While the Markets Swoon ...
By JOE NOCERA
Published: August 8, 2011
It’s hard not to feel a certain contempt for Standard & Poor’s in the wake of its downgrade of American debt. Its sole job as a credit-rating agency is to gauge the creditworthiness of bonds, yet like its competitors, Moody’s and Fitch, it has consistently fallen short. It downgraded Enron days before the company went bankrupt. Its willingness to slap a AAA rating on securitized subprime junk was the foundation upon which the entire financial crisis was built. And now, to show that it’s got some spine, S.& P. decided to downgrade the United States? From a purely economic standpoint, the likelihood of a U.S. default is nil. As my friend Daniel Alpert, a founding managing partner of Westwood Capital, put it: “The size of the U.S. economy, the wealth of its inhabitants and the assets of the sovereign entity itself are unquestionably more than adequate to repay, with interest, all of the $14 trillion or so of the nation’s debt.” He added, “Anyone with a rudimentary understanding of finance and economics can figure that out.” On Monday, with the market collapsing, where did investors rush to put their money? In the one security they still considered safe: U.S. Treasuries.
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On the other hand, I also found myself nodding in agreement as I read S.& P.’s analysis. The downgrade, after all, was less about economics than politics. S.& P. was frightened by the same thing that has scared most Americans: the spectacle of an unyielding minority of Tea Party Republicans ready to push the country into default rather than accept even modest tax increases to help bring down the deficit. “The effectiveness, stability, and predictability of American policy-making and political institutions have weakened at a time of ongoing fiscal and economic challenges,” wrote S.& P. in its downgrade report. Who can disagree?
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Has any president in American history left behind as much lasting damage as George W. Bush? In addition to two unfinished wars, he also set us on the path to our current financial mess. The Bush tax cuts, which turned a surplus into a growing deficit, have been disastrous. As James Fallows pointed out in a prescient 2005 article in The Atlantic predicting a meltdown, they reduced tax revenue “to its lowest level as a share of the economy in the modern era.” (In its downgrade report, S.& P. suggested that it did not believe that Congress would let the cuts expire at the end of 2012, as they’re supposed to.) Then, in 2003, Bush pushed through prescription drug coverage for Medicare recipients. David M. Walker, then the comptroller general, described 2003 as “the most reckless fiscal year in the history of the Republic,” adding some $13 trillion in future entitlement costs.
http://www.nytimes.com/2011/08/09/opinion/nocera-while-the-markets-swoon.html?_r=1
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