The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.
Scary. And unnecessary. We could have done so much better for ourselves.Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating.
A lot of people have noticed over the years how really really bad news tends to get dropped late Friday so that people don't notice over the weekend. Not sure whether the S&P's downgrade was manipulated in this way, or whether it was just smart to do it so the markets could digest it before Monday. Either way, come Monday it will be interesting to see what will happen.
This is unprecedented for the United States. Just another thing that Obama can claim for his "unprecedented" Presidency.