Reasonable thoughts on debt deal, credit downgrade

Finding a reasonable, spin-free explanation of what the debt-ceiling debate and credit downgrade really mean is next to impossible.

But the Milken Institute has given it a try. The nonpartisan, independent think tank has published a thoughtful commentary from a panel economic experts from the left, right and center.

Here are a couple of comments about S&P’s downgrade of the US credit rating that I found particularly interesting (Phillip Swagel worked in the Treasury Department during the G.W. Bush adminstration. Jared Bernstein was chief economist and economic adviser to Vice President Joe Biden from 2009 to 2011.)

Phillip Swagel: The downgrade should be taken seriously even though it was not based on new information. Market participants are well aware that the U.S. fiscal trajectory is not sustainable, but have assumed that a solution will be reached — no one could say quite what that solution would be, but there was broad confidence that one would be found. The fractious debt ceiling debate called this into question. It’s not a huge question–yet. Nonetheless, the downgrade is a symptom that should not be ignored.

Jared Bernstein: As I’ve written on my blog there’s no doubt that the self-inflicted damage caused by the debt ceiling debacle is huge. But S&P never should have taken us down a notch. Their job is to judge whether the US government is a creditworthy borrower, which of course it is. The markets, by the way, agree with me: Treasury rates barely budged in the wake of the downgrade. That said, S&P’s critique of our dysfunctional politics and inability to get revenues in the deficit reduction deal makes sense.

Read the complete panel discussion here: Truth and consequences of the debt deal, downgrade