It was inevitable, wasn’t it? On Friday evening Standard and Poor’s confirmed what everyone already knew to be the case: the U.S. government isn’t as good a credit risk as it used to be. No more AAA credit rating, which probably means higher interest rates on U.S. government debt before long.
To avoid a downgrade, S&P said the United States needed to not only raise the debt ceiling, but also develop a “credible” plan to tackle the nation’s long-term debt.
In its report Friday, S&P ruled that the U.S. fell short: “The downgrade reflects our opinion that the … plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”
S&P also cited dysfunctional policymaking in Washington as a factor in the downgrade. “The effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.”
In other words, Washington is inept. Who knew?
There might be a silver lining here. If the government has to pay higher interest rates on new debt (and the debt it rolls over), that means the recently raised debt ceiling might be hit before the 2012 presidential election. Wouldn’t it be great to see all the politicians’ plans to kick the can to 2013 foiled?