Below are rejoinders I would like to have heard or read during the heavy criticism of Standard & Poor’s downgrade of US Debt. I summarize frequent criticisms followed by my responses to those criticisms.  I know this occurred was a long time ago in media headlines, but publishing this works to soothe my inner voices yearning to be free. 

As you might recall, or wish to forget, or never knew and didn’t care but are unavoidably curious, Standard & Poors downgraded US debt for two reasons: Washington DC’s presidential and Congressional Leaders’ debt deal made a mockery of responsible fiscal planning even though all those leaders agreed the nation’s fiscal path is unsustainable. Who can argue with those two reasons -- apparently pundits in Washington, D.C. and on Wall Street? Here are the arguments and the fallacies behind each argument.

S&P made a political statement.  The statement was recommended by the S&P department that rates credit for 140 sovereign nations on the same basis it judges all other nations’ political leadership and fiscal plans. Other departments judge businesses on management leadership and fiscal plans. And Congress did NOT craft a responsible fiscal plan for which the debt was downgraded. Congress’ decision and Obama’s signature were primarily political.

S&P made a $2 trillion error. No it didn’t. On an earlier draft of its calculations it shared its conclusions and results with the White House, which objected to one of the assumptions.  S&P changed its assumption, but even adding $2 trillion to the revenue stream still showed the nation’s plan was unsustainable. Give S&P credit for responding to feedback.

Why should we trust S&P since it lost its credibility by not predicting the looming debt crisis in the housing boom? Several good answers exist for that statement.

First, the head of S&P’s Sovereign Nations credit department pointed out, “I wasn’t in charge of that department.” The International Monetary Fund has ranked his department’s performance one of the best rating services.

Second, both the President and Chairman of the Board of S& P admitted they missed the housing debt crisis. They added they didn’t cave in to pressure from the White House. S&P did withdraw downgrades of financial institutions during the housing bad debt bubble after they received pressure from financial institutions. S&P could have said but certainly implied, “We’re not about to make the same mistake twice.”

Third, I wondered why they didn’t respond, “Have you asked Moody and Fitch about their credibility? (I never heard or read anyone asking this question:  Moody, Fitch, you’ve both lost your credibility by missing the housing debt crisis, so how can we trust your refusal to downgrade US Debt?”   

The downgrade is due to Obama’s lack of leadership. Partially. He made a mistake of expecting House Speaker Boehner to lead, but he lacked the leadership to deliver his own party. All congressional leaders lacked leadership. Washington, D.C appears to be leaderless, including its redundant pundits.  

By the way, China’s official newswire Xinhua editorialized, “Mounting debts and ridiculous political wrestling in Washington [means] Beijing has every right now to demand the U.S. address its structural debt problems and ensure the safety of China’s dollar assets.” China owns $1.2 trillion in US Debt. Last year it was a $457 Billon trading partner. Dagong, the Chinese credit agency downgraded US debt the day after Congress’ debt-default-defying deal. Incidentally, last year the U.S. Securities Exchange Commission refused to recognize Dagong as a valid credit agency in part because it was too political in the eyes of international monetary leaders. Xinhau’s editorial said S&P’s downgrade has confirmed Dagong’s downgrade was “telling global investors the ugly truth.” (See Tom Lassetter's Editorial in Nation of Change for more information).