Standard and Poor's blames all of Washington

While Washington lawmakers blame each other for the Standard & Poor's decision to downgrade U.S. credit, the rating agency itself is blaming all of Washington.

In its report, Standard & Poor's criticized this week's agreement to raise the $14.3 trillion debt ceiling, while cutting the debt in the years ahead -- and the political bickering that preceded it, almost leading to a default on the government's bills.

From the S&P report:

-- We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating. ...

-- 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.

-- More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic
challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

-- Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

-- The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Obama administration officials haven't commented publicly on the downgrade, but have criticized it in background discussions with reporters.

From the Associated Press:

S&P's decision, though, clearly angered the Obama administration.

Officials at the Treasury Department fought the downgrade until virtually the last minute. Administration sources familiar with discussions said the S&P analysis was fundamentally flawed. They spoke on condition of anonymity because they weren't authorized to discuss the matter publicly.

S&P had sent the administration a draft document in the early afternoon Friday and the administration, after examining the numbers, challenged the analysis.

In a statement, Treasury said, "A judgment flawed by a $2 trillion error speaks for itself."