Money is Fiction
Little LeRoy Madoff
Aug 8 2011 The Tea Party Downgrade
On Friday night, Standard & Poor took the unprecedented step of downgrading the nation’s long-term sovereign credit rating to AA+ from AAA, claiming that “the fiscal consolidation plan that Congress and the Administration recently agreed to falls short” of what is “necessary to stabilize the government’s medium-term debt dynamics.” In explaining its decision, the rating agency argued that the Budget Control Act Amendment of 2011 did not do enough to slow down government spending and specifically condemned Republicans for turning the debt ceiling into a political football and refusing to consider increasing taxes or allowing the Bush tax cuts to expire. But the Obama administration also raised questions about the agency’s ruling, pointing out that it had made an astounding $2.1 trillion error by projecting “the nation’s debt as a share of gross domestic product to reach 93 percent by 2021,” fully 8 “percentage points higher than the figure administration officials believed the rating agency should have used.” S&P — admittedly no oracle, given its negligence in failing to identify “the risks of subprime mortgages during the housing bubble” — conceded the mistake, but concluded that the revisions didn’t “meaningfully affect” the conclusion. Since two other ratings agencies have thus far maintained United States’ AAA rating, however, “many analysts say it’s not so clear that it will deliver any immediate shock to financial markets or to consumers.” - Igor Volsky
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