S&P Downgrade and Obama's Speech

Standard & Poor's downgraded the United States rating outlook to negative.

The White House responded by claiming it was a "political judgment."

The Wall Street Journal is not on the same page as the White House, but it agrees that politics are involved in the assessment.

Chief White House economist Austan Goolsbee declared that S&P had made a "political judgment," and we'd have to agree, though probably not for the same reasons. The bulk of S&P's analysis is taken up with repeatedly citing what it sees as next-to-no chance that Washington will do anything significant on deficit reduction this year or next.

"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 challenges will persist until at least after the national elections in 2012," said the credit rating outfit. S&P's announcement is almost wholly a political analysis of the budget outlook.

There is only one reason the rating agency could suddenly have turned this dark on politics in Washington: President Obama's speech at George Washington University last Wednesday. Mr. Obama's "fiscal policy" speech may have sent progressive pundits cart-wheeling, but its political effect was to poison the prospect for budget negotiations.

The harshness of Mr. Obama's anti-Republican rhetoric and the universal conclusion that this was a Presidential campaign speech make it very difficult for GOP Congressional leaders to believe they can enter into a budget negotiation in which the White House will deal in good faith.

The hyper-politicized Obama White House calculated that the release of a GOP proposal by House Budget Chairman Paul Ryan was the moment to unveil its re-election counter-attack. This week Mr. Obama is taking that speech on what looks like the campaign trail, first at a Virginia community college and then in front of the millionaires and billionaires at Facebook's headquarters in Silicon Valley.

S&P, as did many others, said it saw the Obama and Ryan budget proposals "as the starting point of a process," but "That said, we see the path to agreement as challenging because the gap between the parties remains wide." And: "We believe there is a significant risk that Congressional negotiations could result in no agreement." And this stalemate will continue "over the next two years."

S&P is simply connecting the political dots after last week's un-Presidential tirade against the GOP.

...The Ryan budget has been criticized as heartless and cruel. But its purpose is to address the rising U.S. debt problem without tanking the U.S. economy, and to do so before a truly heartless and cruel credit downgrade of the sort S&P gave Japan in January. Mr. Obama's response was simply to mock the GOP proposal.

The ratings agencies are hardly the last word on U.S. economic health. But the S&P outlook is a warning to the White House that financial markets have noticed that this President seems to have decided that his path to re-election lies in demonizing his opponents rather than seeing to the nation's fiscal well-being.

The Wall Street Journal nails it.

Obama sent a loud and clear message last week. Rather than showing his interest to work with Republicans for the good of the nation, Obama made a campaign speech.

"[T]he S&P outlook is a warning to the White House that financial markets have noticed that this President seems to have decided that his path to re-election lies in demonizing his opponents rather than seeing to the nation's fiscal well-being."

Exactly.