Obligitory US Debt Downgrade Post

Unless you came for the Great Tits post, it quite likely you're already aware that the S&P downgraded the US Sovereign Debt rating from AAA to AA+ so I'll keep this brief.  Chief among the factors the S&P mentioned in its decision were:

– 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.

Point to the Tea Party.  Everyone recognizes that the US debt has achieved unimaginable numbers, and among the political parties only the Republicans (reluctantly pushed along by the Tea Party "Terrorists") have shown any recent interest in controlling the deficit, let alone actually paying any of it down.

– More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

The Democrats will point to this as proof that if the Republicans had gone meekly along with the Democrats plan to raise the debt, and continue spending madly on domestic programs, nobody would have notice the accumulating debt, and everything thing would have been hunky and dory.  Already WAPO has published it's first article on the debt downgrade, by first highlighting the partisan disagreement as the reason for the downgrade:

Lowering the nation’s rating to one notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.

The Obama administration rushed in advance to say that S&P has miscounted the problem by a couple of trillion dollars (that trillion with a "T"), which is entirely possible, I suppose, given the number of fuzzy calculations involved:

The unprecedented move came after several hours of high-stakes drama. It began in the morning, when word leaked that a downgrade was imminent and stocks tumbled. Around 1:30 p.m., S&P officials notified the Treasury Department that they planned to downgrade U.S. debt and presented the government with their findings. Treasury officials noticed a $2 trillion error in S&P's math that delayed an announcement for several hours. S&P officials decided to move ahead, and after 8 p.m. they made their downgrade official.

A trillion here, a trillion there, what's the difference? 

S&P is the first of the three major credit agencies to down grade the US debt.  Fitch and Moodies are still bitterly clinging to the AAA rating, although a lesser rating agency, Egan-Jones (no I had never heard of them before either) recently did so.  Unless something dramatic happens, I find it hard to image Fitch and Moodies will hold out for long.

Just for reference, S&Ps ratings by country, before the downgrade...