Well, they finally did it. Standard & Poor's announced Friday that the United States had lost its solid-gold AAA credit rating. In what must surely have been the most widely telegraphed action in the history of credit analysis, the agency made good on its threat to mark down the grade it assigns to U.S. Treasury paper if the debt ceiling squabble did not yield at least $4 trillion in debt reduction over 10 years.
The other two large rating firms (Moody's and Fitch) retained their equivalent of AAA, but kept a negative outlook.
The official response from most of Washington: Shoot the messenger.
In one of the few truly bipartisan actions of late, members of both parties expressed their pique at S&P for having the unmitigated nerve to follow its own criteria to an inevitable conclusion. Several representatives decried the downgrade as a political stunt, inasmuch as S&P cited the unseemly brinksmanship and unsettling dysfunction on display during the debt ceiling debate as a contributing factor.
Recriminations notwithstanding, no other country could retain its top notch rating after displaying a willingness to risk default and finally adopting a sloppily cobbled patch at the eleventh hour.
AAA-rated governments do not behave this way, no matter how large their printing press.
But it was ultimately the cold hard numerical facts that led brought Standard & Poor's to ding Uncle Sam's credit score.
Since in the peculiar argot of Washington a "cut" means a "reduction in the growth rate," the spending cut bill actually did little to address the longer-term sustainability of U.S. fiscal policy.
The Budget Control Act of 2011 signed on Aug. 2 specifies $2.4 trillion in cuts (read: reduction in growth) between now and 2021, $1.5 trillion of which is yet to be determined by a congressional super committee.
Using the most conservative estimate from the Congressional Budget Office, the debt ceiling would still need to be raised from the present $14.3 trillion to $21 trillion by 2021, an increase in total debt of 47 percent after the spending cuts are counted.
The upshot of these projections is that the United States is diverging from the debt reduction path of other AAA-rated nations (Canada, Germany, France and the United Kingdom).
While these top-tier sovereigns are projected to reduce their debt burden as a percentage of GDP over the next 10 years, the U.S. continues to add more.
Currently at 74 percent of GDP, U.S. external debt is projected to hit 85 percent by 2011 even if all the spending reduction measures are actually implemented.
Given this context, the debt ceiling debate was fought over pennies, and very little real progress was made.
S&P also warned that the U.S. retains a negative outlook, anticipating further downgrades if more progress is not made. It is a tough message, but objectively determined and eminently self-evident.
The good news is that with sufficient political will and popular support, the way lies open to reclaim our pristine rating. A stern warning, but don't shoot the messenger.
Get answers to financial questions on Wednesdays from our columnists who work in the financial services industry. Chris Hopkins is vice president, investments, at Barnett & Co. Inc. Submit questions to his attention by writing to Business Editor Dave Flessner, Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN 37401-1447, or by e-mailing him at dflessner@timesfreepress.com.