“The Republicans are being totally outmaneuvered. The House speaker appears disoriented. It’s time to act. Time to call Obama’s bluff.

“A long-term deal or nothing? The Republican House should immediately pass a short-term debt-ceiling hike of $500 billion containing $500 billion in budget cuts. That would give us about five months to work on something larger…

“If conservatives really want to get the nation’s spending under control, the only way is to win the presidency. Put the question to the country and let the people decide. To seriously jeopardize the election now in pursuit of a long-term, small-government, Ryan-like reform that is inherently unreachable without control of the White House may be good for the soul. But it could very well wreck the cause.”

“Standard & Poor’s (S&P) Ratings Services said late Thursday it has placed US sovereign credit ratings on watch for possible downgrade — saying the action ‘signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the US within the next 90 days.’

“S&P had already lowered its outlook on the US triple-A long-term rating to negative in April, but since then ‘the political debate about the US’ fiscal stance and the related issue of the US government debt ceiling has, in our view, only become more entangled,” it said, according to MarketWatch.'”

“So the credit-rating agencies that helped to create the financial crisis that led to a deep recession are now warning that the U.S. could lose the AAA rating it has had since 1917. As painfully ironic as this is, there’s no benefit in shooting the messengers. The real culprit is the U.S. political class, especially the President who has presided over this historic collapse of fiscal credibility.

“Moody’s and the boys are citing the risk of a default on August 2 as the proximate reason for their warning. But Americans should understand that the debt ceiling is merely the trigger. The gun is the spending boom of the last three years and the prospect that Washington lacks the political will to reduce it in the years to come…

“So now we have the inevitable showdown over the debt limit, which must be raised to pay for all of this spending. And Mr. Obama is blaming Republicans for being irresponsible because they won’t raise taxes in return for promises of modest future spending restraint. And some people even fall for it.”

“More broadly, [default could] mean that any victories achieved in 2012 would be superficial and Pyrrhic. The public would not trust either side to carry out its agenda. The next several election cycles would be extremely volatile. Prospects for independent candidates for president and for third parties, whether emerging from the center of American politics or from the wings, would improve significantly. And within the major parties, power would tend to transfer away from those who hold it…

“The stock market could drop by thousands of points. Some major corporations, particularly in the financial services sector, might go under. Although the consequences might take some time to filter through the broader economy, there would nevertheless be a number of immediate and extremely visible effects. Many voters would feel as though they had perfectly reasonable grounds to connect the dots.

“You’d have to weigh two things against each other: the additional damage to the economy, which is bad for the president all else being equal, and the additional ownership of the economy that Republicans would take for it, which is bad for them all else being equal. I don’t know which effect would win out, but it’s not a risk that either side should feel happy about taking.”

Via News Busters.