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Friday, August 05, 2011

Downgrade on the way

Or perhaps not, if the administration can convince S&P to accept its fictitious numbers:
Two government officials tell ABC News that the federal government is expecting and preparing for bond rating agency Standard & Poor’s to downgrade the rating of US debt from its current AAA value. Official reasons given, one official says, will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited. The official was unsure if the bond rating would be AA+ or AA.

A third official says that S&P made a "serious mistake" in its analysis, "based on flawed math and assumptions," so the Obama administration is pushing back. But even though "S&P has acknowledged its numbers are wrong, it's unclear what they're going to do.," the official said.
But... but... I thought being able to borrow more money made the existing U.S. debt safer! Anyhow, I don't think any government whose agencies have made the historical 2001 recession disappear, and whose unscheduled ex post facto revisions are nearly five times larger than the revised growth are in any position to claim anyone else is using "flawed math and assumptions".

The worrisome thing is these are the agencies that still had Enron at AAA when it was going bankrupt. It boggles the mind to think how bad U.S. finances must be for the ratings agencies to actually notice.

UPDATE - The administration's whining didn't work:

– We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating....

– The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.


Notice that nothing is said about the need to raise taxes. S&P knows as well as the American public that more taxes will only lead to more spending. And there will almost surely be less reduction in spending than agreed to, given that this has been the case following practically every budget deal of the last 31 years.

As I wrote several times prior to the hike in the debt ceiling, increasing the amount of debt doesn't make default less likely, it makes it MORE likely.

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