There is an absurd quality to the debate over the S&P downgrade that captures the perverse incentive structure of our political system. House Republicans successfully played chicken with the debt ceiling and have vowed to continue doing so. As a result S&P downgraded Treasury debt:
The "conclusion was pretty much motivated by all of the debate about the raising of the debt ceiling," John Chambers, chairman of S&P's sovereign ratings committee, said in an interview. "It involved a level of brinksmanship greater than what we had expected earlier in the year."
Meanwhile, the political effects of the downgrade will primarily harm the Obama administration. So now the Obama administration is fiercely contesting S&P. In other words, a ratings agency has sensibly concluded that the Republican Party poses a long-term threat to the stability of the U.S. financial system, and the Obama administration insists otherwise:
The day after Standard & Poor’s took the unprecedented step of stripping the United States government of its top credit rating, the ratings agency offered a full-throated defense of its decision, calling the bitter stand-off between President Obama and Congress over raising the debt ceiling a “debacle.” It warned that further downgrades may lie ahead. ...
Officials at the White House and Treasury criticized S.& P.’s move as based on faulty budget accounting that did not factor in the just-enacted deal for increasing the debt limit.
The math may be faulty. But the basic point of the downgrade seems dead-on -- the existence of a Republican Party that theologically opposes higher revenue and is pledged to risk worldwide financial cataclysm on a regular basis in order to advance is agenda poses a fairly serious risk.
I'm reminded of the the Monty Python skit in which Eric Idyl defends gangster Dimsdale Piranha for having nailed his head to the floor. (See the scene beginning at 5:17):
That's what I picture when I imagine the exchange between S&P and Tim Geithner:
S&P: We've been told that John Boehner threatened to not raise the debt ceiling unless you agreed to implement his agenda.
Geithner: No, no. Never, never. He was a smashing bloke. He used to give his mother flowers and that. He was like a brother to me.
S&P: We have video of Boehner threatening to not raise the debt ceiling unless you agreed to implement his agenda.
Geithner: Oh, well -- he did that, yeah.
S&P: Why?
Geithner: Well he had to, didn't he? I mean, be fair, there was nothing else he could do.
I understand the logic here, but it's just a little odd for the Democratic-controlled Treasury Department to be pleading that the Republicans aren't really dangerous maniacs at all.