Standard & Poor's, the credit rating company, did nothing on Monday to suggest that it would actually lower the United States' sterling triple AAA credit rating. But its decision to jump into the political dogfight over debt reduction by giving a negative assessment of Washington's prospects for lowering the national debt by 2013 seems unusually strange.
It may have been intended to prompt a more conciliatory, bipartisan approach in Washington to debt reduction. Or it may have been intended to give fodder to Republican budget cutters for ideological reasons. Or it may have been the company's way of redeeming itself for past myopia on market and investment trends. It's hard to say.
But this much is clear. By lowering its assessment of the outlook for debt reduction in Washington by 2013 to negative from stable, it did nothing constructive to help the economy.
Rather, the main effect of its negative outlook report was to create some transient jitters in the markets, to put further downward pressure on the value of the dollar, to stir some anxiety among investors and Americans otherwise worried about their jobs, and, possibly, to add to the debt it bemoans by raising Treasury's cost to sell federal bonds to meet interest expenses on the national debt for a while.
Otherwise, it was sort of a non-event by a credit rating agency that blew its rating credibility over the last decade by issuing high marks for a range of high-flying companies that subsequently crashed - from Enron to some of the biggest investment banks on Wall Street. Indeed, S.&P., and its credit ratings cohorts, endorsed Wall Street's portfolios of toxic mortgages all the way from 2000 to 2008. It was at least blind, if not a deliberately helpful player, in the bubble economy from 2000 right up to its 2008 crash into the gulf of the Great Recession, which Washington (and the global economy) only survived through the Federal Reserve's willingness to open a range of credit windows to break the free-fall and begin to repair the damage.
Granted, the combined effects of the Obama administration's relatively mild stimulus package to help pull the nation out of the recession, and the coincident recession-driven fall-off in tax revenue in the same period, have added about $1.5 trillion to the federal debt of $12.5 trillion that Obama inherited from President George W. Bush.
Bush II, moreover, more than doubled the federal debt - it was about $5.7 trillion when he took office - through borrowing to finance two wars, tax cuts and a Medicare prescription drug package with nary a word of debt restraint from the now-sanctimonious Republican deficit hawks, who are suddenly surprised and shocked - shocked - at the debt they now routinely attribute entirely and falsely to Obama.
The current $14.2 trillion debt, to be sure, is growing at an unsustainable rate. It must be reined in. And political leaders on all sides in Washington have acknowledged that. The political dynamic in Washington has shifted markedly toward debt reduction. As Sen. Bob Corker said at an editorial board meeting at this paper Tuesday, the topic has now consumed all the oxygen in Washington; little else is on its political radar.
But S.&P.'s negative assessment of the political will in Washington to arrest the debt, the first it's given Washington since it began issuing such sovereign government assessments in 1989, ignores both the present political dynamic in Washington and the reality of sovereign debt by world powers. As much as Corker wants to reduce national debt - preferably through the CAP Act on federal spending that he wrote and is advocating - even he acknowledges that Washington's capacity to pay its bills and keep the government running is beyond dispute.
The U.S. Treasury will not default on its debt. The United States, moreover, has nowhere near the debt burdens that, say, Japan, is carrying. Its debt is now roughly 200 times its GDP - more than three times the U.S. debt-to-GDP ratio - and its credit rating and currency remain among the strongest in the world.
Public pressure will ensure that the U.S. debt ratio is lowered, not because S.&P. suddenly rose up and gave it a red card, but because it's necessary to ensure the nation's long-term fiscal health.