Standard & Poor's downgrade of America's debt couldn't come at a worse time. The result is likely to be higher borrowing costs for the government at all levels, and higher interest on your variable-rate mortgage, your auto loan, your credit card loans, and every other penny you borrow.
Why did S&P do it?
Not because America failed to pay its creditors on time. As you may have noticed, we avoided a default.
And not because we might fail to pay our bills at the end of 2012 if tea-party Republicans again hold the nation hostage when their votes will next be needed to raise the debt ceiling. This is a legitimate worry and might have been grounds for a downgrade, but it's not S&P's rationale.
S&P has downgraded the U.S. because it doesn't think we're on track to reduce the nation's debt enough to satisfy S&P -- and we're not doing it in a way S&P prefers.
Here's what S&P said: "The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics." S&P also blames what it considers to be weakened "effectiveness, stability, and predictability" of U.S. policy making and political institutions.
Pardon me for asking, but who gave Standard & Poor's the authority to tell America how much debt it has to shed, and how?
If we pay our bills, we're a good credit risk. If we don't, or aren't likely to, we're a bad credit risk. When, how, and by how much we bring down the long term debt -- or, more accurately, the ratio of debt to GDP -- is none of S&P's business.
S&P's intrusion into American politics is also ironic because, as I pointed out recently, much of our current debt is directly or indirectly due to S&P's failures (along with the failures of the two other major credit-rating agencies -- Fitch and Moody's) to do their jobs before the financial meltdown. Until the eve of the collapse S&P gave triple-A ratings to some of the Street's riskiest packages of mortgage-backed securities and collateralized debt obligations.
Had S&P done its job and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn't have become so large - and their bursts wouldn't have brought down much of the economy. You and I and other taxpayers wouldn't have had to bail out Wall Street; millions of Americans would now be working now instead of collecting unemployment insurance; the government wouldn't have had to inject the economy with a massive stimulus to save millions of other jobs; and far more tax revenue would now be pouring into the Treasury from individuals and businesses doing better than they are now.
In other words, had Standard & Poor's done its job over the last decade, today's budget deficit would be far smaller and the nation's future debt wouldn't look so menacing.
We'd all be better off had S&P done the job it was supposed to do, then. We've paid a hefty price for its nonfeasance.
A pity S&P is not even doing its job now. We'll be paying another hefty price for its malfeasance today.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
Jeff Reeves: Don't Panic: The U.S. Credit Downgrade Changes Nothing
Even though everyone knew the disaster was coming by 2008, no one could point a finger at a specific cause, just that there was too much stuff. This is because the 100s of banks and funds involved created SIVs, which are basically shell corporations exclusively for debt trading. The end result was a few hundred Enrons trading between each other and all their shells, much too complex to plot out and point to a specific problem. Each individual deal was properly insured, the problem was systemic.
1. What is the relationship between S & P ( and the other rating "services" sitting in judgment) and the crooks on Wall Street who brought the U.S. and World economies to the brink in 08??
2. How much did the Republicans pay (or promise to pay) S & P to come out with their rating?
(remember, the Republicans have vowed to bring down Obama, no matter what it takes, up to and including economic ruin of the country they profess to love so much)
3. Was S & P not one of the rating "services" that helped engineer, or at least participated actively in issuing the bogus triple A ratings that ended up causing the mortgage crisis?
Just wondering
NOSMAVAN
It isn't as simplistic as stated; it isn't "just" a matter of whether we defaulted or not, or are "late payers".
Our debt ratios to GDP is outrageous. Millions of employed, 800 FICO score Americans who were never late on a credit card payment, now find their rates elevated, their credit limits capped and their ability to get a car loan or mortgage has been severely impacted by the subsequently altered financial reality of the debt crisis.
The US government is not and should not be immuned to sound financial practices of which spending limits, caps and budget balancing is imperative to the future financial security of our country.
NO ONE, not even the US Federal Government should have an ceilingless limit to credit.
If we Americans had access to increased credit limits every time we met our current credit limit ..... can you imagine what the world would like like today? "Don't do as I do, do as I say" .... should be Obama's mantra......not Hope and Change. I HOPE he can CHANGE.
Did you read the article? Everything you pointed out could have been avoided......just as
Professor Reich pointed out.
These thieves, along with their mates at the top of big banks and big W.S. brokers knowingly broke the law, and were allowed to get away with stealing billions.
Perhaps it is poetic justice that they turned around and stabbed Obama in the back. It is a shame that we all end up paying for it, though.
NOSMAVAN
We are likely to monetize some of our debt; that is, pay back bond holders with inflated dollars. As the interest is just over 2% and inflation might increase above that, bonds are merely a better holding than cash and (just might though I doubt it) better than stocks. Gold, when inflation is taken into account, has been higher. The subsequent crash of that old gold bubble is not all that inspiring. Silver is trending higher though it has had its price collapse too and almost bankrupted the Hunt brothers when they attempted to control it. The Great Depression worked to create a more egalitarian America despite federal efforts to raise the price of precious metals. If we could predict these things, prices would go to one level and stay there.
S&P may be too sensitive now for the shame of being too gullible before. The down rating could be justified. Then again, their execs seem to contribute to Republicans and Republicans are unhinged in their opposition to the President.
So the S&P keeps malfeasance alive by rating bad companies good, and these same companies defaulted or went bankrupt during the financial crisis. The new moniker instead of "Standard & Poor's" should be one of these:
1) Shameless & Pitiful
2) Shenanigans & Profiteering
3) Silly & Putty
4) Sh-- & P-- (easy to guess)
5) Stupid & Petty
6) Superficial & Pernicious
7) Sorry & Pessimistic
8) Shoddy & Phony
9) Sleazy & Perfunctory
10) Substandard & Profligate
At least Moody's and Fitch Group are a little more cautious and taking more time, thought and a critical look before making a judgment.
EXACTLY, Mr. Reich... another way of saying it is, who died and left them boss of us??
So, since as you said, they haven't been doing their job, or this whole thing could have been avoided... who, if anyone, are they accountable to?
Doesn't that mean that we the people can decide that Standard and Poor's and Moody's are no longer needed? Just asking.
Yeah, how dare S&P interject common sense into this issue when its the democrats job to keep the debt issue political and blame the tea party for the government's failure to control its budget.
It's everyone elses faut.
When Joseph Kennedy began to regulate stocks, he got a letter from a man who wrote how he had become blind in his old age and dependent on a broker who handled his investments, "churned" them and and impoverished him. The letter concluded with a pathetic curse on Kennedy (who had made a fortune on Wall Street), his broker and the financial industry. Our regulations usually follow upon some public scandal. Whether they are wise or not is harder to say, but they are certainly understandable.