08/09/2011 01:51 pm ET | Updated Oct 09, 2011

Downgrade S&P Status to "Amateur"

The fact that the rating agency Standard & Poor's downgraded the U.S. credit rating from AAA to AA+ a few hours after the Treasury discovered a two trillion (!) dollar error in their calculations suggests that their "economic analysis" was just window dressing to a publicity stunt. The credibility of S&P was badly tarnished by their performance in rating securities based on sub prime mortgages as AAA and also on their similar ratings of Lehman Brothers and AIG just before their collapse. Furthermore the other two rating agencies, Moody's and Fitch have not downgraded the U.S. credit rating. This S&P stunt does not help to improve its credibility. A good first step to restoring their reputation would be by firing a few of their economists. If it were possible to rate rating agencies, perhaps we should downgrade S&P from "semi-pro" to "amateur."

If the debt ceiling is repealed, it becomes impossible for the United States to default on its bonds. United States bonds are, after all, a promise to repay in Federal Reserve Notes, another form of United States debt. The difference between the two is that Federal Reserve notes do not pay interest and can be used to pay taxes. This may result in inflation, but there is no risk of default. In the past, the possibility of inflation has not been used as a criterion for rating United States government debt. At least in the foreseeable future, there is no alternative asset to United States debt as a low risk security for the world and it has been the security of choice for many nations. The Euro is in trouble due to the problems in Greece, Spain, and Italy, while Switzerland is just too small.

As long as Congress appropriates money and legislates taxes and the president is obligated to spend funds as appropriated by Congress pursuant to the existing legislation, the debt ceiling has been set de facto by Congress whenever a budget is approved. The formal debt ceiling is an anachronism instituted in 1917 to keep Congress from having to approve the terms of every federal note or bond issue. It was harmless until it was used as a vehicle for political extortion this year. Many presidents, both Republican and Democrat have asked for increases in the debt limit and have succeeded in doing so. If Congress will not repeal it, then the president should put the Treasury's very competent legal staff to work constructing the framework to challenge the constitutionality of the debt ceiling based on the 14th Amendment and the powers given to the president under Article II of the Constitution.