Beware of wounded credit-rating agencies

As the U.S. has just discovered, a wounded credit-rating agency is a dangerous beast.

The raters stood accused of contributing to, even precipitating, financial crisis by awarding top grades to securities, institutions and even countries which proved unworthy of them, to put it mildly. They then compounded the error by lowering these ratings too slowly, or so the charge sheet reads.

Stung by such barbs, Standard & Poor’s Corp ., Moody’s Investors Service Inc. and Fitch Ratings have clearly resolved not to get caught behind the curve again. Hence, presumably, S&P’s seismic decision to give the U.S.’s gold-standard credit rating a negative outlook Monday.

Quite a start to the week.

In one sense, of course, the action tells us little we didn’t already know, and is merely a response to the agonizing budgetary wrangling taking place in Washington. It’s those pesky voters again, you see. They generally favor deficit reductions, but are not so keen on any measures which would hit their personal finances (this is the post-crisis catch-22 for governments all over the spent-out west).

However, brightening the structural fiscal outlook in Washington will require painful adjustments, and these are generally rare in the year or so prior to a Presidential election. What S&P has done is highlight the threat to both the dollar’s status as the world’s reserve currency, and the “risk free” position of U.S. debt if the next few months don’t prove an exception to this rule.