U.S. Debt Downgrade Is Too Little, Too Late
"who gave Standard & Poor’s the authority to tell America how much debt it has to shed, and how?"
Now, I am definitely not a fan of credit rating institutes, and for opposite reasons of Reich as I will explain below, not really even a fan of this new rating, but the whole point of credit rating institutes is in fact to make assessments about how the level of borrowing affects . That is, and has always been their [a part of their] job description.
One can of course disapprove of that job and say that credit rating agencies are like witch doctors or astrologers, but as it happens government regulators have artificially propped up their business by coming up with accounting rules where assets are balued according to the ratings of "Nationally Recognized Statistical Rating Organization" including Standards & Poors. So it is in fact the federal U.S. government that gave them that authority.
It gets even funnier when Reich argues that the federal government should get a AAA-rating because they haven't missed their payments and then blasts the agencies for having given AAA-rating to mortgage backed securities during the housing bubble. As it happens, the mortgage backed securities hadn't missed payments either when they held AAA-rating, meaning that by Reich's logic, they did the right thing by giving the mortgage backed securities AAA-rating.
Personally, my view is this downgrade is a case of "too little, too late". The U.S. fiscal situation, with a debt as large as GDP is in fact as bad or worse than some of the distressed countries in Europe, and it is therefore outrageous that they should receive a AAA-rating or even a AA+ rating as the S&P now awards them. Because of its printing press, the U.S. is still unlikely to formally default, but all the more likely to have a de facto default through inflation, as they have done repeatedly in the past.