The question becomes: Why is S&P given so much credence?
The ratings agency has not been particularly important because of its predictive powers. Ratings agencies were part of a system that urged governments around the world to slash social programs and loosen regulations on business for fear of the wrath of international investors.
In the early 1990s, according to Canadian investigative journalist Linda McQuaig, Canadian corporate executives encouraged ratings agencies to threaten a downgrade of their nationís credit as an inducement for cutting social spending and lowering high-end tax rates. It worked.
And today we are seeing that Republicans use ratings agencies to support their conservative agenda: that the government canít spend so much on entitlements such as Medicare and Social Security. Benefits of public employee unions must also be slashed, public assets privatized and the disruptive power of unions countered.
The government, this argument insists, needs to be run like a business ó and rated like one. That would make sense to S&P, whose parent company is run by Terry McGraw, who moonlights as a leader of the Washington corporate powerhouse, the Business Roundtable.
S&Pís downgrade may ultimately provide cover for the Democrats leadership, as well. They now have the excuse that can justify to supporters why they have no choice but to break promises made to senior citizens, unions and the public. For example, House Democratic Whip Steny Hoyer has been giving speeches for years advocating entitlement cuts.
So S&P is offering these politicians an excuse for a remarkably unpopular action.