Standard & Poor’s has lowered New Jersey’s bond rating to AA-. Such “junk bond” status will mean that New Jersey will only be able to borrow at a higher interest rate in the future. As a state’s deficit grows, the probability of a default increases. Risk averse investors demand a risk premium to compensate them for taking a gamble and the S&P rating provides valuable information for investors concerning how risky investing in New Jersey bonds really is. Will Standard & Poor’s “AA- for New Jersey” and the diffusion of this information trigger greater deficit cutting in New Jersey? Does such “market discipline” lead politicians to take actions they don’t want to take (such as reforming pensions)? Economic theory would say “yes”. Market forces do constrain self interested politicians. New Jersey voters now know that a consequence of political stalemate is higher future interest rates. Will they now lobby their politicians to enact a bundle of tax increases and spending cuts to earn their “AA” rating back?