The market has totally ignored S&P’s downgrade of the US debt outlook, which is good.
How it’s being received in Washington is what’s interesting at this point.
James Pethokoukis, as always, has a great read on this stuff:
…striking some mega-deal doesn’t have top priority on Capitol Hill. First up is the battle over raising the debt ceiling. Democrats want a clean vote on a bill, while Republicans are trying to tack on various debt reduction measures. The GOP quickly pointed to S&P’s statement as further justification of its bargaining position.
(T)hat the rating agency made no mention of the debt ceiling is irrelevant. Nor does it matter that Congress just released a report blaming S&P and its peers for triggering the financial crisis. Politicians take their friends where they can find them. And S&P’s warning is spurring Republicans to dig in. That helps ensure the negotiations will be arduous, requiring Capitol Hill’s nearly undivided attention until July and potentially pushing the country to the brink of default. There probably won’t be much chance to work on major changes to taxing and spending.
Lovely. So not only are the two sides further apart, the downgrade will push us even closer to the brink of default, with no chance of working on taxing and spending.
What’s funny is that the overwhelming response to S&P is that it was meant as a warning call for lawmakers to get their act together.