For the first time in history, Standard and Poor’s, one of several credit rating agencies, on Friday, August 5, downgraded the credit rating of the U.S. government. Why? Standard and Poor’s cited two main reasons: first, and foremost, the inability of Congress to work together, specifically citing the fact that “the majority of Republicans in Congress continue to resist any measure that would raise revenues,” and two, the lack of any increase in revenue in the recent credit ceiling and deficit reduction bill. To put it even more simply, politicians — especially Republicans — aren’t doing their jobs.
In its own words, Standard and Poor’s (S&P) wrote, “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,” and added, “the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges…”
Or, simply, S&P downgraded the credit of the U.S. because Congress’s (and the President’s) financial plans are insufficient and just plain wrong, and ignore reality.
S&P added, “we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.”
In other words, S&P recognizes that our elected officials, Congress has chosen to play politics over governing.
Standard and Poor’s reiterated, stating, “we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.”
“Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. 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.”
Bloomberg News wrote, “S&P dropped the ranking one level to AA+, after warning on July 14 that it would reduce the rating in the absence of a ‘credible’ plan to lower deficits even if the nation’s $14.3 trillion debt limit was lifted. The U.S. was awarded the top credit ranking by New York-based S&P in 1941. It kept the outlook at ‘negative’ amid the failure to end Bush-era tax cuts,” adding, “S&P also changed its assumption that the 2001 and 2003 tax cuts would expire by the end of 2012 ‘because the majority of Republicans in Congress continue to resist any measure that would raise revenues‘.â€
Bottom line: S&P agrees with the rest of America, which, in a poll released Thursday, finds that Americans give Congress an 82% disapproval rating. Or, in other words, the American people have downgraded the rating of Congress.
Ironic, isn’t it?