U.S. Bond Rating Expected To Be Downgraded Despite Debt Ceiling Deal

Tea party supporters were called terrorists for urging members of Congress to hold firm in rejecting a deal raising the national debt limit until a concrete plan was put forward that would reduce federal spending and the size of the government's budget deficit. The elites even insisted tea party activists were trying to destroy the country economically by jeopardizing its credit rating. The establishment got the deal it wanted and they assured us it would calm the markets down and preserve our AAA credit rating. The stock market has lost more than 10% of its value over the past week and now we're learning from ABC News' Jack Tapper that the nation's bond rating will likely be downgraded. Varying reasons are being offered for the downgrade, including a lack of confidence deficit reduction will occur, Republicans' refusal to sign off on higher taxes and a "serious mistake" made by S&P in its earlier analysis:

Two government officials tell ABC News that the federal government is expecting and preparing for bond rating agency Standard & Poor’s to downgrade the rating of US debt from its current AAA value.

Official reasons given, one official says, will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited. The official was unsure if the bond rating would be AA+ or AA.

A third official says that S&P made a "serious mistake" in its analysis, "based on flawed math and assumptions," so the Obama administration is pushing back. But even though "S&P has acknowledged its numbers are wrong, it's unclear what they're going to do.," the official said. 

S&P refused to comment.

You can see where this is headed. Congress will be told that the only way to avoid a credit downgrade now is to immediately sign off on tax increases. Republican assurances that the deal approved would not lead to higher taxes is out the door. For Obama, it's all just one big party. He spared no money in celebrating his 50th birthday at a star-studded White House party as the country burns.

UPDATE: S&P has confirmed the downgrade of our bonds from AAA status to AA-plus because the much-hailed debt deal didn't go far enough:

The United States lost its top-notch AAA credit rating from Standard & Poor's Friday, in a dramatic reversal of fortune for the world's largest economy.

S&P cut the long-term U.S. credit rating by one notch to AA-plus. The credit agency said late Friday that it was making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation.

U.S. Treasuries, once undisputedly the safest investment in the world, are now rated lower than bonds issued by countries such as the United Kingdom, Germany, France or Canada.

The move is likely to raise borrowing costs eventually for the American government, companies and consumers.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.

Yep, our bonds are worth less than those issued by Britain, Germany, France or Canada. We're so fucked. Let's see how the Washington elites try to pin the blame on the tea party folks for the shortcomings of their own actions. Here is more from S&P's press release:

"We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process," reads a statement from S&P. "We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade."

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.