Saturday, August 6, 2011

S&P: U.S. political system ineffective, rating lowered to AA+

Standard & Poor's Global Credit Portal


UPDATE:  S&P made gross errors, so they changed their analysis but not their conclusions.  Brad DeLong has produced a red-lined version of the report
Research Update:
United States of America Long-Term
Rating Lowered To 'AA+' On
Political Risks And Rising Debt
Burden; Outlook Negative


No longer the envy of the world, the U.S. political gridlock (for which the 82% of voters who disapprove of Congress are responsible) has led Standard & Poor's to lower its rating of U.S. sovereign debt.  Their political risk analysis is HERE.  A noteworthy passage is below. - GWC

"The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

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