Mr. Beers of the S&P said on FNC, ”Cut, cap and balance would have overted the downgrade since it is the only serious outlook on the debt.”
S&P official, David Beers, added that ‘fiscal policy, like other government policy, is fundamentally a political process.’ But, rather than building consensus on how to best rein in the nation’s staggering debt, the downgrade left political leaders as divided as ever. Politicians on both sides used the decision to bolster their ideological positions.
The drama, which would culminate late Friday and into the weekend, actually began to gather speed on Wednesday, when S&P executives came to the Treasury Department to meet with a group of administration officials led by Mary J Miller, the assistant secretary for financial markets.
At the meeting, the S&P executives walked the Treasury Department team through its analysis. Government debt was growing rapidly, they said, and the just-completed deal wasn’t going to do enough to slow it down, endangering the AAA rating.
As early as April, S&P had changed its credit outlook on the US to negative. By July, S&P warned that if the government did not agree to a deficit reduction package of about US$4 trillion, there was a one-in- two chance of a downgrade.
Still Treasury officials claim they were taken by surprise on Wednesday. Just the day before, Ms Miller and her team met at the Hay-Adams Hotel with a group of senior Wall Street executives who advise the Treasury on its borrowing. None of the members believed that the government’s credit rating would be lowered in the near-term.
Even then, one administration official said, ‘We didn’t think they would actually do it.’
