I never thought Standard & Poor’s downgrading of the United State’s bond rating was motivated by their diligence. I mean, why start now, you know? That Moody’s (with reservations) and Fitch’s have now kept our triple-A rating only raises more doubts about S & P’s actions.
The Economics of Contempt (page doesn’t permit copying and pasting) argues that S & P’s rating was due to its faulty assessment of the future of Washington politics. The U.S. political system has been ugly, but it is not permanently unstable. And the ugliness is largely due to the Tea Party wingnuts that drove the debt ceiling showdown. They are unlikely to wield such power in perpetuity. Other congressmen and women will take their place. At some point, we could have reasonable Republicans to deal with. Republicans or Democrats could capture all three branches of governement. The balance of power will shift and politics will become more predictable, if not more palatable. This too shall pass.
The market itself offered the greatest refutation of S & P’s downgrading doubling down on U.S. securities the week after the downgrade.
Yves Smith at Naked Capitalism has questioned S & P’s motives too. Apparently, they didn’t like the fact that Dodd-Frank would make credit ratings agencies liable for their assessments; they successfully lobbied to remove that liability. And behind the scenes, S & P allegedly told the White House that they wanted to see a $4 trillion cut in the national debt. Smith speculates:
It’s becoming more and more obvious that Standard and Poor’s has a political agenda riding on the notion that the US is at risk of default on its debt based on some arbitrary limit to the debt-to-GDP ratio. There is no sound basis for that limit, or for S&P’s insistence on at least a $4 trillion down payment on debt reduction, any more than there is for the crackpot notion that a non-crazy US can be forced to default on its debt.
Whatever S&P’s agenda, it has nothing to do with avoiding default risks or putting the US on sound fiscal footing. It appears to be intertwined with their attempts to absolve themselves from responsibility for their role in the 2008 financial crisis, and they are willing to manipulate not only the 2012 election but the world economy to escape the SEC’s attempts to regulate them.