My colleague Richard Adams has it right:

Really, S&P? This is the agency that within recent memory assured investors that not only were Bear Stearns and Lehman Brothers blue chip investments but that the various collateral-derivative-swap-trade-debt-obligations were as safe as houses. And let's not talk about the dotcom boom era of the late 1990s. Given S&P's track record it's probably a good thing if the agency goes ahead and downgrades US sovereign debt – because look what happens when it says everything is fine.

Economist Dean Baker asks some good questions:

Serious people should ask what S&P has done to improve its ratings systems. Have they changed their procedures? Did the S&P analysts who gave AAA or other investment grade ratings to toxic junk get fired or at least get demoted? If not, should we assume that S&P used the same care in assigning a negative outlook to U.S. government debt as it did in assigning investment grade ratings to toxic assets?... ...The markets seem to recognize S&P weak track record in assessing creditworthiness. It downgraded Japan's government debt in 2002. The interest rate on 10-year government debt in Japan is currently under 1.5 percent, the lowest for any country in the world. Does S&P think that investors are mistaken in being willing to lend Japan money at such low rates?

Democrats think the fix is in here, that S & P did this to give the GOP and Paul Ryan greater leverage for more cuts, or maybe to build the case for tying more cuts to the upcoming vote on raising the debt limit. Republicans are spinning it this way.

Alternatively, was it aimed at the GOP, telling them not to play games with the debt-ceiling vote and just raise it? That was the conjecture of one specialist on NPR this morning.

In either case, I have to say that I agree with S & P on one thing - I too consider the prospects for a budget deal grim. I'm not sure I'd telescope the time frame out to 2013, which is the part of the S & P analysis that seems silly to me. Plus, I think the two parties will Scotch-tape something together this September, so as to avoid a possible government shutdown. But as for a long-term deficit-reduction scheme, the Obama and Ryan plans are irreconcilable. Someone's just going to win eventually, and someone's going to lose.

