Standard & Poor did not err: The political morass has become an economic liability


http://www.bloomberg.com/news/2011-08-08/s-p-seen-surrendering-to-tea-party-at-expense-of-u-s-taxpayer.html

 

This is a map published by CNN. Notice that, according to it, Alaska is no longer part of the U.S.

I have always said that we Americans need to learn more geography.

There are numerous critics out to lynch Standard & Poor at this point, led by Warren Buffet who, by one account, invested heavily in the stock market just before the drop last week, his holdings then declined $1.6 billion and could decline even more after the downgrade. I believe that what should be under scrutiny is the decision by Fitch and Moody to keep the AAA rating for the U.S. – in view of the inadequacy of the debt deal to reduce the deficit.

The debt deal will cut 21 billion out of a 3.7 trillion budget in 2012. It is a bad joke.

S&P’s decision was at odds with the other two main ratings companies, Moody’s Investors Service and Fitch Ratings. Both affirmed their AAA grades on U.S. debt on Aug. 2.

The new S&P rating is the second-highest and puts the U.S. on the same level as Belgium and New Zealand, and above Japan and China. Under S&P’s definitions, debt rated AA is barely different from AAA securities and shows that a borrower’s ability to “meet its financial commitment on the obligation is very strong.” So what is the fuss about?

But if these agencies are truly impartial, why the U.S., with all this mess, remains above China with its huge cash reserves is a mystery to me. I am not pro-China: I have a conspicuous sign in the rear bumper of my car supporting Tibet and urging people to boycott Chinese goods. But I want to believe that the ratings of the big 3 are not influenced by Washington.

It should be noted that the U.S. congress is in the process of reviewing new regulation of the credit rating industry. I do suspect that pressure has been exercised on the three to maintain the AAA rating of the United States but S&P stood its ground.

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