S&P Downgrade Not Likely to End Partisan Gridlock

S&P claims the two parties need to unite, but downgrade may force them further apart.


The news that Standard & Poor's, one of the world's top three credit rating agencies, is downgrading America's historically pristine debt rating sent shock waves through Washington. It isn't clear how much investors factored in the ratings downgrade into their decisions, but it was clearly one piece of bad news which, combined with a stagnant U.S. economy and turmoil in Europe, sent the stock market tumbling. The decision will only reinforce for much of the world that America's political system may be beyond repair. But it seems unlikely that the downgrade decision will push the political parties into a more cooperative era.[Check out cartoons about the debt and deficit.]

For starters, S&P's rationale for its downgrade is broad enough to conform with almost any political ideology. "The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable that what we previously believed," the agency stated in its report. "The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy." That statement seems to blame Republicans and the Tea Party for refusing to consider raising the debt ceiling without major policy changes, a stand which nearly pushed the nation into a default. But S&P also chides both parties for failing to use the opportunity as a chance to significantly deal with the long-term fiscal solution. Even if the special Congressional "supercommittee" established by the recent debt ceiling legislation comes up with the $1.5 trillion in debt reduction it is charged with finding, America still wouldn't be on sufficiently firm fiscal footing, S&P stated. Conservative Republicans see this as vindication. "Blaming the Tea Party for America's debt crisis and downgrade is like blaming the fireman for fires," Kentucky Republican Sen. Rand Paul said in a released statement. So far, the news has only been met with anger and blame, the two key ingredients for a continuing political standoff. [See cartoons about the Tea Party.]

Furthermore, it isn't clear what economic impact, if any, the S&P ratings downgrade had. The stock market plummeted at the opening bell on Monday, the first day of trading after the announcement. But investors still used treasury bonds as a safe haven, indicating to many analysts that the market anxieties were more about the debt crisis in Europe and the weakening U.S. economy, rather than America's debt rating. "They still are the place that people go when they're frightened," says Barry Bosworth, a former economic adviser to President Carter and a senior fellow with the Brookings Institution. "S&P just looked like another frightened bystander." So while the credit downgrade may be embarrassing for the U.S. government, it may not be hitting politicians, or lobbyists, in the pocketbook enough to spur them to serious action toward breaking the political gridlock [Read why S&P had to downgrade the U.S.]

Predicting the product of the special committee, which will be selected in the next few weeks and will release its finding in November, has become Washington's new favorite parlor game. But there's isn't any particular reason to think the parties will be any more cooperative within the committee than they were over this summer's debt ceiling negotiations. The historic credit downgrade may have hurt America's image as the world's richest and most financially sound nation, but don't expect it to spur the parties into action.