A year after downgrade, S&P's view on Washington unchanged

— -- Last August, a previously unknown English-lit major turned government-bond expert named John Chambers was the man on the spot. A year after Chambers led Standard & Poor's move to cut the USA's AAA debt rating for the first time ever, he still is.

S&P's conclusions about the strength of the U.S. economy and the U.S. government's political dysfunction and ability to begin to limit the growth of the national debt, are as topical as the day S&P cut the U.S. credit rating to AA+ last Aug. 5. The Friday night move set off a storm of criticism — of S&P and the Washington leaders whose circus-like fight over raising the debt limit made the nation flirt with a historic default just days before S&P's move.

In the short term, it hasn't meant much. The stock market dropped almost 7% the next Monday, but gained most of that back on Tuesday. Critics snark that because the downgrade hasn't made interest rates jump, it showed up S&P as a toothless tiger. Chambers himself, with a sarcastic wit belying his buttoned-down looks, says U.S. finances are still deteriorating so fast, he's got nothing to apologize for. Instead, he mocks the bond market that he says took years to figure out how risky European government bonds were, despite S&P downgrades.

Either way, the debt is still huge and growing, the economy may be even shakier than last year, and Congress faces another wave of policymaking at year's end that will test the capacity for mature decision-making that S&P's downgrade said Washington conspicuously lacks.

So, was S&P right?

A year later, most critics still think Chambers' team was too bearish on America's credit: Global demand has pushed down interest rates on U.S. Treasuries, a vote that they're about the safest investment there is, if only because alternatives are worse.

S&P's view of the economy might seem too optimistic, with growth slowing and new recession fears a persistent minority view.

"S&P sticks by its decision," said Chambers, the 56-year-old chairman of S&P's sovereign-debt rating committee. "Since the downgrade, our projection for the national debt as a percentage of the economy in five years has actually gotten worse."

The downgrade, which had the whole world talking but soon faded from headlines, was never completely about the numbers. It was about the chaos of Washington — as the downgrade report called it, "the political brinksmanship of recent months (that) highlights what we see as America's governance becoming less stable, less effective and less predictable." That conclusion will be tested anew very soon, even as the S&P's budget math remains in dispute.

Before year's end, Congress and President Obama are supposed to solve the "fiscal cliff" — the catch-all term for the scheduled expiration of tax cuts and imposition of new spending cuts that could suck $560 billion a year out of the fragile economy, reducing the deficit much faster than even S&P wanted. With Republicans and Democrats bickering already, it could make the debt-ceiling fight a warm-up act.

On that, S&P has markets' support, said Ethan Harris, co-chief economist at Bank of America Merrill Lynch.

"That we even have a fiscal cliff is a sign they're right," Harris said. "It's not that the economy is so poor. It's that the management of USA Inc. is so poor."

The balance sheet