The S&P downgrade was more of a statement on the toxic political landscape in Washington than a comment on the nation's ability to pay its bills. But S&P has its own checkered history. Just a few years ago, the company gave its top triple-A rating to some of the mortgage-backed securities that helped cause the Great Recession.
Could it be wrong again?
New York-based Standard and Poor's was upfront about its focus on the political angle, citing the long standoff between President Barack Obama and Congress as a key factor in its unprecedented downgrade of the government's credit rating.
"We think the debacle over raising the debt ceiling is one illustration of that," John Chambers, head of S&P's debt rating committee, said on Monday. He said that the political gridlock and S&P's analysis of a rising U.S. debt burden in coming years prompted the downgrade.
Yet the credit-rating industry itself has been harshly criticized since the financial crisis of 2008-2009, and S&P's downgrade seems certain to increase congressional scrutiny.
The company was hardly revealing anything that wasn't already well known by financial markets, politicians, analysts and probably most everyday Americans: The divisive political atmosphere in Washington has been leading to near-paralysis.
But is the rating agency qualified to make political as well as economic judgments?
Making its own judgments, Wall Street dumped stocks all day long. The Dow Jones industrials closed down 634.76 points — or 5.5 percent — in the first day of trading since the S&P downgrade. But investors sought refuge in Treasurys, a sign of confidence in the United States as a safe long-term investment despite S&P's judgment. The price of Treasurys rose sharply, while yields, which move in the opposite direction from price, plunged.
Some lawmakers and economists have questioned whether the ratings agencies have the competence to evaluate the country's finances, based on their own performance prior to the 2008-2009 financial crisis.
S&P predicated its downgrade "on the theory that Washington might deliberately refuse to pay its debt because of a political impasse. But I don't know what makes them experts at this," said Rep. Brad Sherman, D-Calif., a member of the House Financial Services Committee.
"S&P's main job is rating private issuers, and they have some expertise in that, although obviously they got it pretty wrong in mortgage-backed securities," Sherman said.
"I find it interesting to see S&P so vigilant now in downgrading the U.S. credit rating," said Sen. Bernie Sanders, I-Vt. "Where were they four years ago?"
Leading up to the financial meltdown in 2008, S&P and its sister credit-rating agencies gave coveted AAA ratings to some of the very mortgage-backed securities that later became nearly worthless, leading to staggering losses for many investors and funds. Also, the rating agencies had awarded top ratings to some of the financial firms that failed.
That gave them a black eye, and some analysts have suggested the S&P downgrade of U.S. debt was partly an effort to restore some of the lost confidence in the agencies' ratings.
Stephen Hess, a former presidential adviser and a senior fellow emeritus in governance studies at the Brookings Institution, said S&P's political discourse caught him by surprise.
"It suggests either that those of us on the outside either don't understand what rating services do, or that there's a new style there," Hess said. "I felt I was reading a political judgment from an organization that I expected only gave financial judgments or economic judgments."
But Nigel Gault, chief U.S. economist with HIS Global Insight, based in Lexington, Mass., said he saw no problem with rating agencies delving into political matters.
"If they're looking at Greece, for instance, they've got to consider whether or not the political system is able to take the action to stabilize debt," said Gault.