Kevin Drum, Mother Jones: Why S&P is Wrong

On a similar note, here's Ezra Klein:



Answer: because S&P shouldn't be in the business of commenting on a country's political spats unless they've been going on so long that they're likely to have a real, concrete impact on the safety of a country's bonds. And that hasn't happened yet. There's no serious macroeconomic reason to think America can't service its debt and there's no serious political reason to think the Tea Party has anything close to the power to provoke a political meltdown in which we won't pay our debt.

Look. The United States has been running up big debts for the past couple of years because we're trying to climb out of an epic recession: jobs and economic recovery are exactly where our fiscal spotlight should have been. As a result, we've been focusing on our long-term debt for, literally, less than a year. Pretending that our political system is fundamentally broken because we haven't solved our long-term entitlement problems in a few months is staggeringly panicky and ahistorical, and S&P's weird obsession with hitting a $4 trillion target for medium-term deficit reduction is economically vacuous. If we still can't get our act together in four or five years, then fine. We deserve a downgrade. But a few months? That's crazy. It's the kind of hair-trigger reaction that belongs on cable shoutfests, not in the boardroom of a sober, 150-year-old financial firm.

Ezra predicted that in its downgrade S&P might call out Republicans for refusing to accept any deal that increases taxes. In their statement tonight they did in fact do this, albeit pretty gingerly. I think that's great and I welcome it. But it still doesn't mean that S&P is right to use its rating authority as an excuse for political tsk-tsking. It should care only about the safety of U.S. bonds, and for the moment anyway, there's no legitimate reason to think either that we can't pay or that we won't pay. The bond market, which has all the same information as S&P, continues to believe that U.S. debt is the safest in the world, and in this case the market is right. S&P should stop playing dumb political games and stick to its core business.