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While Moody 's has decided to keep the US's credit rating at AAA, the focus today remains on Standard and Poor's decision to downgrade the rating to AA+. There is plenty of skepticism about the S&P decision. Paul Krugman points out S&P's questionable track record, here . And Economics of Contempt argues that the agency was "embarrassingly wrong," here . One member of the Econoblogsphere who is saying the S&P downgrade makes sense is The New Yorker 's John Cassidy . Cassidy does not take issue with those who say that S&P's decision was a political one. In fact, he argues that's the who point: For years, the attitude in the markets has been that the two parties in Washington will eventually make the necessary policy changes, even if it takes a big selloff in the bond market to make them do it. I shared this cynical but ultimately optimistic view, and so did S. & P. and other ratings agencies. But the rise of the Tea Party and a further lurch to the right in Congress has changed the political calculus. With the country facing an imminent threat of default, the Republican Party showed itself unwilling to countenance any tax increases whatsoever, even ones that wouldn’t have gone into effect until 2013 at the earliest. Many Democrats, meanwhile, balked at the very idea of discussing changes to entitlement programs. The President, while calling for a “balanced approach,” seemed virtually powerless. What ground is there for assuming that sanity will eventually prevail? Some, certainly. But enough to support an AAA rating? The fiscal arithmetic is pretty clear. According to estimates from the Congressional Budget Office and other authorities, perhaps half of the current budget deficit is due to the recession, which caused tax payments to fall and unemployment benefits and other expenses to rise. But that leaves a structural deficit of perhaps four or five per cent of G.D.P., which will remain even after the economy returns to full employment. To prevent the country’s debts from exploding over the next twenty or thirty years, this structural deficit needs to be brought down to two or three per cent, at which point the long-term debt-to-G.D.P. ratio would stabilize. Read Why S. & P. Got the U.S. Government Downgrade Right here . We also recommend Cassidy's Comment piece in the latest New Yorker , which is now available online.

Federal Reserve Chair Ben Bernanke 's appearance before Congress yesterday seems to have had an effect on markets in the US and abroad . With the US economy as it now stands, Bernanke spoke in measured terms about recovery, with jobs and consumer spending as leading reasons for the üncertain"future": An important drag on household spending is the slow recovery in the labor market and the attendant uncertainty about job prospects. After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, a pace insufficient to reduce the unemployment rate materially. In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009. Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers' employment and earnings prospects. In the business sector, investment in equipment and software appears to have increased rapidly in the first half of the year, in part reflecting capital outlays that had been deferred during the downturn and the need of many businesses to replace aging equipment. In contrast, spending on nonresidential structures--weighed down by high vacancy rates and tight credit--has continued to contract, though some indicators suggest that the rate of decline may be slowing. Both U.S. exports and U.S. imports have been expanding, reflecting growth in the global economy and the recovery of world trade. Stronger exports have in turn helped foster growth in the U.S. manufacturing sector. Inflation has remained low. The price index for personal consumption expenditures appears to have risen at an annual rate of less than 1 percent in the first half of the year. Although overall inflation has fluctuated, partly reflecting changes in energy prices, by a number of measures underlying inflation has trended down over the past two years. The slack in labor and product markets has damped wage and price pressures, and rapid increases in productivity have further reduced producers' unit labor costs. Read the full speech here .

British Prime Minister Gordon Brown is in Washington today, the first official visit of a foreign leader to the nation's capital in the Obama presidency. Brown's address to Congress was full of economic talk. He urged US policymakers to solve the credit crisis and clean up the banking system, saying "A bad bank anywhere is a threat to good banks anywhere." And he implored Congress to avoid protectionism . Here's an excerpt from his speech at the Capitol:

Marsha Blackburn (R-TN) and Chair of the House Finance Committee Barney Frank (D-MA) debated the merits of the stimulus bill last night, with John King filling in for Larry King on CNN.