Politico...
Credit hit worries Obama, Congress more than default
By Carrie Budoff Brown & Ben White
7/27/11 

It’s not the default that strikes the most fear in the White House and Congress these days. It’s the downgrade. 

Even Republican leaders say the country can’t go into default, and they’ll do everything possible to raise the debt limit by Aug. 2. 

But what really haunts the administration is the very real prospect, stoked two weeks ago by Standard & Poor’s, that Barack Obama could go down in history as the president who presided over his country’s loss of its gold-plated, triple-A bond rating. 

Obama could win and lose at the same time, striking a deal to avoid default but failing to pass muster on the substance of that deal with credit agencies, which could go ahead and downgrade the rating anyway. 

Financial analysts say such a move would hit Americans with more than $100 billion a year in higher borrowing costs, but it’s not just that. It would be a psychic blow to a nation that already looks over its shoulder at rising economic powers like China and wonders, what’s gone wrong? And it would give the president’s Republican rivals a ready-made line of attack that he’s dragging the country in the wrong direction. 

It’s what drives his Treasury Department into cajoling and pleading with the bond ratings agencies to be patient, like a harried coach working the refs from the sidelines. 

It’s a factor influencing Obama’s rejection of a short-term deal: The administration believes the ratings agencies won’t like it. 

And it’s what gives these little-known firms a powerful club that they’re wielding with gusto over Washington policy-makers. They hope to force a deal that not only raises the debt ceiling but also makes deep cuts in government spending and eats into the nation’s deficit. 

The threat of a downgrade “is very damaging to all of us, and that would be a product of the dysfunction of Congress” said Rep. Peter Welch (D-Vt.), who led a faction of House Democrats who argued for a “clean” debt-limit increase early in the process, only to watch escalating chatter about the “Armageddon” of a missed deal feed scrutiny of the nation’s fiscal health. 

S&P raised the threat of a downgrade July 14 by declaring that raising the debt limit alone might not be enough. It wanted to see an enforceable agreement to cut $4 trillion over 10 years to affirm the triple-A rating. 

Administration officials were shocked by the move. They suggested privately that it did not seem to square with prior S&P reports, which said the nation’s larger budget problems could be dealt with over several years. Some administration officials dismissed the S&P report as little more than amateur political prognostication by people with limited understanding of how Washington works. 

But the White House’s statements in the past week show a downgrade is now top of mind. Obama himself invoked the country’s triple-A rating in a rare prime-time address Monday as he outlined the consequences of default. 

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