Did The S&P Downgrade Warning Just Make A Debt Ceiling Compromise Even More Difficult?

As S&P noted in its downgrade, and made all too explicit during the follow up call, the rating agency has now started a two year timer on the administration and the legislative branch to come up with not only a fiscal solution, but a credible solution by the end of 2012. Yet as Reuters points out, the "S&P's action -- downgrading its outlook on the U.S. rating to negative from stable -- does not guarantee a deal." Basically expect more posturing from both sides of the aisle, which ironically may merely lead to a cementing of intractable positions, and kick the can so far down the street that not even S&P can see where it lands: a non-compromise compromise that the Hill is so good at, yet one which won't fly any longer. " While the White House dismissed the action, saying all sides were making progress toward agreement, Republicans and Democrats remain far apart on where to make the cuts that will be needed for long-term deficit reduction." Any call for a bipartisan agreement on deficit reduction on fiscal reform is a welcome one, and in that context, I think that (the S&P move) adds to what we believe is some momentum towards that end," said Jay Carney, White House spokesman." Yes, ironically everyone: democrats and republicans are both claiming the S&P decision, which without doubt originated from Wall Street in the first place, validates their policies. Yet the biggest winner out of all this may be the Tea Party: "It is a vindication of the Tea Party and their stance that we are spending too much," Republican Representative Blake Farenthold, a member of the House Tea Party Caucus, said in a telephone interview." ...Or not: if the Tea Party continues "cutting" deficits like it did last week, when it was ultimately uncovered that instead of a $38 billion cut the ultimate impact on the budget was about $353 million, the Tea Party will most certainly burn all its credibility very soon if it continues to "tackle" fiscal sustainability with the same fervor.

From Reuters:

Republicans and Democrats unveiled competing plans to bring deficits down to a sustainable level by the end of the decade, but they differ sharply on how to reach those levels.

Representative Eric Cantor, the No. 2 House Republican, called the Standard & Poor's downgrade of U.S. credit outlook "a wake-up call" against those seeking to "blindly increase" the U.S. debt limit.

Cantor said the S&P action makes clear that any increase in the debt limit must be accompanied by "meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt."

S&P zeroed in on the differences, saying it saw a risk that U.S. policymakers would not reach agreement on long-term U.S. fiscal woes by 2013.

S&P's action -- and the accompanying fall in U.S. stock prices -- will light a fire under negotiators in Washington, some analysts said.

Not all has changed in the extremely humiliating world of rating agencies:

But Moody's Investors Service, S&P's main competitor, read the debate in Washington differently, saying both sides' plans for deficit reduction represent a "potential change in the direction of fiscal policy (that) is credit positive for the U.S. federal government."

After all one should never forget that unless Mark Zandi finds a job in the administration very soon, he may end up with some measly $100k a year tenured professor tip, at some D-grade Ivy league University.

That said, we tend to agree with Greg Valliere, that today's move from S&P will actually delay the debt ceiling resolution:

Greg Valliere, a political analyst for investors at Potomac Research Group, said S&P's action makes a deal even more likely in late June or early July

"I think it stiffens the resolve of people that are convinced that we have to take action," Valliere said.

At this point, Reuters take a turn for the surreal and notes that apparently Americans actually care about stuff like the economy:

Polls show Americans are deeply worried about the state of the country's finances, which will be one of the driving issues in the 2012 presidential and congressional elections.

Um, no. All American care about is what the latest iPad app is, what the calorie content of lunch is (even as the gym membership expires never once used), and who is the latest entrant in the zombifying reality TV arena.