We knew it was coming. But it was still a shock. Late Friday night, credit analysts at Standard & Poor's downgraded the U.S. sovereign debt rating to AA+ and warned that a cut to AA is possible within the next two years. The cut means that instead of ranking with most of the world's strongest economies -- those of Austria, Norway, Germany, Australia and others -- we now join AA credit risks including China, Bermuda, Kuwait, Slovenia, Spain and Qatar.

The problem was the debacle that was the debt ceiling debate. As part of the deal, analysts at Standard & Poor's were looking for $4 trillion in cuts over 10 years. Congress gave them a little more than half of that through gimmickry, untested "committees" and a political sideshow that didn't exactly instill confidence.

After S&P analysts took such a specific public position on the budget debate, I didn't see how they could walk away from their threats now. Not after the bugling of the rating agencies during the housing bust. Not after their poor performance heading into the eurozone crisis. And while competitors Moody's and Fitch reaffirmed their AAA ratings this week, S&P did the inevitable: It called us out. 

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The S&P team cited a "contentious" political process and a fiscal consolidation plan that "falls short" as the primary reasons for the downgrade.

In their words: "More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011."

More from MSN Money

• How the downgrade could cost you
• How the move hits stocks and the economy

The problem, which has been the focus of my recent commentary, is that politicians are simply making a mess of things at a time of extreme economic fragility. I said this earlier Friday in response to the harrowing market losses seen over the past few days:

The sell-off that started with the realization that politicians, harboring a toxic mix of immense naivete and undeserved self-assuredness, were willing to toy with the very foundations of the global financial system: U.S. Treasury bonds. These are the "risk-free" assets by which all other securities are judged, the oxygen that sustains the world of high finance.

This has shaken confidence and fueled a mini-financial panic not unlike what happened in fall 2008 when the Bush administration's first bank bailout proposal was defeated in the House of Representatives and Lehman Bros. was allowed to fail.

With the economy just trying to recover from a painful one-two punch of Japanese supply chain disruptions and an energy price spike, the political games in Washington, D.C., and the nervous "what if" debt default scenarios were too much. Whatever positive momentum we had in June and early July faded.

It's not just about tackling the debt problem. It's about doing it in a way that doesn't sink the economy. That was the focus of a blog post from July 29 ("Is the Tea Party ruining the economy -- again?") in which I outlined a three-step solution:

It took a long time to get us into this mess, and it's going to take a long time to get out. The first priority is ending the debt crisis before we have a repeat of the 2008 nightmare. The time for compromise is now. Second, we need a credible medium-term fiscal consolidation plan. Third, we need to look at ways to get the economy and the jobs market back on track. I suggested two ideas a few weeks ago.

And the thing is, the extreme position of the Tea Party -- massive spending cuts now with no tax reform -- is out of touch with where most Americans are, based on recent polling. This crisis isn't necessary. And the people don't want it.

Now, after one of the worst runs in stock market history, traders will spend an entire weekend reviewing and considering the implications of Friday's historic credit downgrade. They won't be good. And that sets the stage for another difficult day for stocks when the market reopens on Monday.

My newsletter subscribers have been well positioned for the market chaos with targeted short positions and are up 4.5% for the month vs. a 7.2% loss for the S&P 500. Highlights include short positions in Saks (SKS) and CarMax (KMX), which have been posted to my Edge Letter sample portfolio to track recommendations for my MSN Money readers in real time.

Disclosure: Anthony has recommended KMX and SKS short to his newsletter subscribers.

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The author can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.