They told us so many investments were safe that were anything but. Now they tell us the US economy is worth less this week than before the recent deal to cut spending. Bill Miller notes how they are wrong and reckless again:
There was no need for S&P to rush to judgment just days after a bruising political battle had secured a bipartisan agreement to raise the debt ceiling through the next election cycle and which initiated a process to begin to cut spending and address the nation’s long-term fiscal imbalances. Neither Fitch nor Moody’s saw any need to do so, indeed, Moody’s indicated that it saw the agreement as “a turning point in fiscal policy” and declared that a downgrade would be “premature”. The market says S&P is wrong. The US enjoys among the lowest interest rates in its history coincident with the highest deficits and a daunting long-term fiscal outlook. Yet when investors are looking for safe assets, they buy Treasuries. The US is borrowing at lower long-term rates than it did when it was running a budget surplus. In the 2008 crisis, investors flocked to Treasuries and the dollar because they sought the safest, most creditworthy assets in the world. S&P seems not to have noticed this.
But Miller misses something important, I think.
Maybe the timing was off, but the downgrade makes sense to me. The justification is that the GOP, by ruling any revenue increase out of consideration, has made the real Grand Bargain we need much, much harder to reach. That matters. At the same time, they have played their most reckless card – the debt ceiling – and cannot do so again until after the next election. I’d also say that the crisis has had one good effect. It has illustrated that the Grand Bargain needs to come sooner rather than later. Over to you, Super-Committee.
The Dish 