Saturday, July 23, 2011

Credit Rating

[In] under a year, Standard Poor’s has moved us from a three-to-five-year timeframe for a plan to 90 days. The question is, “why?”

This morning, I spoke with David Beers, director of Standard Poor’s sovereign-debt division. He didn’t think there was much to explain. “We live in a dynamic world,” Beers said. “The idea that we or anybody else who does analysis around U.S. public finances would have a fixed and unvarying view over time is simply naive.”

Agreed on the dynamic-world thing, of course. But what was it, precisely, that changed S&P’s view?

In Beers’ telling, it was primarily politics.

  WaPo

Which has become perhaps the most absurd thing about America, with the exception of wearing your pants with the waistband below your ass.

“What we’re saying now,” explains Beers, “is we question whether despite all the discussions and intense negotiations, if they can’t reach this agreement, will they be able to reach it after the election?”

Well, that’s assuming you believe “the election” will result in the Democrats still in the oval office. Oh, pardon me. Standard & Poor probably already knows the outcome of “the election,” don’t they?

As they put it in their most recent research update, “we believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years. We view an inability to timely agree and credibly implement medium-term fiscal consolidation policy as inconsistent with a ‘AAA’ sovereign rating.”

I believe they could say inconsistent with running a country and leave it at that.

Beers repeatedly emphasized that he wasn’t just looking for a number. He was looking for something “credible.” And credible, in his view, was something that both parties had embraced. After all, he argued, deficit-reduction plans have to be continuously implemented over a decade or more, and if there’s not “buy-in from both parties,” there’s no reason to believe that the plan will survive the inevitable changes in political control.

You might ask whether all this matters. S&P got the financial crisis almost entirely wrong — in fact, their analytical errors, alongside those of other agencies, substantially contributed to it — so why should we listen to them now?

But the question isn’t whether S&P should be listened to. It’s whether the market will listen to them.

Well, not if they got the financial crisis almost entirely wrong, eh?

At any rate, it doesn’t matter. There totally will be a “buy-in” from both parties, and it will totally favor corporate wealth, perpetually sky-high “defense” expenditures, and all on the backs of those who can least afford it. So that’s okay. Give us our AAA credit rating and go back to work.

....but hey, do what you want....you will anyway.

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