More than half of House Democrats are seizing on news that Standard and Poor's could downgrade the United States' bond rating to make the argument that Republicans need to raise the debt limit without tying it to additional spending restraint.
"America pays its bills," said Rep. Peter Welch, D-Vt., who got 114 Democratic House members to sign a letter demanding a "clean extension" of the debt ceiling. "I hope Majority Leader Cantor and those in Congress seizing upon debt ceiling pressure as a 'leverage opportunity' are listening to the markets today and thinking twice about their risky strategy."
Yet if anything, the S&P analysis (registration required) should lead one to the exact opposite conclusion as the Democrats reached. Not only did the warning not mention the debt limit issue, the ratings agency said was that it had growing concerns about whether political leaders would be able to come together in the near future to put the nation on a fiscal path that was comparable to other AAA rated countries.
"More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures," S&P analyst Nikola Swann said. He continued: "Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years...The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012."
So if the debt limit fight were to lead to some kind of spending restraint sooner, far from scaring markets, it would actually reassure them.