I'm going to attempt to parse this out Player.
(1) The United States Congress, at some point in the past, passes a law implementing a debt ceiling. The debt ceiling is a cap set by Congress on the amount of debt the federal government can legally borrow and applies to debt owned to the public and debt owned to federal government trust funds (social security and Medicare).
(2) The first debt ceiling was set in 1917 at $11.5 billion.
(3) Prior to the recent debt agreement, the debt ceiling was at $14.292 trillion.
(4) Since March 1962, the debt ceiling has been raised 74 times. It has been raised 10 times since 2001.
(5) If Congress did not reaise the debt ceiling, Treasury would not have the authority to borrow more money. Therefore, if the debt ceiling was not increased, Congress would have two choices (according to CNN) - cut spending or raise taxes by several hundred billion dollars.
All of these above are from CNN from an article from May 2011.
So, what happened immediately before and immediately after the CNN article.
(1) Prior to May 2011, the Democrats had control of both houses of Congress and the presidency until November 2010. No budget was passed.
(2) Between the moment new Congress came into office (January 3, 2011) and the debt ceiling increase (August 2, 2011), the House of Representatives was controlled by the Republicans and the Senate was controlled by the Democrats. Of 435 members of the House, 60 are part of the Tea Party Caucus. Of the 50 senators, 4 were members of the Tea Party Caucus. That's 14% and 8% respectively. In other words, non-Tea Party members held 86% of the House and 92% of the Senate and 100% of the presidency between January 3, 2011 and August 2, 2011. Admittedly, there was a lot of pressure put on the Republicans (and I would argue Democrats) about the "out of control spending" of Congress that was never heard at such volume in the past. So perhaps we don't care about the percentages of Tea Partiers in Congress. However, it's notable that the Tea Party members of Congress had no real power to do anything about the budget except complain verbally. Instead, perhaps the vitriol should be directed at Congress in general for caving to the demands made by their uninformed, non-forward-looking constituents.
(3) On or before August 2, 2011 the debt ceiling was raised (along with spending cuts... see # 5 above... the supposedly horrible thing that was going to happen if we didn't raise the debt ceiling happened as part of raising the debt ceiling).
(4) After August 2, 2011, Standard & Poor's, among others, lowered the United States government's credit rating. Why? Here's what S&P says about credit ratings: "A credit rating is Standard & Poor's opinion on the general creditworthiness of an obligor, or the creditworthiness of an obligor with respect to a particular debt security or other financial obligation." Let's look at why, specifically, S&P downgraded the US from an August 5, 2011 research update:
The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics. More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 8, 2011. Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistc about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation that stabilizes the government's debt dynatmics any time soon.
And some more (from the same document):
We lowered our long-term raiting on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade. Our lowering of the rating was prompted by our view to the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria. Nevertheless, we view the U.S. federal government's other economic, external and monetary credit attributes, which forms the basis for the sovereign rating, as broadly unchanged. We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government's debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of the U.S. fiscal policy for the next few years.
And more:
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 have 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 been 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.
There is more, but I'm not going to type it all out here.
So tell me why S&P downgraded the United States government. Not why you think they did, but why they did based on the above. Here's what I get (see specifically the bolded part):
- S&P places no blame on one particular party over another. S&P blames both seemingly equally.
- S&P does not talk about either raising revenues or cutting spending, it talks about both.
- S&P never mentions the Tea Party or public opinion.
- S&P does mention the increasing public debt burden (i.e. compared to cutting spending or increasing revenues).
As for the stock market "re-crash" obviously the government has nothing to do with that.
EDIT - By the way - I read a lot of articles regarding the downgrade by S&P. Here is a choice item (which maybe belong in Player's media bias thread):
From thenewcivilrightsmovement.com:
Why? Standard and Poor's cited two main reasons: first, and foremost, the inability of Congress to work together, specifically citing the fact that "the majority of Republicans in Congress continue to resist any measures that would raise revenues" and two, the lack of any increase in revenue in the recent credit ceiling and deficit reduction bill. To put it even more simply, politicians - especially Republicans - aren't doing their jobs.
Neither is the writer of this article, who completely disregarded any of S&P's statements about Democrats or cutting spending.
