’m glad I didn’t act on, and only very few correct ones like the one above. Truth be told, I’m more of a jackass than a genius.

@cockswain

Given the market today, you’re still in the genius category. Buying yesterday would have only given it back today.

How about you make a quick profit and send me 10%?

I’m actually up over 3% today. First Solar for the win :D lol

@cockswain

Only if you cover 10% of my losses.

The downgrade is planned to destroy the trust in the American capital structure. You have Europe that would be happy with our downfall to prop up their rigged Euro. Will see whose cards ultimately fall. Where do you think part of the 6 trillion dollars has gone, yes to European banks, and the question is why. The GAO has published the information.