Political Animal


June 30, 2011 8:00 AM The S&P vs. the GOP

By Steve Benen

Over the weekend, Senate Minority Leader Mitch McConnell (R-Ky.) said of the debt-reduction talks, “We need to put something together that will actually pass and make a difference, impress Standard & Poor’s and Moody’s and the rating agencies that are about to downgrade the U.S. credit rating for the first time in our history.”

Even for McConnell, it was a bizarre thing to say. The rating agencies are increasingly worried because of McConnell’s own tactics. Our national credit rating is in jeopardy because McConnell and his cohorts are choosing to deliberately put our credit rating in jeopardy.

Indeed, whether the confused GOP leader understands this or not, if he wants to “impress Standard & Poor’s and Moody’s and the rating agencies,” McConnell can pay more attention to their warnings.

Standard & Poor’s will drop the U.S.’s credit rating from its current triple-A to a D if the government misses its debt payment on August 4, Reuters’ Walter Brandimarte reports. S&P’s managing director John Chambers explained, “If the U.S. government misses a payment, it goes to D. … That would happen right after August 4, when the bills mature, because they don’t have a grace period.” The company would downgrade Treasury bills unaffected by the blown deadline, but not as much.

The Treasury Department says that the federal debt ceiling must be raised by August 2. Two days later, the department must pay $30 billion in short-term debt. But negotiations between the White House and Congressional Republicans have broken down to the extent that some Democrats are debating whether to just declare the debt limit unconstitutional and ignore it.

Moody’s has said it, too, would downgrade the U.S. if it defaults, though less severely.

There are many congressional Republicans, including Paul Ryan, who’ve said, as if they know what they’re talking about, that the United States need not worry about missing a few payments. S&P, one of the agencies Mitch McConnell is so eager to impress, is making clear these Republicans couldn’t be more wrong.

Avoiding “selective default” couldn’t be any easier: all Congress has to do is raise the debt ceiling, as they’ve done repeatedly for years. It doesn’t cost anything; it doesn’t require hearings or investigations; it doesn’t even take a long time. The whole process could be wrapped up in five minutes.

But Republicans don’t want to. In fact, there’s a certain beauty to the GOP’s clinical insanity: they’re eager to impress rating agencies, so they’re pursuing a strategy that would aggravate rating agencies.

Also keep in mind, Moody’s Investors Service — another one of the agencies McConnell wants to impress — has said the nation’s AAA U.S. credit rating is at risk of being downgraded by mid-July, long before the deadline, if it looks like failure is even a possibility. In other words, the United States would suffer if it looks like the country might miss a payment on its debt obligations, and since Republicans refuse to even consider reducing the debt with a penny of additional revenue, it’s getting increasingly difficult to see how this game of chicken ends anytime soon.

And this point is just a couple of weeks away. The heat isn’t just on, we’re starting to feel a little singed.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.


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  • DAY on June 30, 2011 8:07 AM:

    As you say, raising the debt ceiling is 'no big deal'; can be done in five minutes.

    Unless you want to use it to further some agenda. Like taking the country back to the 1890's. Or the 1790's- when we were a "God Fearing Christian Nation" (when blacks were property and women couldn't own same. Or vote. Or get uppity)

  • rea on June 30, 2011 8:09 AM:

    The Republican plan is to force a default and balme the resulting catastrophe on Obama' refusal to accept further budget cuts rather than the default.

  • MsJoanne on June 30, 2011 8:11 AM:

    Agenda like holding us hostage...or maybe simply to make some cash. Eric Cantor is shorting US Treasury bonds. Talk about a conflict of interest. What a freaking crook!


  • c u n d gulag on June 30, 2011 8:15 AM:

    "Honey, let's improve our credit rating by not paying off our lenders. That'll do it!"

    They're still hoping that the Democrats fold - which they have a history of doing over the last 3 or so decades.

    They were raised on the priciple of MAD during the Soviet era - mutually assured destruction - and hope that the Democrats will give them what they want in order to not destory the countries economy.

    So, they've launched their missiles and put them in orbit to see what the Democrats do.

    This is all mad. But mad as in "insane."

  • slappy magoo on June 30, 2011 8:21 AM:

    Question to Republicans no one in the media has the balls to ask - if America missing a few debt payments is no big deal, then why are you making such a threat about not raising the debt ceiling? It's either a big deal or it's not, and if it's not then your threats are idle, but if it is, then your threats are terrorism. So which is it?

  • goalkeeper on June 30, 2011 8:24 AM:

    Aren't the GOP'ers the ones who are screaming that there is no "certainty" under Obama???? Definitely "insane" as CUND Gulag writes!!!!!!!!!!!!

  • Josef K on June 30, 2011 8:30 AM:

    I seriously doubt we're going to see a budget compromise or the debt ceiling getting raised in time to stop this. And not (solely) because the Democractic caucus has grown a bit of spine here.

    No, the real impediment will likely be the Republican caucus itself. Specifically all these freshmen they got elected last year, none of whom appear to have much loyalty or deference to Boehner or McConnell. They actually appear ignorant enough to think that default will be a good thing for the country.

    I suspect that even if some kind of compromise is reached, enough freshmen and 'true believers' will deliberately vote against it. This will provide all the cover the Democrats could hope for, making opposition to the (likely poisonous) deal truly bipartisan and thus lay its failure at the feet of Boehner and company.

    Granted, the next thing that happens is the economy starts going off the rails and possibly another panic on Wall Street. After which we may well see another depression and god knows what else.

    Never mind if the voters have 'buyer's remorse'. You have to wonder if the moneybags who funded last year's sweap of elections aren't coming to regret it.

  • BetweenTheLines on June 30, 2011 8:33 AM:

    I want to give it an even more cynical interpretation then that, which is the one thing that refutes the deficit hysteria, which so benefits Republicans in their mission to go after Medicare and Medicaid, is the fact that interest rates are at historic lows. So you could look out there and say, "no one's going lend us money", and then you look out there and everyone is lending us money at historically low rates. What is the one thing that could screw that up? A partial default, a delayment of payment. The last time this happened it went up 50 basis points for a few months. I mean that�s a significant chunk of change. Jerry Bernstein was writing today, calculating what a few weeks of "deferral" would be, it would be about $50 billion a year. If you have that, all of a sudden you can point and say look the markets are panicked, the interest rates are up, we really have a debt and deficit problem. The most cynical, the absolute most cynical interpretation of this, is that they want some sort of crisis because that produces in the markets exactly the uncertainty they�ve been claiming was already there, but has not manifested itself until now."
    - Chris Hayes

  • Steve LaBonne on June 30, 2011 8:36 AM:

    The "14th Amendment Solution" is the only way to end this hostage crisis (and prevent future ones) before the hostage gets shot. I'm glad to see it getting more and more discussion.

  • Barbara on June 30, 2011 8:56 AM:

    Well if "to impress" means to "make an impression" I would say that McConnell is making an impression on the ratings agencies. It's not a favorable impression, but whatever.

    I see this going down to a clean vote to increase the debt limit. This strategy was incredibly misguided from the get go and probably comes from being lulled into thinking that it was their negotiating prowess that was responsible for prior concessions from D's -- rather than just having more leverage over an issue. I guess they might really be insane, but if Obama keeps having increasingly pointed speeches and pressers (do you really think it's right for your SS payments to be jeopardized so BP can get a bigger tax break?) they are just going to look worse and worse.

  • tom on June 30, 2011 9:05 AM:

    The most amusing thing to me is that the dollar is a scrap of paper whose only value is faith.In God we trust is printed on them for a reason.
    If we are printing money in great quantities, why are we being taxed?

  • jim filyaw on June 30, 2011 9:21 AM:

    as with most complicated issues, the average joe is confusing the debt ceiling with the budget. to a considerable portion of the electorate, that confusion is willful, terminal, and endemic (witness limbaugh's ratings). but, if a respectable part of the voters ever grasp the reality about all this, they're going to hold some people responsible and i don't think it will be the democrats.

  • Goldilocks on June 30, 2011 9:32 AM:

    Just declare the debt limit unconstitutional and ignore it.

    The hostage walks away and the Republicans are left flapping in the wind.

  • FRP on June 30, 2011 9:38 AM:

    Cantor may very well profit on the one viewable short . To compare a millionaires investments to a fifteen thousand dollar investment has a high probability of missing many other powerful losers should the short make hay .
    Other than that , the idea of Cantor and Ryan running off together , to live in a blissful humble tumble down shack on Park Ave. sounds too romantic , doesn't it though .
    Sigh , I would wish the blushing couple happiness if they weren't so damn simple stupid mean .

  • Goldilocks on June 30, 2011 9:51 AM:

    Knowing that declaring the debt ceiling unconstitutional is a possibility, Democrats should keep it up their sleeve to use at the last moment, and so give the Republicans every opportunity to accept a revenue component. If they still reject a balanced solution, then they end up with the worst of both worlds: they've shown their true colors AND their hostage has evaporated.

  • tanstaafl on June 30, 2011 10:55 AM:

    I think Cantor was refering to the Moody's warning a while back that there was about a 30% chance that they would slightly downgrade U.S. Treasuries within the next two years if there was no sign of progress on overall debt in the long term.

    Of course, by doing so, he ignores the fact that Moody's has warned that there is an absolute certainty that the U.S. will see a slight downgrade in it's credit rating in TWO WEEKS if no progress is made on rasing the debt ceiling and will take a MAJOR hit to the rating if we miss even a single payment.

    Hmm... in order to avoid a small possibility of a small impact on our ability to borrow in a couple years, lets run a huge risk of a major impact on our ability to borrow right now... only a Republican idealogue could think this was a good idea.

    Also note: if Jared Bernstein's figures (by way of Chris Hayes) given in BetweenTheLines post above, missing a single payment could cost us enough in increased interest payments on the debt to offset almost 15% of the spending cuts Republicans are demanding.

  • zandru on June 30, 2011 11:33 AM:

    Big July 4th Weekend

    The House has adjourned itself and the Senate members are also going home (while remaining in session, to make sure no pesky "recess appointments" can happen.) All members will be wanting to show their red/white/blue apple pie patriotism by waving the flag at a series of public events - and maybe even holding office hours or a towne hall or two.


    Ask your Republicans why they're holding the nation's economy hostage, threatening what has been the best credit record in the world. Ask them why billionaires get tax breaks on their mini-jets, why a 15% tax rate is all they ought to pay, while Medicaid, Medicare, AFDC, WIC, and infrastructure repair all get the shaft.

    Tell Democrats how you appreciate them standing firm against the Republican crazies, and how you are glad that they are insisting on increasing taxes on those who are now doing extremely well. Tell them that you are standing by them whenever they stand up to the reactionary right. Remind them that there's a Progressive Caucus budget out there, and that you really, really like it.

    Bring big, colorful signs. Put some thought into what they say.

    If they all want to skip out of DC, instead of getting this debt ceiling thing resolved, make them pay for it.

    As the captcha sez: "tell ixponslt" - and anyone else who will listen.