S&P Downgrade: Who Is to Blame?

With Standard and Poor’s (S&P) downgrading the United States debt there has been a lot of blame as to who is at fault. The S&P 500 reacted to the news by dropping 6.66% on Monday. Today the market was up almost 5%. David Axelrod senior advisor to President Barack Obama said that the downgrade was the credit downgrade was a “tea party downgrade”. Michael Moore wanted to arrest S&P officials (which is what Italy tried to do when S&P downgraded them only Italy wanted documents as well). Rick Santelli the man I would credit most with creating the tea party said that if it weren’t for the tea party the U.S. would be BBB.

Let’s sort out some facts first. Standard and Poor’s is in the business of reporting the credit rating of companies and sovereign nations. Moody’s and Fitch which are two other credit rating agencies kept their AAA credit rating for the United States. Standard and Poor’s did not err in their decision. In 2010, the United States took in $2.38 trillion. The very same year the United States spent $3.55 trillion. So in essence we are spending $1.17 trillion more than we take in yet we have the highest possible credit rating. If individuals overspent this much they wouldn’t even be credit worthy. Not only are we spending more than we are taking in but we have more than $14 trillion in debt. With all these facts the United States should have perhaps even a lower credit rating then S&P gave us.

Another interesting idea is why people are blaming credit rating agencies for the downgrade when it is really the fault of the people for electing people that take money from one person and promise it to someone else. The United States got the downgrade because of political instability and unclear and murky recommendations from the recent legislation. It would be as if a person called someone overweight (when they are) and the overweight person said, “I am not overweight you just don’t know what overweight is”. The parallel is yesterday when the President claimed at a press conference the other day that we truly are AAA even though we are told that is not true. People seem to blame the credit rating agencies for the downgrade and the 2008 financial crisis. In the 2008, financial crisis people were claiming S&P was too loose with its credit rating agencies. Now they claim people that S&P is being too harsh. I think the credit rating agencies realized after 2008 they had to make their criteria more stringent, but even with that said the United States should have been downgraded.