Did U.S. Overreact to Debt Outlook Shift?
There's a lot of buzz in Washington about Standard and Poor's shift in outlook on the United States' debt. I'm not sure if there's enough out there yet to make any large-scale generalizations but, here are three observations:
1. A change in outlook is not the same as a downgrade and, by itself, does little or nothing. In fact, it can have good consequences: major rating agencies slapped one on the country in 1995 and it helped catalyze a budget deal that helped the economy a great deal.
2. Bond rating agencies don't reward ideologues on either side of the spectrum. Liberals who want to avoid any entitlement reform (except to provide plusher benefits) are on much weaker ground than they were just a few days ago. So are conservatives who insist that there's no waste in the Pentagon and reject broad tax code reforms on the basis that some people will have to pay more taxes.
3. Lots of debt is really bad for an economy, but contrary to some overheated talk radio blowhards, the fundamental strengths of the United States economy would mean stagnation and decline rather than chaos and collapse if the debt problem isn't solved.