S&P made a big math mistake. We're in danger of making an even bigger one.
S&P's historic downgrade of U.S. debt was based on a $2 trillion math error, the Treasury Department said in a post published on the Department's website Saturday and emailed to reporters the same day.
For some perspective: $2 trillion is 14% of gross domestic product today, 8% of GDP in 2021, and more than a fifth of our projected debt accumulation in the next decade. It's the difference between the total cuts in the deal we got (including the supercommittee or trigger mechanism scheduled for the end of 2011) and a deal that most people agree would have averted downgrade altogether.
John Bellows, acting Assistant Secretary for Economic Policy, wrote that "after Treasury pointed out this error - a basic math error of significant consequence - S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one."
Treasury's right. S&P's math mistake was embarrassing. But politics was always a part of S&P's calculus. When I spoke with S&P global head of sovereign ratings, David Beers, he said he was looking for a sign that our political process was moving in the right direction. The government just spent the last two months threatening to technically default on the debt unless a minority of the minority party passed a measure to balance budgets in a recession.Talk about embarrassing.