After the Budget Control Act of 2011 was passed, after the debt limit was raised, Standard & Poor’s made good on a threat to lower America’s credit rating. “Te 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,” the ratings agency argued. “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.”
So how would the ratings agency react if the next crisis – set for the end of February – was averted by the minting of a $1 trillion platinum coin? I asked John Piecuch, director of communications at Standard & Poor’s, whether. He cautioned that the agency wouldn’t go into too much detail gaming out a hypothetical. But he didn’t exactly ring the bells of doom.
“What our rating speaks to is the ability and willingness to pay the debt we rate, commercial debt, on time,” said Piecuch. “But policy that improves or detracts from the capacity of the government to pay its debt is also part of our analysis. Another thing to factor in here: S&P has five pillars that analysts look at in terms of sovereign ratings. One of them is the fiscal score, which includes the debt to GDP trajectory; one is the political score. In terms of the political aspect, the current acrimony over these issues is already incorporated into the rating, at the AA+ level.”
In other words, the ratings agency isn’t particularly worried about how the U.S. avoids default. It’s worried about the country’s ability to pay the bills. An effective end-run around the crisis, one that would pay the bills, might do the trick.