Republican presidential candidate Mitt Romney, the frontrunner in most polls, said in a statement that the downgrade is a "deeply troubling indicator of our country's decline under President Obama."
Senator Jim DeMint, a South Carolina Republican and favorite of the fiscally conservative Tea Party movement who voted against the debt deal, said the downgrade vindicated his decision. "The deal was not a serious attempt to solve our spending and debt problem -- it was a political solution meant to kick the can down the road," he said.
Democrats disagreed. "We have the people who helped cause the financial crisis now claiming that they're the experts on what the American budget should be," Representative Barney Frank, a Massachusetts Democrat, said in a telephone interview before the downgrade was announced. "It's beyond their competence and I'm just puzzled that people pay attention."
S&P maintained its AAA rating on the U.S. during George W. Bush's presidency as the national debt grew to pay for wars in Afghanistan and Iraq, tax cuts in 2001 and 2003, Medicare prescription drug benefits and the bailout of Wall Street. Together, those costs added $3.4 trillion to the national debt, according to data compiled by Bloomberg.
Stimulus Package
Obama's stimulus package will total $830 billion by 2019, according to a May 2011 Congressional Budget Office report, half the cost of the Bush tax cuts and less than two-thirds of what has been spent on the wars in Iraq and Afghanistan. The U.S. went from budget surpluses averaging $139.7 billion from 1998 through 2001 to a deficit of $1.29 trillion last year, Bloomberg data show. The shortfall peaked at $1.42 trillion in 2009, the first year of Obama's presidency.
Federal revenue as a percentage of gross domestic product fell over the past several years as the weakened economy sapped income tax receipts. Revenue was 14.9 percent of the economy in 2009 and 2010, the least since 1950, according to the Office of Management and Budget.
Under the administration's February budget, which would have allowed tax cuts to expire in 2013 for individuals making more than $200,000 and married couples making more than $250,000, revenue would reach 20 percent of GDP by 2021. Most Republicans say they would like to keep federal revenue closer to 18 percent of GDP, nearer to the post-World War II norm.
BlackRock, Buffett
The debate will continue, said Litan. "Our politics were dysfunctional before this and I think they'll be even more dysfunctional now," the former Treasury consultant said. "You're going to see a lot of finger-pointing."
BlackRock Inc., the world's biggest money manager, and Buffett, the chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., said the decision doesn't reflect any inability of the U.S. to pay its debts.
Treasury prices dropped, with the yield on 10-year notes falling 0.07 percentage point to 2.49 percent as of 10:19 a.m. in London. The yield on the benchmark fell to 2.4 percent on Aug. 4, the lowest since October, as the downgrade loomed. Strategists at JPMorgan said any drop in Treasuries from the ratings cut is unlikely to be "sustained," while Barclays Plc said effects from the downgrade shouldn't be "significant."
Bond Demand
There's been no lack of foreign demand for Treasuries. The amount of U.S. bonds held outside the country has risen to $4.15 trillion from $2.19 trillion in mid 2007.