S&P Partially Blames Debt Ceiling Deniers for Ratings Downgrade

By Chris Mooney | August 13, 2011 12:42 pm

Read here:

Standard & Poor’s director said for the first time Thursday that one reason the United States lost its triple-A credit rating was that several lawmakers expressed skepticism about the serious consequences of a credit default — a position put forth by some Republicans.

Without specifically mentioning Republicans, S&P senior director Joydeep Mukherji said the stability and effectiveness of American political institutions were undermined by the fact that “people in the political arena were even talking about a potential default,” Mukherji said.

“That a country even has such voices, albeit a minority, is something notable,” he added. “This kind of rhetoric is not common amongst AAA sovereigns.”

I’ve been critical of S&P’s reasoning. The ratings agency itself has a lot to answer for and doesn’t strike me as very credible. But honestly, this more forthcoming political rationale for a downgrade makes a lot more sense than anything else I’ve heard.

I used to think global warming denial was the most alarming example of motivated reasoning in our politics. But maybe not. Denying what can at least be made to appear a longer term threat is one thing. Denying the idea that a credit default would be immediately devastating, or arguing that it would be manageable or even desirable, strikes me as an even more extreme concoction and rationalization.

I’m also still waiting for the Onion headline: “S&P Downgrades Earth; Cites Unbalanced Carbon Budget.”

CATEGORIZED UNDER: Economy, Motivated Reasoning

Comments (19)

  1. JB Tait

    This faith that the world is the way they want it to be, in the face of evidence to the contrary is what leads to a similar error in thinking that it might be possible to “win” a nuclear war. Let us hope that none of them gets a finger on The Button.

  2. Ross B

    Sounds to me like the S&P is playing politics here, as well. When the Democratic Obama Administration comes out and blasts the S&P for the agency’s $2 trillion miscalculation, and the democrat controlled Senate launches an investigation into the agency’s motives for the downgrade, it is only rational for the S&P to come out with modified rationalization for the downgrade that places more of the blame onto Tea Party Republicans. The S&P has given democrats some ammo to use against a faction of the republic party that is growing in both number and influence.

    Now, unless the Dems can either say, “The S&P decided they wanted to downgrade the U.S. and subsequently chose any available data to support the conclusion they had already reached,” or they can say, “The S&P downgrade is the latest example of how the republic ideology has hurt the long-term economic situation of the United States of America.” But the dems can’t support both of these ideas without looking like hypocrites. And in such a crucial election year, which argument to you think the Democrats are going to use? The one that makes Standard & Poor’s look bad, or the one that makes the Republican party look bad?

  3. Lou Grinzo

    This has to be one of the most outrageous things I’ve read online in years, which is obviously saying a lot.

    S&P surely had to know what chaos they were unleashing on the markets and possibly the economy with the downgrade, but they did so anyway because of the statements of some politicians, who were surely posturing (at least in part)? That’s a level of arrogance and just plain stupidity that’s normally unseen without all three branches of the US government acting in concert.

  4. Boring and reasonable

    @ Ross B:

    “Sounds to me like the S&P is playing politics here”

    That would be bad because they are saying something you don’t like. If they say something you like then that is called what? Politics is a good thing. It is the modern replacement for violence. It hasn’t fully replaced it yet as it is a relatively young idea. Using the criticism ‘playing politics’ may lead us backward to the earlier way or it may not but one thing it will never do is help us move forward.

  5. ColinC

    I agree with Ross B. They are hedging their bets and engaging in ex post facto justification of the decision they already made without the math to back it up. If they can do that while seeming rational to a segment of the population with a lot of pull right now, they regain some lost credibility. Unfortunately, as you can see, it isn’t working for them. People are currently flocking to the very same treasuries that S&P downgraded. They are already losing their reputation for accuracy.

  6. Ronak

    This (the statements by politicians) isnt a reason good enough to downgrade an economy. But, it definitely has to be taken into view, as, if the people handling the system fell its a joke, things are never going to improve…

  7. badnicolez

    The assertion that Republicans talked about defaulting is blatantly false.

    Republicans talked about calling the administration’s bluff on the artificial deadline, then forcing the Treasury to pay the interest on the debt first, then social security, medicare, active duty troops and other items deemed important with whatever amount of revenue was coming in to the Treasury.

    The only actors threatening a default (by not paying the interest on the debt) were President Obama, Timothy Geithner and Harry Reid (aka Democrats). Not raising the debt ceiling would not have necessarily resulted in default. Timothy Geithner refusing to pay the interest on the debt would have resulted in a default.

    The downgrade was the result of the “compromise” not cutting enough spending, despite the Republicans passing two bills through the House that would have cut enough to meet the S&P’s demand for more cuts (Paul Ryan’s budget AND Cut, Cap & Balance). Neither of those bills came to an up or down vote in the Democrat-controlled Senate.

    @ColinC: the S&P lost all credibility a long time ago when they rated garbage mortgage paper AAA.

  8. JMW

    If Tea Partiers said that defaulting a lesser evil than continuing to increase the accumulated debt, I might be willing to agree. It might be better to default now, at $14.3 trillion, than later, at a higher level…

  9. ColinC

    What the tea party types were saying is that refusing to raise the debt ceiling wouldn’t have led to a default. Our government is mandated by law and constitutional interpretation to pay credit interest first. The debt battle was akin to a family, approaching their credit limit arguing over whether or not to get a new credit card so they can keep spending. The tea party answer was no while the other two groups were saying “Yes, but…”

    It takes more than a few mistakes to destroy the credibility of a rating agency. Black swan events happen and agencies can be fooled. It’s still well regarded, but its losing its credibility as it makes more of these mistakes.

  10. LOL at teabags

    All you right wing lapdogs and limbaugh echo chambers will have to show your true colors now! Look at what Warren Buffet is saying, then get back to me! ROTFL!!!!

  11. Jon Winsor

    Credit agencies aren’t impressed with you when you don’t pay your bills. The S & P isn’t impressed with the federal government not paying its bills. And leaders walking around flaunting the idea that the US won’t pay is, not surprisingly, not reassuring…

  12. Hugo Schmidt

    Oh come on and get real. Do you possibly think that the downgrade is because, when you’re debt is measured in the trillions, everyone knows you will never repay it?

  13. badnicolez-
    Don’t make stupid claims you can’t back up.

    The Republicans need to realize that they can’t go in all kinds of crazy directions forever, make stupid mistakes forever, and then just talk themselves out of the hole they dug the next second.

    Hugo Schmidt-
    It’s obvious that we’re not going to pay it back all at once. Thankfully, though, we don’t have to. You just have to make the payments that are due at a certain time. The costs of servicing the debt, by the way, were 1.6% of GDP, before his whole kerfluffle started. What Republicans have done may just make it more expensive.

    So, the Republicans, in panicking and running around with their hair on fire, in demanding a quick, and rather stupid means of ending the financing of future debt, have most likely made it harder, not easier to pay off this debt over time, which if you’re at all cognizant of what’s going on, would be the only way it was going to happen.

  14. John Bill

    The Teabag Party knows a credit default is a very bad thing. Their real motivation is to destroy the American economy so they can blame it on President Obama and the Democratic Party. The S&P on the other hand may have a different preemptive reason for doing it, to protect themselves from prosecution. It was widely report that the so called credit rating agencies rated Sub-Prime Derivatives as AAA+ when they knew they were junk. These phony ratings enabled Wall Street to peddle their toxic mess to investors around the world. By downgrading the US they now put themselves in the position of having any legal action look like sour grapes.

  15. Greg for President

    I don’t think everyone is seeing the big picture here with way S&P has done what is has done. Congress with plenty of warning fought up to the last minute, not to balance the budget, but to approve increasing the govt’s spending limit on appropriations that have already been legally authorized and spent.

    This game of trying to make meaningful cuts and no tax increases is a farce and S&P can see that no solution to these deficits or this economy is forth coming. I have reservations myself on the work of S&P. The only reason I lean toward believing them is because this division that made this decision is separate from the division that gave the okay on the subprime housing loans. (by the way, that division made a ton of money giving the AAA status to those subprime loan notes).

    Look at the budget deficits and you have to say okay, we’re going to cut deficits in 10 years without tax increases. How can you ?? Future deficits are projected based on current laws on the books, such as doctors receiving less reimbursement from Medicare and Medicaid. Once Congress rolls over on this again and very likely the Alternative tax and roll it over to the next year, the deficit will actually be bigger. Likewise, the CBO uses the tax rates that are going to go back up after 2012. Think Congress is going to let that pass or are they going to shut down the Senate like they did in 2010? Without those tax rates going back up to where they were scheduled, you have to add that on to the debt. And Social Security trust fund will have to be paid back too in the near future. So that aircraft carrier we paid for with a “loan” from the SSTF, we’ll have to finally pay for the carrier and any current ones. Basically you’ll be buying 2 carriers for the price of one.

    S&P can clearly see that cutting 2 trillion dollars of additional deficits probably won’t even cover these 3 things that will make more deficits that aren’t even counted for yet. Without a Congress that is willing to make drastic cuts and/or tax increases, we won’t even come close to a balanced budget. The economy would have to grow at Chinese rates and as I can see, we aren’t going to work for Chinese wages.

  16. Hugo Schmidt

    I entirely agree with Greg‘s assessment. This is ludicrous. When I go to my bank, I do not get a say in how they assess my debt ceiling, nor do they give a damn about how I rate myself as a credit risk.

    The only reason that the US’s debtors – the Chinese Autocracy – is giving the US this amount of credit is because it can then use just the interest payments to finance its entire military budget, and also neuter any complaints the US might have. Contrary to any paranoid ravings amongst the paleo-Right (and also, I might add, amongst people like Wesley Clark), there will never, ever be a US-China war (why? What’s the next step after US troops land in Shanghai or Chinese troops in San Francisco? The nukes come out, and we all die). However, China can now hold the threat of total economic collapse over the US’s head, if it doesn’t shut up about Chinese imperial ambitions in, say, Africa.

    More power to China, in one respect btw. A ‘superpower’ that behaves like this doesn’t deserve that position and won’t keep it.

  17. JMW

    @16 Hugo. China has its own problems that are going to drag it down. As a result of 30 years of the “one child” policy, the population of China is going severely grey. And when the current generation of people (who were the last born before the “one child” policy was instituted) start retiring, then you’ll see a demographic recession in China. One thing that’ll probably happen then is that they’ll want to see the US repay all that debt…

  18. Hugo Schmidt


    I am fully aware of that. However, what you have to ask yourself is: is the Chinese autocracy interested in shrinking in to itself and fighting a losing battle with its restive population, or might it decide that the best way to stop any trouble of that kind by exporting it? Remember, the one-child policy has lead to a large number of young men with no available women. That sounds like a recipe for either war or revolution right there. And, if you’re looking for somewhere to carve up, decaying Russia right on your border sounds nice.

    I expect to see an increase in Chinese militarism and nationalism, because both of those are classic ways of ensuring social cohesion. Remember, China has its own problems with Islamic fascism, and I think that their government will be less squeamish about how it approaches that.

    Even if they “only” decide to demand that the US repay the debt – this debt makes Versailles look like a fart in a thunderstorm.


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About Chris Mooney

Chris is a science and political journalist and commentator and the author of three books, including the New York Times bestselling The Republican War on Science--dubbed "a landmark in contemporary political reporting" by Salon.com and a "well-researched, closely argued and amply referenced indictment of the right wing's assault on science and scientists" by Scientific American--Storm World, and Unscientific America: How Scientific Illiteracy Threatens Our Future, co-authored by Sheril Kirshenbaum. They also write "The Intersection" blog together for Discover blogs. For a longer bio and contact information, see here.


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