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I want to add a little to my previous post on S&P's implicit threat to blackmail the federal government into adopting a specific piece of legislation (i.e., $4 trillion spending reduction over the next 10 years).Paul Krugman seems a little skeptical that an S&P downgrade of US debt would be huge deal because, basically, bond traders already know that ratings agencies don't know what they're doing:
The point is that when S&P or Moody’s speaks, that’s not the voice of “the market”. It’s just some guys with an agenda, and a very poor track record. And we have no idea how much effect their actions will have.I don't doubt that. But to me the important point is not so much what financial traders do with an S&P intervention of this nature, but what the media and politicians will do with it. A ratings agency downgrade of US debt will be presented as something like scientific evidence that we need to finish drowning the federal government in the bathtub now! now! now! It's hard for me to see how our disinformation economy could get any worse---how it could further accelerate America's decline. But my intuition tells me we haven't reached terminal velocity yet. We'll be even closer when the press, the Congress, and the President anoint Wall Street as the new fourth branch of government.
An intermittent Saturday matinee known as The Debt Ceiling Serial Calamity. And yet, meanwhile, back at the Main Street Ranch...
ReplyDeleteClearly it's pre-positioning and laying dubious foundations for later exagerated and one-sided electioneering claims.
If, as may well happen, China and hence the world tips into deflation this could in retrospect be viewed as fiddling with "Lucifer" sticks in a bone dry post-Nero Rome (i.e., our potentially spending cut initiated double dip recession adding kindling to the conflagration).
And for bonus fear points: If in further extremus the world more or less as a whole enters a liquidity trap (one of RCs recent interests - and as studied by one Irving Fisher during the 1930's version) most of humanity will economically be stuck in financial amber here in what's being called the Anthropocene (a geologic age characterized by manmade influences).
Dr. Doom With a Lime Twist