The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday, in a dramatic reversal of fortune for the world's largest economy.ABC News is also reporting that major reasons for the downgrade include Congress's holding the debt ceiling negotiations hostage for political gain as well as the GOP's refusal to accept any tax increases that could be used to help offset the mounting debt.
S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.
Official reasons given, one official says, will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited.Next time you see your adjustable rate mortgage or credit card interest rate jump due to the higher cost of borrowing make sure you thank your local tea party member.
UPDATE: Standard and Poor's statement regarding the credit downgrade.
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.