US Debt Downgrade: Way Late

There's a room where the lights won't find you
Holding hands while the walls come tumbling down
When they do, I'll be right behind you
--Tears for Fears

After markets closed on Fri, S&P announced that it was downgrading the United States from the top shelf AAA credit rating to AA+.

In its report, S&P based its rationale on the recent turmoil surrounding the debt deal which the agency said reduces clarity on US capacity for reducing spending and controlling debt.

While the past week's debt deal was woefully inadequate, fingering the most recent process and outcome as the 'cause' for the downgrade is laughable. Our fiscal health has been deteriorating for years. Even cursory examination of the US balance sheet indicates that we are far from being an attractive credit risk. Absent our reserve currency status and control of the monetary printing press, US creditworthiness would be approaching banana republic status by now.

Indeed, it can be argued that we have been defaulting on debt obligations for decades by devaluing the dollars that are paid back to creditors.

As we've noted before on these pages, the ratings agencies are chronically late w/ debt downgrades, as witnessed during the 2008-2009 credit market meltdown. It appears that S&P is exploiting the recent debt ceiling debacle in DC to do something that they should have done long ago.

position in SPX, USD