I’m no expert, but I don’t think S&P downgrading its rating of US debt will, as such, have any really big practical implications other than becoming the next political football. If you look at S&P’s definition of the AA rating, after all, it says: “An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.” Scared yet? Me neither.

The issue today continues to be what it was a week ago. For years now, if you look at a projection from CBO or OMB it shows a spending curve that steadily accelerates. It accelerates because the government currently pays for health care for old people and for poor people, and because the cost of health care services has been accelerating. Consequently, for a long time now it’s been clear that in the future either the US has to stop paying for old people’s health care, or else raise more revenue in taxes, or else reduce the growth in the price of health care services. And for a long time now it’s been unclear what combination of those strategies will be adopted. But people have generally had confidence that some combination of them would be adopted.

Once upon a time earlier in the Obama administration, I asked a senior official how he thought this would ever get resolved. A deal, everyone agreed, had to be bipartisan. But to be bipartisan, it would have to include tax increases. But Republicans wouldn’t vote for tax increases. He told me that of course that made sense, but at some point pressure from bond markets would be unbearable and Republicans would come to the table. Broadly speaking, that’s the thing that most people generally believed would happen. What we saw with the debt ceiling was a mini-test of that theory, and the theory failed. “No new revenues” wasn’t just a GOP bargaining position, it turned out to be something they were really committed to even in the face of an imminent financial crisis. You can see why that would dent confidence in the long-term fiscal trajectory of the country.

The person who looks bad here, in my view, is John Boehner. President Obama wanted to do a “grand bargain.” The Gang of Six Senators wanted to do a “grand bargain.” And it looked for a moment like Speaker Boehner was going to be part of a grand bargain. But ultimately he decided that he didn’t want to sign a deal that would fracture his caucus, so the grand bargain talks fell apart. And yet the little bargain that did eventually pass the House ultimately couldn’t pass with Republican votes alone. So what did Boehner really achieve? If he was ultimately destined to strike a deal with the White House that needed Democratic votes to pass the House, why not go for the grand bargain? According to Boehner “When you look at this final agreement that we came to with the white House, I got 98 percent of what I wanted. I’m pretty happy.” How happy is he now?

By Matthew Cameron

Today is my last day as an intern at CAP, so I wanted to take a minute to thank everyone for reading my posts and tweeting my charts this summer. I hope that some of what I’ve produced will prove useful to progressives seeking to influence policy debates that are ongoing throughout the nation. I am especially appreciative for all the constructive feedback I received in the comment section of the blog — it has helped me to come away from this experience with a much better understanding of some important issues than I had at the beginning of the summer.

I also want to thank the folks at the Virginia Railway Express for getting me to and from Washington, D.C. every day. Matt writes about mass transit quite frequently on the blog, but it took commuting an hour-and-a–half, twice-a-day for nearly three months to really understand how backward our country’s system of transportation is. Nevertheless, I appreciate the fact that despite severely limited resources VRE manages to provide a fairly reliable and exceptionally safe alternative to the soul-sucking drive through Northern Virginia.

For those of you interested in keeping up with me, my email is mattcam15@gmail.com and my Twitter handle is @matthewccameron. I have yet to decide whether I will begin blogging full-time, but if you have any links to articles you think I’d like then be sure to send them my way.

So long!

I didn’t think anything would ever make me sympathetic to Silvio Berlusconi, but the guy’s Prime Minister of a country that’s being wracked on the shores of the European Central Bank’s hard money policies. Unable to do anything to fix that situation, he’s left to desperately promise to remake the entire structure of the Italian economy and impose fiscal austerity. This isn’t going to end well.

Meanwhile:

The Italian initiative came as Nicolas Sarkozy, French president and the current chairman of the Group of 20 leading economies, sought to co-ordinate a eurozone response to the turmoil in financial markets, with telephone calls to Angela Merkel, the German chancellor, and José Luis Rodríguez Zapatero, Spanish prime minister.

Telephone calls! Not even a face to face meeting. Not even a conference call!

For countries like Spain or Italy to leave the Euro would provoke a gigantic banking crisis. But if they’re not going to leave, something very different needs to be done in order to make the Eurozone workable.