Wasn’t the S&P downgrade supposed to bring down America? What happened?
About three months ago, President Obama glowered into TV cameras and issued an apocalyptic warning about what would happen if a deal to increase the debt limit was not struck.“For the first time in history,” said the president, “our country’s AAA credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet. Interest rates would skyrocket on credit cards, mortgages, and car loans, which amounts to a huge tax hike on the American people.”
The deal got done, zipped through Congress with two quick, emotional votes, then zoomed over to the president’s desk. And then … well, S&P downgraded America’s AAA rating anyway. That was the first unexpected twist, and it roiled markets and Washington for a week. ....How could a saga that captured Washington for 11 weeks have faded so quickly? Why don’t the president’s enemies even talk about it as much as they used to? It’s pretty simple. America lucked out and avoided any of the really negative side effects because investors, in their panic, didn’t abandon U.S. bonds. The Dow Jones and S&P indexes are higher now than they were before the downgrade. Congress, worn to the ragged edge of sanity by the debt fight, moved on. Obama’s Republican rivals found other stuff to talk about.
Somehow, we dodged buckshot that was fired from three paces away. It’s impressive—and it doesn’t please investors or debt hawks at all. Actually, no: It’s another disaster.
Did he really hope for post-downgrade chaos? “This is why they call economics the dismal science,” he says. “I wish we’d had some! I know that now, more than ever, we need external panic to get anything done about the debt.”
