S&P shocked markets today with the announcement that the U.S.’s long-term outlook has been shifted from stable to negative.
“Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” Mr. Swann said. “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.”
This should dismiss forever the claim made by the Dean Bakers and Paul Krugmans of the world, that there is no urgency to controlling spending in the United States. In fact, the threat is real and near. Conservatives should be worried, too: In a deficit crisis, it is quicker to raise taxes than cut spending.
The bottom line is that no one should take any comfort from this S&P report. The U.S. outlook is dismal, and big reforms — to entitlements and taxes — should be the top priority.