rabble blogs are the personal pages of some of Canada's most insightful progressive activists and commentators. All opinions belong to the writer; however, writers are expected to adhere to our guidelines. We welcome new bloggers -- contact us for details.

Progressive Economics Forum

Progressive Economics Forum's picture
The Progressive Economics Forum aims to promote the development of a progressive economics community in Canada. The PEF brings together over 200 progressive economists, working in universities, the labour movement and activist research organizations. Visit our website here.

S&P pantsed by U.S. Treasury

| August 8, 2011

I have been reluctant to condemn the credit-rating agencies for sovereign downgrades because it seemed like shooting the messenger. As the bond markets have noticed, a few European countries have serious fiscal problems. Blaming the raters for also noticing did not seem like an effective response.

However, I think that Standard and Poor's decision -- alone among the major raters -- to downgrade the U.S. has severely discredited the agency (bad pun intended). The U.S. Treasury has posted a stinging note about a calculation mistake underlying this decision. Interestingly, the magnitude of S&P's error was equal to the amount by which it judged the U.S. deficit-reduction plan to fall short: $2 trillion over ten years.

Paul Krugman emphasizes the amateurish nature of S&P's mistake. But what strikes me is that, when Treasury officials pointed out the error, the agency just changed its main rationale for the downgrade and immediately proceeded with the public announcement. It seems that S&P had made up its mind and did not want to be confused by the facts.

A few commentators have tried to defend S&P by claiming that its initial assumptions were as legitimate as, or more realistic than, the Treasury's assumptions. I am no expert on American budgeting, but I do not think that is the issue.

My reading of the Treasury's post is that S&P costed the deficit deal based on one assumed baseline and then subtracted the result from a different baseline. Doing so would be wrong, whichever baseline is right.

Update (August 7): Andy Watt from the European Trade Union Institute has more.

Update (August 8): Krugman has more.

This article was first posted on The Progressive Economics Forum.



I find myself agreeing with M. Spector.  The degradation of the US rating is in keeping with the huge debt that the US carries and the relatively certain knowledge that it will never be paid off.  Long overdue in fact.  It should have done ten years ago.  It might have saved a couple of wars and millions of innocent lives,... on both sides.

The Western/gobal economy based on the US Empire and it's military currency is coming to an end.  We are witnessing the downfall of the American Empire due to a top-heavy economy.  The rich have so much money and power there is little left for them to buy.  The poor have no money and cannot buy anything, despite their desperate needs.  When nobody buys anything, commerce grinds to a halt and the rich loose their profit margins.  They get angry and blame it on the poor and scream for austerity measures,... not for themselves of course, but for the poor.  This only aggravates the situation and it gets worse,  The rich get bailed out and when that money runs out, the problem comes back again with bigger numbers.

War is an attractive option for stimulating the economy and large oil companies have used the U.S. army to steal trillions of dollars of oil from Arab countries.  The chickens are coming home to roost and with less money for military ventures the options are limited for Washington.  It's not Obama's fault.  This has been a long time coming.

No conventional economic solutions are going to save the Western economies!!!

Only a drastic reconfiguration of the nature of money will help at this time.  We need to switch from scarce money to plentiful money and that takes re-education and training in cooperative economics instead of competitive economics.  Until now we've only known competitive economics and it has brought us to this end just the same as in ancient Roman times and on and on.  This is the process that brings down empires.  New empires sprang up based on new stores of natural resources.  It will take time and training to understand the problem and the solution.  So we should start soon.  Not many people know how to do it.

I agree S&P botched it. I think they downgraded it because of the extreme right has lowered the expectations that the politicians will act in a bi-partisian fashion when it comes to financial stability, maintaining the USD as 'bedrock' and servicing the soverign debt. Moodys, Fitch hasn't yet.

Less confident Congress will end Bush era tax cuts. (maintain the status quo in other words) So S&P feels the need to increase levels to pre-bush would be a start.

They may fail arithmetic, but I think the got the overall picture nailed. I would have to agrue that tax love it hate it, buys the houshold necessities. So if you're trying to pay the necessary stuff(you've cut out discresionary already), and it ain't enough, you get a second job. That's taxing to the person that actually does get a second job, in that senario. To the nation that equivalent of a second job is to raise taxes.


So funny to see social democrats leaping to the defence of the U.S. Treasury!

The U.S. economy is built on quicksand and is long overdue for a collapse. The fact that the U.S. still gets a AA+ rating is an expression of gross overconfidence in the future of American capitalism!

Login or register to post comments