Why S&P Is Wrong

[one...two...tree 2,762]

In what sounded at first like something from the Onion, Standard & Poor's postponed its planned downgrade of US debt for a few hours today after the White House pointed out that it had made a $2 trillion arithmetic error in its calculation of future deficits. Seriously. These guys are supposed to have the most sophisticated stable of financial analysts on the planet, but apparently they can't come within $2 trillion of figuring out something that's a simple matter of looking through OMB tables and CBO reports. But set that aside for the moment. What's $2 trillion between friends? We all agree on the rough size of America's fiscal woes and $2 trillion one way or the other isn't all that decisive. So the question of the day is: Should S&P have downgraded our debt? Felix Salmon says emphatically yes:

The US does

not

deserve a triple-A rating, and the reason has nothing whatsoever to do with its debt ratios. America's ability to pay is neither here nor there: the problem is its willingness to pay. And there's a serious constituency of powerful people in Congress who are perfectly willing and even eager to drive the US into default. The Tea Party is fully cognizant that it has been given a bazooka, and it's just

itching

to pull the trigger.

There's

no

good reason to believe that won't happen at some point.

I hate to let anyone one-up me in my contempt for the absurd stranglehold the tea party holds over

John Boehner and a cowering GOP,

but this really, really just isn't true. Yes, there were a few tea partyish lunatics in Congress who apparently intended to vote against a debt ceiling increase no matter what. About 20 or 30, I think. And yes, the tea party contingent brought us to the brink of a partial government shutdown, which would have been bad news for the economy.

But in the end—and no one who has even a nodding acquaintance with political history should be surprised that it took until the 11th hour—a deal was cut. What's more, even if a deal hadn't been cut by August 2nd,

we wouldn't have defaulted on our debt

. A bunch of government services would have been temporarily put on hold, but bondholders would have been completely unaffected. This is a really important point. It's true that a temporary government shutdown would have been bad, but this has happened before. It's ugly and stupid and unnecessary, but it's politics. America's debt, however, was never at any risk.

On a similar note,

here's Ezra Klein:

S&P is downgrading their estimation of our political system, not our actual ability to pay our debts.…Of course S&P is downgrading our political system. Did you see the nonsense we pulled over the past few months?.…

Why shouldn't S&P downgrade our debt?

Answer: because S&P shouldn't be in the business of commenting on a country's political spats unless they've been going on so long that they're likely to have a real, concrete impact on the safety of a country's bonds. And that hasn't happened yet. There's no serious macroeconomic reason to think America

can't

service its debt and there's no serious political reason to think the tea party has anything close to the power to provoke a political meltdown in which we

won't

pay our debt.

Look. The United States has been running up big debts for the past couple of years because we're trying to climb out of an epic recession: Jobs and economic recovery are exactly where our fiscal spotlight

should

have been. As a result, we've been focusing on our long-term debt for, literally, less than a year. Pretending that our political system is fundamentally broken because we haven't solved our long-term entitlement problems in a few months is staggeringly panicky and ahistorical, and S&P's weird obsession with hitting a $4 trillion target for medium-term deficit reduction is economically vacuous. If we still can't get our act together in four or five years, then fine. We deserve a downgrade. But a few months? That's crazy. It's the kind of hair-trigger reaction that belongs on cable shoutfests, not in the boardroom of a sober, 150-year-old financial firm.

Ezra predicted that in its downgrade S&P might call out Republicans for refusing to accept any deal that increases taxes.

In their statement tonight

they did in fact do this, albeit pretty gingerly. I think that's great, and I welcome it. But it still doesn't mean that S&P is right to use its rating authority as an excuse for political tsk-tsking. It should care only about the safety of US bonds, and for the moment anyway, there's no legitimate reason to think either that we can't pay or that we won't pay. The bond market, which has all the same information as S&P, continues to believe that US debt is the safest in the world, and in this case the market is right. S&P should stop playing dumb political games and stick to its core business.

http://motherjones.c...08/why-sp-wrong

[Gary and Alla 3,694]

I have heard this before. "my credit really is not that bad, it is because my ex-wife ran up a lot of bills and then didn't pay them and it is still hurting me" I do not take checks from them.

[scandal 951]

Steve, the two guys quoted in your OP are actually saying very different things.

Felix Salmon is saying that the US willingness to pay is in serious question due to the Tea Party's willingness to force a default. Ezra Klein says just the opposite. I've highlighted the relevant passages below. The Mother Jone's editor wants to make out they are "on a similar note". They are not.

Fwiw, I lean more towards the Felix Salmon position.

Felix Salmon says emphatically yes:

The US does

not

deserve a triple-A rating, and the reason has nothing whatsoever to do with its debt ratios. America's ability to pay is neither here nor there: the problem is its willingness to pay. And there's a serious constituency of powerful people in Congress who are perfectly willing and even eager to drive the US into default. The Tea Party is fully cognizant that it has been given a bazooka, and it's just

itching

to pull the trigger.

There's

no

good reason to believe that won't happen at some point.

On a similar note,

here's Ezra Klein:

There's no serious macroeconomic reason to think America

can't

service its debt and there's no serious political reason to think the tea party has anything close to the power to provoke a political meltdown in which we

won't

pay our debt.

[Bad_Daddy 2,209]

http://finance.yahoo.com/news/SP-officials-defend-US-credit-apf-685948715.html?x=0

S&P officials defend US credit downgrade

S&P officials defend US credit downgrade following criticism from administration

Martin Crutsinger, AP Economics Writer, On Saturday August 6, 2011, 7:14 pm EDT

WASHINGTON (AP) -- Standard & Poor's says it downgraded the U.S. government's credit rating because it believes the U.S. will keep having problems getting its finances under control.

S&P officials on Saturday defended their decision to drop the government's rating to AA+ from the top rating, AAA. The Obama administration called the move a hasty decision based on wrong calculations about the federal budget. It had tried to head off the downgrade before it was announced late Friday.

But S&P said it was the months of haggling in Congress over budget cuts that led it to downgrade the U.S. rating. The ratings agency was dissatisfied with the deal lawmakers reached last weekend. And it isn't confident that the government will do much better in the future, even as the U.S. budget deficit grows.

David Beers, global head of sovereign ratings at S&P, said the agency was concerned about the "degree of uncertainty around the political policy process. The nature of the debate and the difficulty in framing a political consensus ... that was the key consideration."

S&P was looking for $4 trillion in budget cuts over 10 years. The deal that passed Congress on Tuesday would bring $2.1 trillion to $2.4 trillion in cuts over that time.

Another concern was that lawmakers and the administration might fail to make those cuts because Democrats and Republicans are divided over how to implement them. Republicans are refusing to raise taxes in any deficit-cutting deal while Democrats are fighting to protect giant entitlement programs such as Social Security and Medicare.

S&P so far is the only one of the three largest credit rating agencies to downgrade U.S. debt. Moody's Investor Service and Fitch Ratings have both issued warnings of possible downgrades but for now have retained their AAA ratings.

The rating agencies were sharply criticized after the 2008 financial crisis. They were accused of contributing to the crisis because they didn't warn about the dangers of subprime mortgages. When those mortgages went bad, investors lost billions of dollars and banks that held those securities had to be bailed out by the government.

Ratings agencies assign ratings on bonds and other forms of debt so investors can judge how likely an issuer -- like governments, corporations and non-profit groups -- will be to pay the debt back.

Asked when the United States might regain its AAA credit rating, Beers said S&P would take a look at any budget agreements that achieve bigger deficit savings. But the history of other countries such as Canada and Australia who saw cuts in their credit ratings, shows that it can take years to win back the higher ratings.

Administration sources, who briefed reporters on condition of anonymity because of the sensitivity of the debt issue, said the administration was surprised by the timing of the announcement, coming just a few days after the debt agreement had been signed into law.

Treasury officials were notified by S&P of the imminent downgrade early Friday afternoon and spent the next several hours arguing with S&P. The administration contended that S&P acknowledged at one point making a $2 trillion error in their computations of deficits over the next decade.

But S&P officials said the difference reflected the use of different assumptions about how much spending and taxes will come to over the next decade. The S&P officials said they decided to use the administration's assumptions since the $2 trillion difference in the deficit numbers was not going to change the company's downgrade decision.

In a Treasury blog posting Saturday, John Bellows, the Treasury's acting assistant secretary for economic policy, said he was amazed by that decision.

"S&P did not believe a mistake of this magnitude was significant enough to warrant reconsidering their judgment or even significant enough to warrant another day to carefully re-evaluate their analysis," Bellows wrote.

S&P officials said their decision hadn't been rushed. They noted that S&P had been warning about a potential downgrade since April.

Some critics, the debacle of 2008 still in mind, raised questions about S&P's actions now.

"I find it interesting to see S&P so vigilant now in downgrading the U.S. credit rating," Sen. Bernie Sanders, I-Vt., said Saturday. "Where were they four years ago?"

Standard & Poor's roots go back to the 1860s. One of its founders, Henry Varnum Poor, was a publisher of financial information about the nation's railroads. His company, then called Poor's Publishing, merged in 1941 with Standard Statistics Inc., another provider of financial information.

S&P's website said both founding firms warned clients well before the 1929 stock market crash that they should sell their stocks.

The company has been owned by publisher McGraw-Hill Cos. since 1966.

[one...two...tree 2,762]

Steve, the two guys quoted in your OP are actually saying very different things.

Felix Salmon is saying that the US willingness to pay is in serious question due to the Tea Party's willingness to force a default. Ezra Klein says just the opposite. I've highlighted the relevant passages below. The Mother Jone's editor wants to make out they are "on a similar note". They are not.

Fwiw, I lean more towards the Felix Salmon position.

Yeah, I was bit confused when it stated, "On a similar note..." Thanks for pointing that out.

[Mr. Big Dog 10,747]

Yeah, I was bit confused when it stated, "On a similar note..." Thanks for pointing that out.

Oh, come on, really? You're confused? Doesn't take much, does it?

The Ezra Klein quote is...

S&P is downgrading their estimation of our political system, not our actual ability to pay our debts.…Of course S&P is downgrading our political system. Did you see the nonsense we pulled over the past few months?.…Why shouldn’t S&P downgrade our debt?

...and that is indeed very similar to what Salmon was quotes as saying.

Now this assessment...

Answer: because S&P shouldn't be in the business of commenting on a country's political spats unless they've been going on so long that they're likely to have a real, concrete impact on the safety of a country's bonds.

...is that of the author of the article - one Kevin Drum - rather than a quote from Ezra Klein.

Mystery solved.

[Obama 2012 1,714]

our credit rating should have been dropped a decade ago.

Sure we might 'pay' our bills on time.

However what's the point of 'paying' your bills when the value of the currency you are paying them with is pure #######. If i were a creditor, I would demand something more solvent than the ####### that is the US Dollar these days.

[Ban Hammer 13,352]

and now, the experts are wrong!

[Mr. Big Dog 10,747]

and now, the experts are wrong!

The experts? Would those not be the same experts that slapped AAA ratings on sacks full of sub-prime mortgage loans? Some experts...

[I AM NOT THAT GUY 5,715]

Sounds like a bunch of butt-ugly women blaming the judges at a beauty contest.

[bigdog 376]

In what sounded at first like something from the Onion, Standard & Poor's postponed its planned downgrade of US debt for a few hours today after the White House pointed out that it had made a $2 trillion arithmetic error in its calculation of future deficits. Seriously. These guys are supposed to have the most sophisticated stable of financial analysts on the planet, but apparently they can't come within $2 trillion of figuring out something that's a simple matter of looking through OMB tables and CBO reports. But set that aside for the moment. What's $2 trillion between friends? We all agree on the rough size of America's fiscal woes and $2 trillion one way or the other isn't all that decisive. So the question of the day is: Should S&P have downgraded our debt? Felix Salmon says emphatically yes:

The US does

not

deserve a triple-A rating, and the reason has nothing whatsoever to do with its debt ratios. America's ability to pay is neither here nor there: the problem is its willingness to pay. And there's a serious constituency of powerful people in Congress who are perfectly willing and even eager to drive the US into default. The Tea Party is fully cognizant that it has been given a bazooka, and it's just

itching

to pull the trigger.

There's

no

good reason to believe that won't happen at some point.

I hate to let anyone one-up me in my contempt for the absurd stranglehold the tea party holds over

John Boehner and a cowering GOP,

but this really, really just isn't true. Yes, there were a few tea partyish lunatics in Congress who apparently intended to vote against a debt ceiling increase no matter what. About 20 or 30, I think. And yes, the tea party contingent brought us to the brink of a partial government shutdown, which would have been bad news for the economy.

But in the end—and no one who has even a nodding acquaintance with political history should be surprised that it took until the 11th hour—a deal was cut. What's more, even if a deal hadn't been cut by August 2nd,

we wouldn't have defaulted on our debt

. A bunch of government services would have been temporarily put on hold, but bondholders would have been completely unaffected. This is a really important point. It's true that a temporary government shutdown would have been bad, but this has happened before. It's ugly and stupid and unnecessary, but it's politics. America's debt, however, was never at any risk.

On a similar note,

here's Ezra Klein:

S&P is downgrading their estimation of our political system, not our actual ability to pay our debts.…Of course S&P is downgrading our political system. Did you see the nonsense we pulled over the past few months?.…

Why shouldn't S&P downgrade our debt?

Answer: because S&P shouldn't be in the business of commenting on a country's political spats unless they've been going on so long that they're likely to have a real, concrete impact on the safety of a country's bonds. And that hasn't happened yet. There's no serious macroeconomic reason to think America

can't

service its debt and there's no serious political reason to think the tea party has anything close to the power to provoke a political meltdown in which we

won't

pay our debt.

Look. The United States has been running up big debts for the past couple of years because we're trying to climb out of an epic recession: Jobs and economic recovery are exactly where our fiscal spotlight

should

have been. As a result, we've been focusing on our long-term debt for, literally, less than a year. Pretending that our political system is fundamentally broken because we haven't solved our long-term entitlement problems in a few months is staggeringly panicky and ahistorical, and S&P's weird obsession with hitting a $4 trillion target for medium-term deficit reduction is economically vacuous. If we still can't get our act together in four or five years, then fine. We deserve a downgrade. But a few months? That's crazy. It's the kind of hair-trigger reaction that belongs on cable shoutfests, not in the boardroom of a sober, 150-year-old financial firm.

Ezra predicted that in its downgrade S&P might call out Republicans for refusing to accept any deal that increases taxes.

In their statement tonight

they did in fact do this, albeit pretty gingerly. I think that's great, and I welcome it. But it still doesn't mean that S&P is right to use its rating authority as an excuse for political tsk-tsking. It should care only about the safety of US bonds, and for the moment anyway, there's no legitimate reason to think either that we can't pay or that we won't pay. The bond market, which has all the same information as S&P, continues to believe that US debt is the safest in the world, and in this case the market is right. S&P should stop playing dumb political games and stick to its core business.

http://motherjones.c...08/why-sp-wrong

We cannot continue to spend more than we make, you could not do it on your budget either. Its time to pay the piper and get it together.

[Bad_Daddy 2,209]

We cannot continue to spend more than we make, you could not do it on your budget either. Its time to pay the piper and get it together.