Geithner blasts S&P rating
Geithner blasts S&P rating
Quote:
WASHINGTON – The credit rating agency Standard & Poor’s showed “terrible judgment” in lowering the U.S. government’s credit rating, Treasury Secretary Timothy Geithner said Sunday.
“They’ve handled themselves very poorly. And they’ve shown a stunning lack of knowledge about the basic U.S. fiscal budget math,” Geithner said in his first public comments about the credit rating decision.
S&P slammed after U.S. downgrade
S&P slammed after U.S. downgrade
Days after Standard & Poor's downgraded the United States' credit rating, a powerful backlash has set in against the move. Washington leaders of both parties, as well as investors, have seemed to shrug off the ratings agency's verdict--and some analysts have even raised questions about S&P's basic competence and credibility.
On Friday, S&P lowered its rating for long-term debt issued by the U.S. Treasury by one notch, from Triple A--its highest rating--to AA+. Explaining the move, it said Washington hadn't done enough to reduce the long-term deficit, and expressed doubt about the ability of political leaders to work together to solve the problem.
After the recent crisis over raising the debt ceiling, those concerns--especially the latter--appear valid. But by lowering the U.S. rating, S&P is saying that it now sees an increased chance that the Treasury won't repay its debts in the future--even though Congress did ultimately vote to raise the ceiling, avoiding a default.
And that's where many observers differ with S&P. Take a look at the financial markets: It's true that, so far this week, Wall Street and foreign markets have nosedived. But that descent began last week, before the downgrade. More important, far from running away from U.S. Treasury bonds, investors are flocking to them, suggesting that they see the chances of a default as slimmer than ever.
"The downgrade of U.S. sovereign credit by S&P on Friday reflects facts that have been well known to the market for some time," said Blackrock, the world's largest asset management firm, in a statement Monday. "So, it does not imply a fundamental increase in risk, and we don't believe that investors should change their behavior based solely on the downgrade."
President Obama appears to agree. "No matter what some agency may say, we've always been and always will be a AAA country," he declared Monday.
Former Federal Reserve chair Alan Greenspan, too, said Sunday on NBC's "Meet the Press" that he sees no risk in investing in U.S. Treasuries--though the judgment of the economic planner known as "the maestro" hasn't always proved infallible.
Many economists argue, essentially, that the United States isn't going to fail to pay its debts. "The debt is issued in dollars. That means it is payable in dollars. The U.S. government prints dollars," wrote Dean Baker of the liberal Center for Economic and Policy Research Saturday. "This means that if for some reason the government was unable to tax or borrow to raise the money to pay its debt then it could always print it. This may carry a risk of inflation, but S&P is not in the business of making inflation predictions, they are in the business of assessing the likelihood that debt will be repaid."
S&P is the world's largest ratings agency. In most cases, its business model is based on charging the issuers of debt--private corporations, local and state governments, for instance--in exchange for a rating. The issuer then uses a positive rating to give investors confidence in the solidity of the investment. But S&P also rates the debt of 126 countries. And, like many of the countries whose debt is rated by S&P, the United States neither requests nor pays for its rating.
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