Did The President’s Disastrous Budget Speech Cause The Shock US Downgrade?

Barack Obama

The merits of the S&P outlook downgrade aside — we’re sceptical — it’s interesting that the official downgrade announcement specifically talks about the political events of the past few weeks: The Ryan Plan and the Obama speech.

One charge that’s been leveled against the President is that he didn’t actually introduce a plan, but rather gave a campaign speech centered around accusing the GOP of throwing grandma and grandpa underneath the bus.

As such, the two parties have confirmed that they’re extremely far apart, and it’s this that the S&P seems to be reacting to.

We view President Obama’s and Congressman Ryan’s proposals as the starting point of a process aimed at broader engagement, which could result in substantial and lasting U.S. government fiscal consolidation. That said, we see the path to agreement as challenging because the gap between the parties remains wide. We believe there is a significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections. If so, the first budget proposal that could include related measures would be Budget 2014 (for the fiscal year beginning Oct. 1, 2013), and we believe a delay beyond that time is possible.

Read the full announcement here >