S&P: We'll Drop U.S. Debt Rating From AAA to D in August

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Standard & Poor's, the credit rating agency, will drop the United States' debt rating from a pristine triple-A to a pathetic D if Republicans and Democrats cannot agree on a deal by August 4. The Atlantic Wire has more:

S&P's managing director John Chambers explained, "If the U.S. government misses a payment, it goes to D. ... That would happen right after August 4, when the bills mature, because they don't have a grace period."

Three frames to understand this issue:

(1) Greece and the United States are on the verge of default. We have AAA debt rating from S&P. Greece has a CCC rating. Greece's problem is pure economics. Their government doesn't save enough money to pay back their creditors. The U.S. government's problem is pure politics. We're choosing not to meet our obligations despite extremely low borrowing rates.

(2) S&P is supposed to predict missed debt payments. So why not downgrade the U.S. if it thinks we're going to default in four weeks? The only answer that makes sense is: They don't think we'll default, and this warning is a stern bluff.

(3) The debt ceiling is an amazingly stupid instrument, an artificially imposed limit to U.S. borrowing that could, in a month's time, inflict serious damage on the struggling U.S. economy. Its abolition should be a part of any budget deal. (If only.)

Read the full story at The Atlantic Wire.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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