The Obama Response To S&P’s I Would Like To Hear

– We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.

– We have also removed both the short- and long-term ratings from CreditWatch negative.

– 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.

– 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.

– Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.

– The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Standard & Poor’s


This is the response I would like to hear from President Obama.

On Friday, Standard & Poor’s downgraded the credit rating of obligations of the United States. They based their new assessment of our credit rating on an opinion about the ability of the political systems of this country to effectively deal with the fiscal issues we face.

In response let me simply say, … and the horse you rode in on. I have necessarily omitted a part of that time honored epithet in the interest of propriety, but hopefully they can figure it all out.

Now, I could note that this very same credit rating agency missed the boat almost completely during the recent financial crisis. They badly misjudged the credit worthiness of multiple types of financial instruments as well as the safeness and soundness of a multitude of corporate debt securities. They failed to foresee the numerous sovereign debt problems which have arisen in the European community and in justifying their decision to downgrade our debt they made elemental math errors which Tim Geithner and the folks at Treasury helped them correct.

But to harp on those issues is to shoot the messenger and that’s not what I want to do this evening, though I do not think it’s wholly inappropriate to qualify S&P’s expertise. What I want to do is suggest that S&P’s grasp of the mechanics, the ebb and flow of our political system and indeed the manner in which we reach consensus is flawed in the extreme.

One would think from their statements that they either have no sense of the history of our legislative process or, in the event they do, prefer that we dispense with over 200 years of experience in the interest of conforming to a model which would ease their discomfort.

That’s not going to happen.

We are engaged in a rather important debate about the role of government in this society, its size and how we should pay for it. To say that the two sides of the argument have vastly different visions would not be overstatement. Moreover, neither side has a clear mandate from the electorate to implement their respective programs.

The truth of the matter is that we don’t have a problem with paying our bills now. In fact by any objective measure the ability of the US to service its debt and more debt if necessary is not an issue for the medium-term. Is it a long-term issue? Absolutely, and that is what we are going to deal with.

Precisely because the problem is not immediate, you can count on a raucous and raw debate. This will no doubt offend the sensibilities that you expressed in your downgrade opinion but it is, nevertheless, a fact of the political system under which we operate.

We will fight each other tooth and nail and do so probably for the better part of the rest of this decade. That’s how the system works. You find it troublesome that we are unable to assemble a coalition of legislators who find some grand compromise. I find it an affirmation of representative democracy and take comfort in the belief that it is our greatest strength.

Think I’ll hear anything along these lines?

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