I for one welcome our idiot overlords
by David Atkins ("thereisnospoon")
I'm not talking about Congress or the White House. I mean the ratings agencies. Much to the delight of right-wingers everywhere, S&P has released a report demanding $4 trillion in cuts to government spending, or else the hostage gets it else they'll downgrade the nation's credit rating.
We expect the debt trajectory to continue increasing in the medium term if a medium-term fiscal consolidation plan of $4 trillion is not agreed upon. If Congress and the Administration reach an agreement of about $4 trillion, and if we to conclude that such an agreement would be enacted and maintained throughout the decade, we could, other things unchanged, affirm the 'AAA' long-term rating and A-1+ short-term ratings on the U.S.
As Digby rightly points out, having the nation's credit downgraded despite raising the ceiling on time was never one of the issues before, and would have questionable impact on the nation's ability to sell treasuries regardless.
But beyond that, there are two ways of looking at this move by S&P. One is that they're putting the screws on the United States on behalf of their Wall St. pals in a conspiratorial extortion scheme. That is certainly an easy conclusion to draw, until you realize that they're also demanding an end to the Bush tax cuts for the wealthy, a point emphasized by Fred Bauer over at David Frum's place:
However, digging into the S&P report reveals some details that might be more problematic for many seeming “deficit hawks.” Though this report does suggest that $4 trillion in cuts/increased revenue over the next ten years would be enough to keep an AAA rating, it also says that its baseline for savings assumes the expiration of the Bush tax cuts in 2012. Will many of these “deficit hawks” abandon those tax cuts in order to appease S&P and keep an AAA rating?
So let's get the S&P position straight: unless Congress and the White House enact a whopping $4 trillion dollars in spending cuts and repeal the Bush tax cuts, they're going to downgrade our credit rating.
Ultra-wealthy Wall St. bankers definitively do not want the Bush tax cuts to expire. So collusion and extortion on behalf of the likes of Goldman Sachs seem to be excluded as a motive. Which leaves the other way of looking at it: the "analysts" at S&P are just plain stupid.
In what political universe are these people living that they think both cutting spending by $4 trillion and killing the Bush tax cuts can actually happen given today's political climate? It's insane. Even Democrats are too afraid of wealthy donors and anti-tax attack ads to actually let the Bush tax cuts expire--to say nothing of Republicans--but no way in hell do even the most morally compromised Democrats go along with $4 trillion in spending cuts. Neither of those has a real prayer of happening, much less both.
Bauer lists several other more subtle reasons that S&P is out to lunch on their analysis and prognostication, and Kevin Drum points out that there's no real reason that the market should be getting nervous about buying treasuries, anyway. But we don't even need to go there. These people are idiots. They got so burned by their total failure to rate mortgage-backed securities and credit default swaps as the dog vomit they were, that they're desperate to overcorrect by downgrading other bonds wherever they can. As they say, never chalk up to malevolence what can best be explained by incompetence.
Reading stuff like this brings to mind the points made by Matt Taibbi and Michael Lewis that the ratings agencies are basically chock full of lesser lights who couldn't make it actually playing with the big boys on Wall St. And yet they seem to have the duly elected government of the world's largest economy dangling by a string.
We're in for a long, long ride.