Credit rating downgrade punctuates economic debate

Sometimes a number is just a num- ber. For instance, there’s nothing magic about the first 100 days of a new president’s administration. Some presidents establish a tone in 60 days, other presidents take years. There’s not much difference between sweltering under the sun in 98 degrees or 100.

But there’s one arena in which the number 100 obviously carries a lot of weight, and that is in the relationship between a nation’s gross domestic product and its national debt. And in that case, when the national debt approaches 100 percent of the GDP, a nation is putting its credit rating in serious jeopardy.

But even then, perhaps as important as any particular number is the perception that those in a position to do something recognize that there is a problem as the debt number and GDP approach their intersecting point.

A week ago we predicted that both sides in the debate that led to a last minute agreement to increase the nation’s debt ceiling beyond $14.3 trillion would be declaring victory. Now we know who won — neither the Democrats nor the Republicans — and we know who lost, the American people.

One of the three major credit rating agencies, Standard & Poors, downgraded the U.S. credit rating for the first time in history, dropping the rating from AAA to AA+. David Beers, global head of sovereign ratings at S&P, cited as a factor the months of haggling in Congress that in the end resulted in only a half-hearted attempt to address the debt problem.

The best that can be said about the situation is that the two other rating agencies, Moody’s and Fitch, preserved the U.S. rating at AAA, but with a warning that the nation is running out of time.

The worst that can be said is that the S&P downgrading has the potential for being the kind of psychological trigger that does serious damage on Wall Street when the markets open this morning.

Not an isolated incident

The S&P announcement, which was not totally unexpected, came on the heels of almost two weeks of dropping stock prices on the New York exchange and at a time when the European Union is struggling with its own considerable economic challenges.

Since Richard M. Nixon in 1973, most U.S. presidents have seen at least one stock market crash — some two. Some were short and dramatic, others were long and drawn out, but none was painless.

Whatever happens today and in future days, President Barack Obama and Congress are going to have to do a better job of demonstrating to the nation and the world that Washington, D.C., finally gets it — that while the United States has the largest economy in the world, it cannot defy the laws of economics.

One senator, Republican Mark Kirk of Illinois called for the president to bring Congress back from its August recess to address the issues raised by S&P’s downgrading.

That would be a good idea only if a clear majority in Congress was willing to stipulate that when it comes to negotiating a solution, everything is on the table. Such does not appear to be the case even now.

However, the agreement reached in Congress last week does mandate the creation of a “Super Congress” committee that will be charged with putting together a plan to shave a couple of trillion more off the nation’s projected debt.

The members of that committee must do more than reinforce the impression that Congress is incapable of looking beyond the outcome of the 2012 elections. Congress must begin to focus on long-term prosperity.

So far, we’ve only gotten a glimpse of the cost of Washington’s dysfunction.