How serious was S&P's "warning"? Not very: by Paul Krugman

[sasha031]

Poor Standards
I continue to be amazed by how much attention and credence is being given to the S&P “warning” on US debt. I mean, this was supposedly a warning about the safety of US debt. So if it mattered, we should have seen a jump in interest rates on April 18, the day of the announcement. Um, here’s the 10-year bond rate:


People, this was a non-event.
http://krugman.blogs.nytimes.com/2011/04/19/poor-standards/?smid=tw-NytimesKrugman&seid=auto

[DCBob]

1. It will get very serious if we dont do anything about our deficit and we do lose our AAA rating.

Paul continues to be in denial on our deficit/debt problem.

[TacticalPeek]

2. At least one economist burst out laughing on hearing about the S&P announcement.

From Dave Lindorff:

At least one economist burst out laughing on hearing about the S&P announcement. “They did what?” exclaimed James Galbraith, a professor of economics at the University of Texas in Austin, who formerly served as executive director of the Congressional Joint Economic Committee. “This is remarkable! It certainly will confirm the suspicions of those who have questioned S&P’s competence after its performance on the mortgage debacle.”


Dean Baker:
. . .
It is also worth noting that S&P has a horrible track record for judging credit worthiness. It rated hundreds of billions of dollars of subprime backed securities as investment grade. It also gave Lehman, Bear Stearns, and Enron top ratings right up until their collapse. Furthermore, no one was publicly fired for these extraordinary failures. Investors are aware that S&P’s judgement does not mean very much.

http://www.nakedcapitalism.com/2011/04/sp-negative-watch-smackdown-wrap.html

The Rs are running a shell game and the S&P are acting as their shill.

Don't be suckered.

[DCBob]

3. I dont trust S&P.. the ratings agenies are as much to blame for the financial crisis as anybody.

However the deficit/debt problem is real. We cannot ignore it. If we do it will eventually bring this country down.

[hulka38]

4. S&P is weighing in

that both sides must act responsibly and make a deal - iow, the Dems must agree to significant "entitlement" cuts to save the American economy. S&Ps credibility is shit.

[Jim Lane]

14. What we do about our deficit is to get people back to work and paying taxes.

We run a short-term deficit to get the economy growing again. We can't get that growth without a public deficit because the private sector can't provide the necessary demand.

In addition, of course, we take a few other common-sense steps -- well, they're common sense to everyone except right-wing ideologues. We address our structural shortfall in revenue by repealing the Bush tax cuts. We address one major component of rising federal spending by acting on health-care costs -- preferably with single payer, but at least Obama's health-insurance reform bill takes some steps toward reducing overall costs.

Beyond that, a step that admittedly isn't common sense, because there's an ideological component, is that we end our imperialistic wars. Democratic ideology is that spending on things like schools in the U.S. is better than spending on trying to control Afghanistan and Iraq. We could cut our bloated military establishment and make Ryan's cuts look like chicken feed.

[DCBob]

17. yeah. i mostly agree with that but it needs to be combination of cuts and tax increases and growth..

its a tough balancing act that I hope our leadership can figure out or we will be in some serious trouble in the future.

[backscatter712]

5. I suspect they were sucking the Kochs off... n/t

[BIGFOOTSDADDY333]

6. after giving those cdo's their aaa rating they shouldnt exist...stop

[golfguru]

7. 140 point haircut for DJI was not serious?

Has Krugman been watching the markets? When news came out of the
debt downgrade by S&P, markets tanked immediately worldwide.

[hulka38]

8. The market's nervous twitches

are just symptoms that it is a neurotic mess.

[Sherman A1]

12. Revoke their business license and/or

corporate charter. They did so well on everything else they are obviously not really in business.

[TacticalPeek]

9. "then suddenly wanted to buy dollars and also were willing to hold Treasury bonds at a lower yield"?

Dean Baker:

Reporters should be given 40 lashes when they tell us that some specific event explains a movement in stock prices. The reality is that the reporter does not know what caused a movement in stock prices, all they can do is speculate….

It is a bit hard to believe that investors sold off U.S. stocks because they became fearful in the wake of the S&P report, but then suddenly wanted to buy dollars and also were willing to hold Treasury bonds at a lower yield. Unless we think that investors in stock are a totally distinct group from the people who trade currencies and invest in bonds, the NYT’s explanation of the plunge in stock prices makes no sense.

A more plausible explanation is that bad earnings reports, most importantly from Bank of America on Friday and from Citigroup on Monday, made investors more pessimistic about the near-term prospect for profits.

----

From Marshall Auerback:

In November 1998, the day after the Japanese government announced a large-scale fiscal stimulus to its ailing economy, Moody’s Investors Service began the first of a series of downgradings of the Japanese government’s yen-denominated bonds, by taking the Aaa (triple A) rating away. The next major Moody’s downgrade occurred on September 8, 2000. Then, in December 2001, Moody’s further downgraded the Japan government’s yen-denominated bond rating to Aa3 from Aa2. On May 31, 2002, Moody’s Investors Service cut Japan’s long-term credit rating by a further two grades to A2, or below that given to Botswana, Chile and Hungary. Well, over a decade later and this has had no discernable impact on Japan’s ability to borrow at the rate the Bank of Japan sets, NOT the ratings agencies or the “bond market vigilantes”.


http://www.nakedcapitalism.com/2011/04/sp-negative-watch-smackdown-wrap.html

It's fungible.

[Sherman A1]

11. and it went back up the next day

S&P is just a tool...

[golfguru]

13. They call it a dead cat bounce

when the bounce is half of the drop from previous day.

[Sherman A1]

16. And it will go up or down based on "other"

news, earnings reports, job numbers, quarterlies or whatever.

Tis the nature of things.

[paulk]

18. whooo! 140 points!

Call out the National Guard!

[ProSense]

10. It's not just Krugman

Is Anyone Listening to the S.&P.?

Conservatives are trying to use the S&P rating to hype their version of deficit hysteria.

[Dawson Leery]

15. The ratings companies were complicit in allowing

junk debt to be labeled as AAA, Aa Best, A+, etc....

S & P can go to hell.

The long term debt problem can be solved by raising taxes on the top 1% and cutting defense spending. Also, a medicare for all option would bring down healthcare costs.