Full Faith and Credit (and which S&P tea partier is whispering in Paul Ryan's ear?)
by digby
When it happened, I said that we should wait and see what the markets do before making any assumptions about whether the S&P was credible in their latest "analysis." Sure enough, S&P downgrades US credit on Friday and on Monday morning investors rush to flee equities and buy US Treasuries -- bonds which are backed by the full faith and credit of the US Government. Somebody should have a pie thrown in his face.
Why are stocks tanking? Well probably, since the S&P has declared that the US must rev up its austerity measures or else (and the American political system seems to be listening to it as if its the Oracle of Delphi) people with money figure that on top of the turmoil in Europe, American insanity means we'll soon be entering another recession. Huzzah.
Here's Dr Doom Roubini:
The misguided decision by Standard & Poor’s to downgrade the US at a time of such severe market turmoil and economic weakness only increases the chances of a double dip and even larger fiscal deficits. Paradoxically, however, US Treasuries will probably remain the world’s least ugly safe asset: risk aversion, equity declines and a looming slump could even see treasury yields fall rather than rise.
Yup. Here's The Wall Street Journal:
U.S. Debt Remains 'Gold Standard'
For Treasury-market investors, the next few weeks will settle one of the biggest questions of recent weeks for financial markets: Will those bonds rise or fall if the U.S. is downgraded?
While it's still up for debate, a growing school of thought is that Treasurys probably won't be hurt too much by Standard & Poor's decision. Indications from big holders of Treasury debt -- Japan and China -- suggest that those countries won't be dumping their holdings. Analysts also say that U.S. government bonds are likely to remain a haven for investors during the current turmoil.
We're back in bizarroworld kids. All over TV this morning, none of the usual suspects seem to see anything even slightly ironic in the fact that the S&P downgrade results in a rush to buy these supposedly "unworthy" bonds.
It's terribly sad to also recognize that with such cheap borrowing costs and lots of interested lenders, the US could easily finance a major stimulus and build the country's infrastructure back up, hire some teachers, help the states out of their fiscal binds. But no. We're going to pretend we're a household and act as though government borrowing is a personal character flaw and force years of suffering on undeserving people for no good reason. I wish I could think of another reason for this other than folly, greed and opportunism.
Matt Stoller has a good piece up today about Standard and Poor's that everyone should read. It turns out they are quite the political actor. Which makes this comment by Paul Ryan yesterday all the more in need of follow up by the mainstream press:
We passed a budget, which according to someone with S&P yesterday, would have prevented the downgrading from happening in the first place."
It seems like there's a story there to me. Who's the big S&P tea partier who's pushing Paul Ryan's budget? Inquiring minds want to know.
As @dsquareddigest tweeted over the week-end:
btw, "shooting the messenger" is the correct thing to do if the messenger is an incompetent asshole making up spurious news. #standardnpoors
Update: This from Dday is instructive too.
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