Wednesday, August 10, 2011
We aren't sure what credit rating agency Standard and Poor's was thinking when it downgraded the U.S. bond credit rating from the best, AAA, to the next best, AA+, but it certainly couldn't have been the economic fallout of the last few days that's rained across the nation in the aftermath of an exhausting deficit reduction and debt-ceiling increase debate that had all of us wondering if the other shoe — a double-dip recession — was going to drop. In effect, S&P said the U.S. isn’t as trustworthy as it once was when it comes to managing its finances. The other rating agencies, Moody’s and Fitch, held the U.S.’s credit rating at AAA
Since S&P announced its lowering of the U.S. credit status in a nine-page report last Friday (that included a $2 trillion error in calculations of the national debt that S&P later acknowledged), the U.S. markets began bleeding losses from yet another self-inflicted injury to an already down and ailing economy that needed a boost in investor and consumer confidence, not a kick in the head. As a result of S&P's curious intervention into the nation's political debate about borrowing and spending, millions of us in the working class who own individual retirement accounts and are invested in our employer's 401(k) retirement program will have to hit the reset button one more time and hope we can scratch our way up to pre-recession levels one more time.
These losses needn't have happened or been so great, because S&P's judgment wasn't about the money -- the debt, the deficit and the risk of default. Rather, S&P, which is not a governmental agency, based its decision on a political opinion that, because of "political brinksmanship in recent months... America's governance and policy-making [is] becoming less stable, less effective and less predictable than what we previously believed." It shouldn’t be up to a private company to determine what’s best for America; that’s why we have politicians. S&P, which has a sullied reputation on Wall Street after the economic crisis of 2008 in which it played a pivotal role by giving rosy ratings to junk securities, could have made its political arguments through private channels without impacting the recovery (sluggish as it is) and stoking the fear that our country is in deeper dip than it actually is. But the damage has been done, which is why we think S&P's credit downgrade warrants Congressional hearings to shed some light on the shadowy craft of setting credit ratings. SB