As many expected, Standards and Poors downgraded the United States' credit rating to AA plus. The other rating agencies (Moody's and Fitch) have kept the United States at AAA. So, what does all this mean? Here are my initial thoughts.
First of all, S&P can go fuck themselves. Where were they during 2007, for example, when losses on $340.7 million worth of CDOs issued by Credit Suisse Group added up to about $125 million, despite being rated AAA by Standard & Poor's? S&P are paid to rate the debt of companies so they are honestly more beholden to the private sector than the government.
S&P also made a two trillion dollar error in their latest assessment of US Debt but they still didn't change the rating. My opinion is that they were hell bent on the downgrade regardless of what sort of deal was made in DC. To put it simply, their rating should be taken with a grain (ton) of salt.
All of this being said, their criticisms are fair. The deal that was made was not enough. As President Obama stated plainly several times, it needed to be larger and include revenues. Due to Republican extremism, the political sedimentation that resulted played a heavy role in S&P's decision.
“More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating,” S&P said.
This should be a wake up call to the intransigent people in Washington DC. You are going to have to start thinking outside of the box and come up with innovative solutions. Repeating the same old tired lines about spending isn't going to cut it. In fact, I'll go as far to say that all available and traditional economic theories should be thrown out the window.
We need to say goodbye to trickled down, supply side, and yes, even Keynesian economic theory. Either these theories have never worked, completely failed, or don't belong in the new global economy. A call should begin today for innovative and "width of vision" economic thinkers who are not tied to old dogma.