The corrupt and incompetent, played-key-role-in-the-global-financial-meltdown Standard & Poor’s said today:

it sees a real risk that future U.S. government deficits may meaningfully miss discussed targets and that there is a 50-50 chance the U.S. AAA credit rating could be cut within three months, perhaps as soon as August. …

If an agreement is reached to raise the debt ceiling but nothing meaningful is done in terms of deficit reduction, the U.S. would likely have its rating cut to the AA category, S&P said.

S&P is clear that the rating scare is not about the debt ceiling. No, it demands cuts, deep cuts in the great social programs at the heart of a decent society. (See All-Out Obama & Media Blitz for $3 Trillion in Social Welfare Cuts.)

And the warning has nothing to do with how an honest credit rating agency would rate credit risk. An honest S&P would lower a rating to AA from AAA if there were ANY sign that the federal deficit had actually in the real world had an impact on investor behavior. I.e., you’d see rising long-term Treasury bond yields if investors were worried about the U.S. defaulting on its debts. The lower the yield (interest rate), the stronger the faith in creditworthiness. But those yields, already very low by historical standards in April, have continued to decrease over the last three months. The chart below is actually from yesterday at 4:55 p.m.

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The chart shows increasing confidence in the creditworthiness of U.S. Treasury bonds. And with that, I’ll segue into repeating how spectacularly incompetent and corrupt S&P is. Dean Baker on April 18:

It is … worth noting that S&P has a horrible track record for judging credit worthiness. It rated hundreds of billions of dollars of subprime backed securities as investment grade. It also gave Lehman, Bear Stearns, and Enron top ratings right up until their collapse. Furthermore, no one was publicly fired for these extraordinary failures. Investors are aware that S&P’s judgement does not mean very much.

If Dean Baker doesn’t float your boat, listen to Joe Stiglitz on the 2008 financial meltdown:

I view the ratings agencies as one of the key culprits. They were the party that performed that alchemy that converted the [mortgage-backed] securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the ratings agencies.

S&P was key to the crisis — “assigning rosy ratings to questionable mortgage bonds in order to win business” — and it is still the same time bomb. President Obama, of course, has reformed nothing, so the agencies still make their money by competing to credit rate stuff, and corporations shop for the most lenient rating. Not all Dems are like Obama though: Al Franken tried to do the right thing:

S&P is a profit-driven corporation that is paid tens of millions of dollars to give good credit ratings to [invesments that] may not deserve it. In an effort to stop this corrupt practice, Sen. Al Franken (D-Minn.) recently offered an amendment that would have taken away power of the issuer to select the agency that rates its bonds, shifting it instead to the Securities and Exchange Commission. Unfortunately, S&P and other bond-rating agencies lobbied heavily, and successfully, to kill the amendment. Such is the power of the financial sector in the U.S.

Usual Obama presidency story there. Baker’s comment came after S&P had lowered to negative its “outlook for the United States.” On the same morning of April 18th yields on 10-year Treasury bonds had decreased, which, similar to my chart, showed increasing faith in the creditworthiness of the United States. One last quote, can’t resist, from Huffington Post’s Krystal Ball, reacting in April to the same thing as Dean Baker:

Thank you S&P for lowering the U.S. credit outlook from stable to negative. By doing so, you reminded me of your existence and your existence reminds me that you and your cohorts have failed to predict any major financial catastrophe and essentially caused the 2008 financial crisis.