海角大神

Good one, S&P!

S&P downgraded its outlook on the US, but the prediction is nothing but a joke

You want a good laugh, Fellow Reckoner? We鈥檝e got a great joke for you, courtesy of Standard & Poor鈥檚 Ratings Services Inc. But first, the news鈥�

We had other notes prepared for you this morning, but then this headline crept across our screen:

鈥淪&P Moves US Outlook to Negative鈥�

The Wall Street Journal provides some details鈥�

鈥淪tandard & Poor鈥檚 Ratings Services Inc. cut its outlook on the US to negative, increasing the likelihood of a potential downgrade from its triple-A rating, as the path from large budget deficits and rising government debt remains unclear.鈥�

Stock markets, which apparently still hold faith in the ratings agencies鈥� foresight (despite the agencies鈥� best efforts to avoid deserving it), promptly reversed course from their ever-and-always upward trend after the news. The Dow, for its part, fell a couple hundred points at the open. The S&P 500 and the NASDAQ were last seen bleeding from similar sized wounds.

Could it be the impending breech of that looming debt ceiling that has the ratings gurus spooked?

鈥淕iven the fact the US government is 28 days away from bumping up against the $14.3 trillion debt ceiling,鈥� wrote Addison in today鈥檚 edition of The 5, 鈥渨e suspect the question of Uncle Sam鈥檚 ability, let alone political will, to pay is too obvious to ignore.鈥�

Even the most 鈥渁ggressive鈥� cuts to the budget would still require heretofore-unimaginable levels of new borrowing and/or money printing. Continues Sr. Wiggin:

鈥淭he current White House budget plan requires lifting the ceiling to $20.8 trillion by 2016. Wisconsin Rep. Paul Ryan鈥檚 plan, passed by the House on Friday, would require a ceiling of $19.5 trillion, according to figures compiled by Bloomberg.鈥�

Of course, even Rep. Ryan鈥檚 plan is likely to fall flat in the Democrat-controlled Senate. But aside from all that, the debt ceiling story is hardly anything new, as , penned way back in January, shows.

Whatever their reason for the outlook adjustment, S&P is still, for the moment, committed to maintaining the US鈥檚 AAA rating. Of course, readers will do well to remember the appalling track record of the three, government-anointed agencies before and during the last (and, in many peoples鈥� opinions, ongoing) financial crisis. All of the so-called 鈥淏ig Three鈥� 鈥� S&P, Moody鈥檚 and Fitch 鈥� were trotting out AAA ratings for the most toxic MBSs on Wall Street right up until their collapse brought us, in one frantic politician鈥檚 words, 鈥渢o the edge of the abyss,鈥� back in 2007-08.

What鈥檚 the point of having a fire alarm if it only goes off when your house is burned to the ground? We have no idea. To us, putting reason where there is none seems as futile and misguided a task as slapping AAA ratings on the backs of those who don鈥檛 truly deserve them. Something鈥檚 gonna come unstuck.

But just for entertainment value, let鈥檚 take a look at what S&P had to say for themselves regarding their defense of the US鈥檚 current AAA status. (And herein lies today鈥檚 promised joke鈥�)

From S&P鈥檚 official statement:

鈥淥ur ratings on the US rest on its high-income, highly diversified, and flexible economy, backed by a strong track record of prudent and credible monetary policy. The ratings also reflect our view of the unique advantages stemming from the dollar鈥檚 preeminent place among world currencies.鈥�

鈥溾��prudent and credible monetary policy鈥︹��? That鈥檚 what we鈥檙e calling unabashed, bald-faced money-printing these days?

鈥溾��the dollar鈥檚 preeminent place among world currencies鈥︹��? That鈥檚 what we鈥檙e calling the temporary though fast-eroding kindness-of-strangers-borrowing-scheme?

Oh stop it, S&P鈥�our sides are splitting!

The agency, barely clinging to any demonstrable comprehension of reality, goes on to note:

鈥淎lthough we believe these strengths currently outweigh what we consider to be the US鈥檚 meaningful economic and fiscal risks and large external debtor position, we now believe that they might not fully offset the credit risks over the next two years at the 鈥楢AA鈥� level.鈥�

Tough talk, indeed.

Fellow Reckoner, at the end of the day, it鈥檚 probably worth recognizing these announcements for what they really are: Johnny-come-lately, sideshow distractions. Usually, by the time the ratings agencies have arrived on the crime scene, the perpetrator is already over the border, enjoying a few daiquiris under a far away palm tree. If their analysis is to be taken seriously at all, it is surely more useful in the post-mortem stage than in any kind of predictive capacity.

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