Kash at Angry Bear has expressed the obvious about S&P's announcement a couple of days ago that they were downgrading the outlook on the U.S., because of their concern that Congress wasn't going to act fast enough to deal with the deficit. Fear-mongering over the U.S. Deficit, Angry Bear, Apr. 18, 2011. As Kash puts it, the analysts "have apparently been drinking liberally from the Deficit Crisis Kool Aid."
US debt is still rated as AAA, which effectively means that S&P's rating analysts believe there is a zero percent chance of the US government not making payments on its debt. However, this new "ratings outlook" indicates that they now believe that there's a reasonable chance that some time within the next two years they will change their mind, and start to believe that there's a chance -- albeit a remote one -- of the US government defaulting on its debts.
***
Ah, but no doubt S&P is worried about what will happen to that debt burden beyond 2012. After all, there are alarming predictions that the currently large budget deficits will continue to be unduly large after 2012, even as the economy recovers.
But deficit projections are notoriously slow to catch up with the business cycle. When the economy is doing well and deficits are small, forecasters tend to look in the rearview mirror and make very rosy projections into the future. And when the economy is doing poorly and deficits are large, forecasters also tend to project doom and gloom going forward.
See Kash's chart for a visual representation of the way deficit forecasts miss the boat when compared to actual experience a decade and a half later.
Now folks, did you have the same thought I had? S&P, the notorious soft-baller on subprime mortgages and everything else that smelled bad but was profitable to the corporate client asking for a rating, is "worried" about the U.S. based on what appear to be right-wing think tank/Chicago School "free market takes care of itself" talking points about the debt and deficit? Certainly not based on John Maynard Keynes. Or Marriner Eccles. And certainly disregarding the fact that the US--unlike Greece, Ireland and Portugal--is it's own monetary boss with its own monetary policy (and its own money printing machine).
Come off it, S&P--did you get some big bucks from an unknown client to make that pronouncement, huh? Maybe those guys like Ryan pushing entitlement-busting as the revenue raiser to pay for the existing and additional tax cuts they want to provide to the big multinationals like GE and their shareholders and managers?
Recent Comments