Advancing a Free Society

Four Reasons S&P Got it Right

Tuesday, August 9, 2011

The major headlines on Saturday, August 6, 2011, contained no surprises in announcing that Standard & Poor’s had downgraded the United States credit rating from AAA to AA+. That decision, of course, had this rich irony: the same credit agency that was lambasted for giving rosy ratings to toxic mortgage-backed securities is now being skewered, especially by liberals like Paul Krugman and the New York Times, for selling the United States short. The markets, however, did not react with the same skepticism toward the S&P as the committed liberals did. Inexorable and impersonal, the stock markets were 5.5 percent on Monday. The days of indifference to deficits have come to a close.

What clearly drove the S&P downgrade, and may yet drive other ratings agencies like Fitch and Moody’s to the same conclusion, is that this nation’s leaders and its restive public have yet to agree on a common solution to our debt crisis. In a sense, the S&P downgrade was a trailing indicator of the dismal prospects for sustained growth. The 512-point Dow nosedive on Thursday August 4, before the S&P ratings hit, had already sent the same message.

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