By Caroline Baum
In the run-up, or slow walk, to the fiscal cliff, credit rating agencies warned that a failure to reach an agreement to avert the automatic, year-end spending cuts and tax increases would put the nation's sovereign credit rating at risk. Standard & Poor's had already downgraded the U.S. long-term debt rating to AA+ from AAA on Aug. 5, 2011, during the debate over the debt-ceiling.
U.S. lawmakers heard the words but missed the big picture. S&P's rationale for the downgrade at that time was twofold: first, the risk of default from a failure to raise the debt ceiling; and second, the receding likelihood that Congress and the Barack Obama administration would agree upon "a credible, medium-term fiscal consolidation plan in the foreseeable future."
Just in case Congress thought it had escaped the wrath of the credit raters by enacting a fiscal escape hatch earlier this week, S&P issued a reminder yesterday to say that nothing had changed. The compromise bill, which raises taxes on the rich, delays the automatic discretionary spending cuts and does nothing to remedy the structural imbalances created by Medicare and Social Security, "doesn't affect our view of the country's credit outlook, given that we believe yesterday's agreement does little to place the U.S.'s medium-term public finances on a more sustainable footing."
Why should it? The package will increase the deficit by almost $4 trillion over 10 years compared to what it would have been with a cliff dive, according to Congressional Budget Office estimates.
Just to summarize: The entire nation -- the government, financial markets, news organizations, groups committed to deficit reduction -- went through months of anguish over something that did absolutely nothing about anything that matters. Congratulations, all.
Read more breaking commentary from Bloomberg View at the Ticker.-0- Jan/03/2013 18:04 GMT