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Reaction to S&P's downgrade

If the Dow's 500-point drop on Thursday, the suggestion of a global economic slowdown, and the grueling debate over the debt ceiling weren't enough, Friday night brought us more bad news, courtesy of S&P.

The New York Times:

Standard & Poor’s removed the United States government from its list of risk-free borrowers for the first time on Friday night, a downgrade that is freighted with symbolic significance but carries few clear financial implications.

The company, one of three major agencies that offer advice to investors in debt securities, said it was cutting its rating of long-term federal debt to AA+, one notch below the top grade of AAA. It described the decision as a judgment about the nation’s leaders, writing that “the gulf between the political parties” had reduced its confidence in the government’s ability to manage its finances.

The Obama White House reacted to the news with this statement: "Over the past weeks and months the president repeatedly called for substantial deficit reduction through both long-term entitlement changes and revenues through tax reform, with additional measures to spark jobs and strengthen our recovery," said White House Press Secretary Jay Carney in a statement. "That is why the president pushed for a grand bargain that would include all of these elements and require compromise and cooperation from all sides."

More Carney: "Over the coming weeks the president will strongly encourage the bipartisan fiscal committee as well as all members of Congress to put our common commitment to a stronger recovery and a sounder long-term fiscal path above our political and ideological differences."

Meanwhile, the GOP presidential candidates used the downgrade to blame President Obama.

Said Mitt Romney in a statement: "America’s creditworthiness just became the latest casualty in President Obama’s failed record of leadership on the economy. Standard & Poor’s rating downgrade is a deeply troubling indicator of our country’s decline under President Obama."

Jon Huntsman added: "Out-of-control spending and a lack of leadership in Washington have resulted in President Obama presiding over the first downgrade of the United States credit rating in our history."

And here was Michele Bachmann's statement: "President Obama is destroying the foundations of the U.S. economy one beam at a time. I call on the president to seek the immediate resignation of Treasury Secretary Timothy Geithner and to submit a plan with list of cuts to balance the budget this year, turn our economy around and put Americans back to work."

But S&P's decision to downgrade the U.S. debt was controversial. As the New York Times' Paul Krugman writes:

On one hand, there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency.

On the other hand, it’s hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?

Just to make it perfect, it turns out that S&P got the math wrong by $2 trillion, and after much discussion conceded the point — then went ahead with the downgrade.