How Does Bill Gross Really Feel About U.S. Sovereign Debt?
In August of 2011, Standard & Poor’s Rating Services downgraded its long-term sovereign credit rating on the United States from ‘AAA’ to ‘AA+’ (from the highest possible rating to the second-highest) with a negative outlook. The firm wrote that 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.”
At the time, the U.S. was involved in a “prolonged controversy” over the debt ceiling. Just a few months before S&P issued the ratings change it looked like the nation was hurtling towards another government shutdown. As usual, budget negotiations soured with policymakers unable to reach a happy compromise and bad blood boiled on either side of the aisle.
“The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed,” wrote S&P Ratings. “The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.”