Standard & Poor's, one of the country's most influential credit-rating agencies, "fired a warning shot on Monday" about the growing U.S. debt load. S&P downgraded its credit outlook for the U.S. from "stable" to "negative," meaning it believes there is a one-in-three chance it will lower the government's sterling "AAA" rating within two years. The agency pointed to the political gridlock in Washington, and questioned whether President Obama and Republicans would agree on a plan to lower the deficit and reduce the national debt before the 2012 elections. Will S&P's downgrade get Obama and the Republicans on the same page?
This should spur Washington to act: Hopefully, this warning will act "as a catalyst" for politicians to agree on a "credible" package of reforms, says Mohammed El-Erian, CEO of bond giant PIMCO, in the Financial Times. Failure to do so would weaken the dollar and could drive up borrowing costs, "thereby undermining investment, employment and growth." The "time has come" for the U.S. "to take better control of its fiscal destiny — for the sake of American society and for the well being of the global economy."
"El-Erian: A warning for the US, and for the global economy"
If only our political system wasn't broken: S&P basically said that it has no confidence in our political leaders "because they're pretty much all spineless cowards," says Hamilton Nolan at Gawker. And the Treasury's response — that S&P "underestimates the ability of America's leaders to come together" — is really "laughable" considering the partisan bickering that has gripped Washington for years. But, hey, "at least the problem is contained in a single sector: the economy."
"The American economy is collapsing some more today"
Who cares what S&P says? The agency "has a horrible track record for judging credit worthiness," says Dean Baker at the Center for Economic and Policy Research. It gave companies like Lehman Brothers, Bear Stearns, and Enron "top ratings" until they collapsed — and also gave good ratings to mortgage-backed securities that turned out to be junk. "Investors are aware that S&P's judgement does not mean very much."
"If a negative S&P outlook for the U.S. explains a drop in stock prices..."