For a couple of days, I've been hearing rumors that one reason that US stocks were plummeting was S&P's delay in issuing its ratings; supposedly, the delay was because S&P was going to downgrade us, and they wanted to wait until after Friday's market close.
Well, the rumors seem to be true. S&P is downgrading us. Apparently, their downgrade is going to contain some harsh and pointed words at Congressional Republicans.
Nonetheless, expect the GOP to attempt to spin this: either they will claim that this is "really" disappointment about our failure to make even deeper spending cuts, proving that they should have been even more intransigent . . . or they will attack S&P.
Well, frankly, I don't blame Standard and Poor's. And not because we didn't make deeper cuts--we have lower debt loads and more favorable demographics than countries like France and the UK which still have their AAA. S&P is apparently telling us exactly what this is about: the frightening breakdown in our political system. Unless those reports turn out to be wrong, everything else is excuse-making.
Fixing our nation's fiscal problems is going to be wildly unpopular. Either it will involve painful tax hikes, or it will involve unpleasant program cuts, and either way, the politicians that do it are going to get in trouble.
That means that in order to make a plausible deal, both parties are going to have to hold hands and jump together . . . and yes, that's right, GOP, I mean compromise. I mean higher taxes. I don't like it. But I also don't see any way around it. Any party that tries a unilateral solution will simply be removed from office the next time around.
What the Republicans made abundantly clear was that this is very unlikely. And yes, the Democrats had their own role to play--both in starting this monstrous game of tit-for-tat that we're now all trapped in (liberal pundits moaning about partisanship and norms seem to have wiped the name "Bork" from their consciousness), and in getting the progressive caucus to make tea-party like noises. Obama's failure to embrace the report of his own deficit commission, Reid's stupid decision to make the GOP vote on this so that he wouldn't have to defend his party's fiscal record . . . the list goes on.
But though I will take a lot of hell for saying this, I'm afraid I think that the lion's share of the blame goes to the GOP, which escalated to this completely unnecessary showdown, and then gave up any hope of a grand bargain because it would have required some revenue increases.
(But what about the specifics? I hear you cry. I find this singularly unconvincing as a rebuttal. The GOP was extraordinarily, um, specific about their total aversion to revenue increases, a position that they continued right up to the brink of a crisis, which makes me think that it was not merely a clever negotiating tactic. It is therefore not some sort of horrifying example of Democratic perfidy that the negotiations never went beyond fairly broad generalities. It's an example of what happens when you signal that you aren't going to compromise no matter what)
This was not terroristic, psychopathic, or whatever, and the people who used those sorts of epithets have forfeited the moral high ground they claim to occupy. I sympathize with the Tea Party's goals of smaller government. I even kind of understand what they thought they were trying to do. But it was an enormously counterproductive tactical mistake, and though of course I would say this, I believe it was made because everyone who tried to point this out was ignored . . . nay, not just ignored, but derided as a Beltway Insider Commiesymp.
In that political environment, hell, I'd downgrade us.
I'm sorry, but this was stupid. It hurt the country, and it hurt the party that staged the protest vote even more. All for very little gain. Like Tyler Cowen, I think that the GOP is going to live to regret this moment. But the regret may not come quickly. Every party makes the occasional mistake, but I am very much afraid that the GOP is now going to double down.
But even if you think that I'm all wrong and this is a monstrously unfair smear on fine Americans who were just standing up against the forces of darkness and overspending, the fact remains that the GOP is going to pay the price for this, along with the country that I am sure they love. Americans are not going to be happy about this downgrade. They will blame the GOP. And the GOP is not going to find it easy to defend themselves.
Hopefully the damage will be limited to reputational capital, rather than the kind currently propping up all of our 401(k)s. We still have two ratings agencies behind us. Let's try to keep it that way.
Update: S&P may be reconsidering. LIsa Desjardins of CNN Radio tweets: "S+P DOWNGRADE more: Admin. official tells CNN that S+P acknowledged "errors" in its analysis, BUT is still considering a downgrade."
Two thoughts. I am going to be seriously mad if the White House leaked an incomplete report just to get people yelling at the GOP . . .
. . . but I don't retract the yelling. Even coming to the brink of a downgrade is far too close for comfort.
Developing . . .