The Standard & Poor’s rating agency’s decision to cut this nation’s long-term debt rating to negative is hardly a surprise. Analysts have been warning for at least two years that the United States could be put on negative watch.
But the timing of the S&P’s revision could have serious political ramifications. President Barack Obama and the House Republicans have just presented two very different plans for reducing budget deficits. The two sides were just beginning to dig in — and to make threats regarding the U.S. debt limit, which Congress must raise soon — when along came S&P announcement.
The news sent shocks through the financial markets, with the Dow Jones Industrial Average falling by more than 200 points. And that’s just a warm-up for what could happen if Congress fails to raise the debt limit — a move that would depress the dollar and force the Federal Reserve to raise interest rates. House Republicans have said that they won’t raise the debt limit without getting big cuts in spending first, but the country doesn’t have time to wait for Congress to score political points.
If the S&P’s rating announcement shakes Washington out of its cocoon and convinces our elected officials to act, then that will be a large silver lining. S&P said that the rating decision was as much a comment on our frustrating politics as it is on our debt. “We see the path to agreement as challenging because the gap between the parties remains wide,” said the S&P statement.
In other words: If American politicians can stop fighting and work out a solution to this mess, the country stands a chance. If they keep going the way that they have, then they’ll take the country’s credit rating down with them.
San Francisco Chronicle (April 20)