There was much talk yesterday about the fact that Standard & Poor's changed its outlook for America's debt from "stable" to "negative." That's not a good sign for our economy - it signals that one well-regarded observer thinks there's a decent chance the nation's fiscal outlook could become worse than that of the strongest economies around the world. At the same time, though, it's important not to make a bigger deal out of this than it is.
This is not S&P downgrading America's debt. America's bond rating is still AAA, the highest that S&P awards. What the negative outlook means is that there is a 33 percent chance that, over the next two years, S&P will downgrade the debt rating, and that would indeed be a blow to our economy. But notice that S&P still thinks that is unlikely to happen, by a two-to-one margin.
While this is the first time in its history that Standard & Poor's has put a negative outlook on the U.S., it's worth noting that its rival Moody's took the same move back in 1996. There was also a tussle going on over the debt ceiling at that point, but it was eventually resolved - and the American economy still had ten straight years of growth ahead of it.
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