Left, Right, Libertarian Reactions to S&P's Downgrade of U.S. Debt

By Matt Holdridge

Reactions are all over the board from political and financial pundits concerning the S&P’s warning about U.S. debt. The figurative finger wave sent markets spiraling downward and gold to record highs. The subsequent chatter is ranging from the left’s “so what” and “who cares” to the libertarian “too little too late” and the conservative “Obama should be run out of town on a rail.”

Here are some of the reactions.

Center-Left feelings courtesy of David Dayen at Firedoglake:

As James Fallows points out, S&P is basically making a guess, no more informed or uninformed than any observer of politics. No modeling went into this threatened downgrade. “They’re saying they have an opinion on the state of Congressional-White house dealings on the budget,” writes Fallows. “Fine. Go on a talk show or start a blog.”

In addition, as long as debt is issued in US dollars, and as long as the US prints its own currency, the government has a pretty good shot at paying off debt. To the extent that there’s a problem with this, it comes when borrowing rates get too high, but of course, the price of borrowing on this news FELL yesterday. “As long as there is diesel fuel to power up the back-up generators that run the government’s computers, they will have the money to back their own bonds,” Galbraith concluded.

The conservative “Obama is to blame” response from RedState:

For the past year, Democrats have spent freely arguing that their free spending ways did not matter. In fact, Barack Obama’s proposed budget for 2012 increases the national debt to 116% of gross domestic product, even while adding $2 trillion in tax increases.

It is not that budget proposal that became the straw to break the camel’s back.

It was not even his trillion dollar stimulus plan or his multi-trillion dollar stimulus plan than became the straw to break the camel’s back.

In fact, it was Barack Obama’s disastrous speech last week that broke the camel’s back.

As James Pethokoukis noted, Obama’s muddled plan to solve the crisis was “fastened together by the chewing gum and sticky tape of rosy economic assumptions and fiscal opacity.” But more so, it was Barack Obama’s angry words and denunciation of Paul Ryan’s own plan that drove S&P to its conclusion.

The libertarian conclusion from Peter Schiff on LRC:

By its own admission, S&P is unsure whether Congress will take the necessary steps to get America’s fiscal house in order. Given that uncertainty, it should immediately reduce its rating on U.S. sovereign debt several notches below AAA. Then if the U.S. does get its fiscal house in order, the AAA rating could be restored. If on the other hand, the situation deteriorates, additional downgrades would be in order.

In its analysis of U.S. solvency, S&P typically factors in the government’s ability to print its way out of any fiscal jam. As a result, it applies a very different set of criteria in its analysis of investment risk than it would for a private company, or even a government whose currency has no reserve status. But the agency completely fails to consider how reckless printing will impact the value of the dollar itself. It can assure investors that they will be repaid, but the agency doesn’t spare a thought about what if anything our creditors may be able to buy with their dollars.

What are your thoughts? 

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